[Federal Register Volume 87, Number 163 (Wednesday, August 24, 2022)]
[Notices]
[Pages 52118-52180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17995]



[[Page 52117]]

Vol. 87

Wednesday,

No. 163

August 24, 2022

Part II





Department of Labor





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Employee Benefits Security Administration





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Proposed Exemptions From Certain Prohibited Transaction Restrictions; 
Notice

  Federal Register / Vol. 87 , No. 163 / Wednesday, August 24, 2022 / 
Notices  

[[Page 52118]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). If granted, these proposed 
exemptions allow designated parties to engage in transactions that 
would otherwise be prohibited provided the conditions stated there in 
are met. This notice includes the following proposed exemptions: Blue 
Cross and Blue Shield Association, D-12077; Blue Cross and Blue Shield 
of Kansas City, D-12039; Blue Cross and Blue Shield of Arizona, Inc., 
D-12035; Blue Cross and Blue Shield of Vermont, D-12055; Hawaii Medical 
Service Association, D-12038; BCS Financial Corporation, D-12036; Blue 
Cross and Blue Shield of Mississippi, D-12040; Blue Cross and Blue 
Shield of Nebraska, Inc., D-12041; BlueCross BlueShield of Tennessee, 
Inc., D-12045; Triple-S Management Corporation, D-12042; National 
Account Service Company LLC, D-12049.

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, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: All written comments and requests for a hearing should be 
sent to the Employee Benefits Security Administration (EBSA), Office of 
Exemption Determinations, U.S. Department of Labor, Attention: 
Application No. __, stated in each Notice of Proposed Exemption via 
email to [email protected] or online through http://www.regulations.gov by 
the end of the scheduled comment period. Any such comments or requests 
should be sent by the end of the scheduled comment period. The 
applications for exemption and the comments received will be available 
for public inspection in the Public Disclosure Room of the Employee 
Benefits Security Administration, U.S. Department of Labor, Room N-
1515, 200 Constitution Avenue NW, Washington, DC 20210. See 
SUPPLEMENTARY INFORMATION below for additional information regarding 
comments.

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 U.S. Mail or hand delivery/courier, 
persons are encouraged to submit all comments electronically and not to 
follow with paper copies. Comments should state the nature of the 
person's interest in the proposed exemption and the manner in which the 
person would be adversely affected by the exemption, if granted. A 
request for a hearing can be requested by any interested person who may 
be adversely affected by an exemption. A request for a hearing must 
state: (1) The name, address, telephone number, and email address of 
the person making the request; (2) the nature of the person's interest 
in the exemption and the manner in which the person would be adversely 
affected by the exemption; and (3) a statement of the issues to be 
addressed and a general description of the evidence to be presented at 
the hearing. The Department will grant a request for a hearing made in 
accordance with the requirements above where a hearing is necessary to 
fully explore material factual issues identified by the person 
requesting the hearing. A notice of such hearing shall be published by 
the Department in the Federal Register. The Department may decline to 
hold a hearing where: (1) The request for the hearing does not meet the 
requirements above; (2) the only issues identified for exploration at 
the hearing are matters of law; or (3) the factual issues identified 
can be fully explored through the submission of evidence in written 
(including electronic) form.
    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 Social Security number or an unlisted phone number) 
or confidential business information that you do not want publicly 
disclosed. However, if EBSA cannot read your comment due to technical 
difficulties and cannot contact you for clarification, EBSA might not 
be able to consider your comment. Additionally, the http://www.regulations.gov website is an ``anonymous access'' system, which 
means EBSA will not know your identity or contact information unless 
you provide it in the body of your comment. If you send an email 
directly to EBSA without going through http://www.regulations.gov, your 
email address will be automatically captured and included as part of 
the comment that is placed in the public record and made available on 
the internet.

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 Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    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, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
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    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 
10, 1990).
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    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.

[[Page 52119]]

Blue Cross and Blue Shield Association

Located in Chicago, Illinois

[Application No. D-12077]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of Blue Cross and Blue Shield Association 
(the Plan) in the first quarter of 2020.\2\
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    \2\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Blue 
Cross and Blue Shield Association; and/or (4) any person or entity 
related to a person or entity described in (1)-(3).
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    This proposed exemption would permit the Plan sponsor, Blue Cross 
and Blue Shield Association (BCBSA), to make a series of payments to 
the Plan, including: (1) the past payment of $69,000,000, made on March 
12, 2021; and (2) the past payment of $13,500,000, made on March 28, 
2022 (the Restorative Payments). If the Plan receives litigation 
proceeds from the Claims, the Plan will transfer the lesser of the 
ligation proceeds amount or the Restorative Payments amount, plus 
reasonable attorney fees to BCBSA.

Summary of Facts and Representations 3
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    \3\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12077 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
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    1. BCBSA is a national association of 35 independent, community-
based and locally operated Blue Cross Blue Shield companies. BCBSA owns 
and manages the Blue Cross and Blue Shield trademarks and names in more 
than 170 countries around the world and also grants licenses to 
independent companies to use the trademarks and names in exclusive 
geographic areas.
    2. The Plan is a defined benefit pension plan that covers eligible 
employees or participants of BCBSA who, as of December 31, 2006, had 
completed one year of service, reached the age of 21, and remained 
continuously employed. The Plan was amended effective January 1, 2007 
to close participation to new entrants as of December 31, 2006. As of 
August 31, 2020, the Plan held $104,789.042 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
Applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $224,525,108. At the time, this represented 77.66% of total Plan 
assets.\4\
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    \4\ By proposing this exemption, the Department does not, in any 
way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 77.66% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
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    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in

[[Page 52120]]

market volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019, the market value for the Plan's assets totaled 
$289,100,229. As of March 31, 2020, the market value of total assets 
for the Plan decreased to $97,181,664. The Applicant represents that 
the Plan's total losses from the Allianz Structured Alpha Strategy was 
$183,368,144, which caused the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBSA took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on November 24, 
2020, BCBSA and the Plan entered into a Contribution and Assignment 
Agreement (the Contribution and Assignment Agreement).
    11. Pursuant to the Contribution and Assignment Agreement, BCBSA 
agreed to make the Restorative Payments to the Plan consisting of: (a) 
a payment not to exceed $74,000,000 by September 30, 2021; (b) a 
payment not to exceed $20,000,000 by September 30, 2022; and (c) a 
payment not to exceed $31,000,000 by September 30, 2023. Thereafter, 
BCBSA made Restorative Payments to the Plan of $69,000,000 on March 12, 
2021, and $13,500,000 on March 28, 2022.
    12. On June 22, 2022, BCBSA and the Plan amended the Restorative 
Payments provision of the Contribution and Assignment Agreement to 
provide that BCBSA's Restorative Payments under the Agreement will 
consist only of the $69,000,000 payment made on March 12, 2021, and the 
$13,500,000 payment made on March 28, 2022.
    13. In exchange for the Restorative Payments, the Plan assigned to 
BCBSA its right to retain certain litigation and/or settlement proceeds 
recovered from the Claims (the Assigned Interests).\5\ Per the 
assignment, once the Allianz/Aon litigation is resolved and if the Plan 
receives litigation proceeds from the Claims, the Plan will transfer to 
BCBSA a repayment (the Repayment) that does not exceed the total 
Restorative Payments made by BCBSA, plus reasonable attorney fees paid 
by BCBSA on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBSA to 
unrelated third parties (the Attorney Fees). For the purposes of this 
exemption, Attorney Fees reimbursable to BCBSA do not include: (a) 
legal expenses paid by the Plan; and (b) legal expenses paid by BCBSA 
for representation of its own interests or the interests of any party 
other than the Plan. For purposes of determining the amount of Attorney 
Fees the Plan may reimburse to BCBSA under this exemption, the amount 
of reasonable attorney fees paid by BCBSA on behalf of the Plan in 
connection with the Claims must be reduced by the amount of legal fees 
received by BCBSA in connection with the Claims from any non-Plan party 
(for example, from a third party pursuant to a court award).
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    \5\ Under the Contribution and Assignment Agreement, if the Plan 
receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
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    14. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments ($82,500,000), minus the Attorney Fees. 
The Plan may ultimately receive more than the Restorative Payment 
amount required under the Contribution and Assignment Agreement. If the 
Plan receives litigation or settlement proceeds that exceed the amount 
of Restorative Payments that BCBSA has made to the Plan, the Plan's 
Repayment to BCBSA will be limited to the amount of Restorative 
Payments actually made by BCBSA, plus Attorney Fees. For example, if 
BCBSA reasonably incurred $100,000 in Attorney Fees and the Plan 
receives $120,000,000 in litigation proceeds, the Plan will make a 
Repayment to BCBSA totaling $82,600,000.
    15. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCBSA 
has made to the Plan, the Plan will transfer to BCBSA the lesser amount 
of litigation or settlement proceeds, plus Attorney Fees. For example, 
if BCBSA has reasonably incurred $100,000 in Attorney Fees and the Plan 
receives $50,000,000 in litigation proceeds, the Plan will make a 
Repayment to BCBSA totaling $50,100,000.
    16. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    17. BCBSA retained Gallagher Fiduciary Advisors, LLC (Gallagher or 
the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    18. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    19. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCBSA 
and any BCBSA affiliates. Gallagher further represents the total 
revenues it has received from the Plan and from parties in interest to 
the Plan in connection with its engagement as Independent Fiduciary 
represents

[[Page 52121]]

approximately 0.78% of Gallagher's total revenue.
    20. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    21. On November 23, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payments, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBSA only up to the Required 
Restorative Payment Amount already received, plus any reasonable legal 
expense paid to non-BCBSA-related parties that were incurred by, or 
allocated to, BCBSA as a result of the Claims.\6\ Thus, if the Plan's 
ultimate recovery amount from the Claims is less than the Required 
Restorative Payment Amount, plus related litigation expenses that were 
allocated to the Plan, BCBSA, not the Plan, will suffer the loss.
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    \6\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
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    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCBSA in exchange for the 
Assignment.

ERISA Analysis

    22. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCBSA in exchange for the Plan's transfer of litigation 
or settlement proceeds to BCBSA would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. BCBSA, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to BCBSA with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (BCBSA) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBSA in connection 
with the Repayment would constitute an impermissible transfer of Plan 
assets to a party-in-interest in violation of ERISA Section 
406(a)(1)(D).

Conditions

    23. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBSA fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by BCBSA or 
the amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBSA for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBSA to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of BCBSA or the interests of any party other than the 
Plan) where BCBSA was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\7\
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    \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.''
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    24. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and

[[Page 52122]]

conditions of the exemption have been met.
    25. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBSA; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to BCBSA must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    26. The Plan may not make any Repayment to BCBSA before the date: 
the Plan has received from BCBSA the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to BCBSA in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    27. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBSA for reasonable legal 
expenses arising from the Claims that BCBSA paid to non-BCBSA-related 
parties for representation of the Plan and its interests (as opposed to 
representation of BCBSA or the interests of any party other than the 
Plan) where BCBSA was not otherwise reimbursed by a non-Plan party.
    28. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    29. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\8\ In this regard, not later 
than 90 days after the resolution of the litigation, the Independent 
Fiduciary must submit a written report to the Department demonstrating 
that all of the requirements of this exemption have been met.
---------------------------------------------------------------------------

    \8\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments substantially improved the 
Plan's funding status, which enhanced the Plan's ability to meet its 
obligations to fund benefit obligations to participants and 
beneficiaries and helped the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay BCBSA the lesser of 
the Required Restorative Payment Amount, or the amount the Plan 
receives in proceeds from the Claims, ensuring that the Proposed 
Transactions will result in an increase in Plan assets of at least the 
total amount of Restorative Payments (less reasonable legal expenses 
related to the Claims paid by BCBSA to unrelated third parties, as 
confirmed and approved by the Independent Fiduciary). Further, this 
exemption preserves any right, claim, demand and/or cause of action the 
Plan may have against: (a) any fiduciary of the Plan; (b) any fiduciary 
of the Trust; (c) BCBSA; and/or (d) any person or entity related to a 
person or entity described in (a)-(c).

Summary

    30. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\9\
---------------------------------------------------------------------------

    \9\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBSA on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBSA to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to BCBSA do not include: (1) legal expenses 
paid by the Plan; and (2) legal expenses paid by BCBSA for 
representation of BCBSA or the interests of any party other than the 
Plan.
    (b) The term ``BCBSA'' means Blue Cross and Blue Shield 
Association.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement dated November 24, 2020, and its amendment that 
became effective on June 22, 2022, containing all material terms 
regarding BCBSA's agreement to make Required Restorative Payments to 
the Plan in return for the Plan's potential Repayment to BCBSA of an 
amount that is no more than lesser of the Required Restorative Payment 
Amount (as described in Section I(h)) or the amount of litigation 
proceeds the Plan receives from the Claims, plus reasonable attorney 
fees paid to unrelated third parties by BCBSA in connection with the 
Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent

[[Page 52123]]

Fiduciary continues to serve in such capacity who:
    (1) Is not an affiliate of BCBSA and does not hold an ownership 
interest in BCBSA or affiliates of BCBSA;
    (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 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; 
\10\
---------------------------------------------------------------------------

    \10\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCBSA or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBSA or from affiliates of BCBSA 
while serving as an Independent Fiduciary. This prohibition will 
continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield Association.
    (g) The term ``Plan Losses'' means the $183,368,144 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCBSA to the Plan in connection with the Plan Losses, defined above, 
consisting of: (1) the past payment of $69,000,000 on March 12, 2021; 
and (2) the past payment of $13,500,000 on March 28, 2022. The sum of 
(1)-(2) is the Required Restorative Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBSA following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective November 24, 
2020, to the following transactions: BCBSA's transfer of Restorative 
Payments to the Plan; and, in return, the Plan's Repayment of an amount 
to BCBSA, which must be no more than the lesser of the Restorative 
Payment Amount or the amount of litigation proceeds the Plan received 
from the Claims, plus reasonable Attorney Fees, provided that the 
Definitions set forth in Section I and the Conditions set forth in 
Section III are met.

Section III. Conditions

    (a) The Plan received the entire Restorative Payment Amount no 
later than March 28, 2022;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBSA; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to BCBSA is for no more than the lesser of 
the total Restorative Payments received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to BCBSA may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
BCBSA must be carried out in a manner designed to minimize unnecessary 
costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBSA for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBSA to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBSA for reasonable legal expenses paid in connection with 
the Claims by BCBSA to non-BCBSA-related parties. For purposes of 
determining the amount of Attorney

[[Page 52124]]

Fees the Plan may reimburse to BCBSA under this proposal, the amount of 
reasonable attorney fees paid by BCBSA on behalf of the Plan in 
connection with the Claims must be reduced by the amount of legal fees 
received by BCBSA in connection with the Claims from any non-Plan party 
(i.e., pursuant to a court award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBSA must notify the Department's Office of Exemption Determinations 
of the change in Independent Fiduciary and such notification must 
contain all material information regarding the successor Independent 
Fiduciary, including the successor Independent Fiduciary's 
qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mr. Frank Gonzalez of the 
Department, telephone (202) 693-8553. (This is not a toll-free number.)

Blue Cross and Blue Shield of Kansas City

Located in Kansas City, Missouri

[Application No. D-12039]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of Blue Cross and Blue Shield of Kansas 
City (the Plan) in the first quarter of 2020.\11\
---------------------------------------------------------------------------

    \11\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Blue 
Cross and Blue Shield of Kansas City; and/or (4) any person or 
entity related to a person or entity described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the Plan sponsor, Blue Cross 
and Blue Shield of Kansas City (BCBS KC), to make a series of payments 
to the Plan, including the past payment of $87,000,000 made to the Plan 
on September 9, 2021, and additional payments to the Plan totaling 
$13,000,000 by December 31, 2024. If the Plan receives litigation 
proceeds from the Claims, the Plan will transfer the lesser of the 
ligation proceeds amount or the Restorative Payments amount already 
received by the Plan, plus reasonable attorney fees to BCBS KC.

Summary of Facts and Representations 12
---------------------------------------------------------------------------

    \12\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12039 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. BCBS KC is a not-for-profit company that provides health 
insurance products and services. BCBS KC is an independent licensee of 
the Blue Cross Blue Shield Association (BCBSA).
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of BCBS KC and employees of 
affiliated employers. On June 30, 2013, the Plan was closed to new 
entrants. As of August 31, 2020, the Plan covered 1,212 participants 
and held $80,441,432 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC

[[Page 52125]]

(Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $170,800,689, which represented 77.66% of total Plan assets.\13\
---------------------------------------------------------------------------

    \13\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 77.66% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019 the market value of Plan assets was $219,924,260. As 
of March 31, 2020, the market value of Plan assets decreased to 
$73,641,344. The Applicant represents that the Plan's total losses from 
the Allianz Structured Alpha Strategy were $139,613,178, which caused 
the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBS KC took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on November 5, 
2020, BCBS KC and the Plan entered into a Contribution and Assignment 
Agreement (the Contribution and Assignment Agreement).
    11. Pursuant to the Contribution and Assignment Agreement, BCBS KC 
agreed to make $100,000,000 in Restorative Payments to the Plan by 
September 30, 2021. On September 9, 2021, BCBS KC made an $87,000,000 
Restorative Payment to the Plan. Subsequently, on September 23, 2021, 
BCBS KC and the Plan amended the Restorative Payments provision of the 
Contribution and Assignment Agreement to state that BCBS KC will make 
$100,000,000 in Restorative Payments to the Plan by December 31, 2024. 
The prior payment of $87,000,000 together with the required future 
payment of $13,000,000 constitutes the Required Restorative Payments 
under this exemption.
    12. In exchange for the Restorative Payments, the Plan assigned to 
BCBS KC its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\14\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to BCBS KC a repayment (the Repayment) that does not exceed 
the total Restorative Payments made by BCBS KC as of that date, plus 
reasonable attorney fees paid by BCBS KC on behalf of the Plan in 
connection with the Claims, if such fees are reviewed and approved by a 
qualified independent fiduciary who confirms that the fees were 
reasonably incurred and paid by BCBS KC to unrelated third parties (the 
Attorney Fees).
---------------------------------------------------------------------------

    \14\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    For the purposes of this exemption, Attorney Fees reimbursable to 
BCBS KC do not include: (a) legal expenses paid by the Plan; and (b) 
legal expenses paid by BCBS KC for representation of its own interests 
or the interests of any party other than the Plan. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
KC under this exemption, the amount of reasonable attorney fees paid by 
BCBS KC on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS

[[Page 52126]]

KC in connection with the Claims from any non-Plan party (for example, 
from a third party pursuant to a court award).
    13. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payments that BCBS KC has made to the Plan, the Plan's Repayment to 
BCBS KC will be limited to the amount of Restorative Payments actually 
made by BCBS KC, plus Attorney Fees. For example, if BCBS KC has made 
$100,000,000 in Restorative Payments to the Plan and has reasonably 
incurred $100,000 in Attorney Fees, and if the Plan receives 
$120,000,000 in litigation proceeds, the Plan will make a Repayment to 
BCBS KC totaling $100,100,000.
    14. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCBS 
KC has made to the Plan, the Plan will transfer to BCBS KC the lesser 
amount of litigation or settlement proceeds, plus Attorney Fees. For 
example, if BCBS KC has made $100,000,000 in Restorative Payments to 
the Plan and has reasonably incurred $100,000 in Attorney Fees, and if 
the Plan receives $50,000,000 in litigation proceeds, the Plan will 
make a Repayment to BCBS KC totaling $50,100,000.
    15. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    16. BCBS KC retained Gallagher Fiduciary Advisors, LLC (Gallagher 
or the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    17. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    18. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCBS 
KC and any BCBS KC affiliates. Gallagher further represents the total 
revenues it has received from the Plan and from parties in interest to 
the Plan in connection with its engagement as Independent Fiduciary 
represents approximately 0.78% of Gallagher's total revenue.
    19. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    20. On November 5, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payments, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBS KC only up to the Required 
Restorative Payment Amount by the Plan, plus any reasonable legal 
expense paid to non-BCBS KC-related parties that were incurred by, or 
allocated to, BCBS KC as a result of the Claims.\15\ Thus, if the 
Plan's ultimate recovery amount from the Claims is less than the 
Required Restorative Payment Amount, plus related litigation expenses 
that were allocated to the Plan, BCBS KC, not the Plan, will suffer the 
loss.
---------------------------------------------------------------------------

    \15\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCBS KC in exchange for the 
Assignment.

ERISA Analysis

    21. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCBS KC in exchange for the Plan's transfer of litigation 
or settlement proceeds to BCBS KC would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. BCBS KC, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to BCBS KC with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (BCBS KC) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. BCBS KC's 
promise to make

[[Page 52127]]

additional Required Restorative Payments to the Plan, over time, 
constitutes an impermissible extension of credit between the Plan and a 
party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBS KC in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to a party-in-interest in violation of ERISA 
Section 406(a)(1)(D).

Conditions

    22. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBS KC fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by BCBS KC or 
the amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBS KC for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS KC to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of BCBS KC or the interests of any party other than the 
Plan) where BCBS KC was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\16\
---------------------------------------------------------------------------

    \16\ 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.''
---------------------------------------------------------------------------

    23. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    24. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBS KC; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to BCBS KC must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    25. The Plan may not make any Repayment to BCBS KC before the date: 
the Plan has received from BCBS KC the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to BCBS KC in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    26. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBS KC for reasonable legal 
expenses arising from the Claims that BCBS KC paid to non-BCBS KC-
related parties for representation of the Plan and its interests (as 
opposed to representation of BCBS KC or the interests of any party 
other than the Plan) where BCBS KC was not otherwise reimbursed by a 
non-Plan party.
    27. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    28. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\17\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
---------------------------------------------------------------------------

    \17\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required

[[Page 52128]]

Restorative Payments will substantially improve the Plan's funding 
status, which will enhance the Plan's ability to meet its obligations 
to fund benefit obligations to participants and beneficiaries and help 
the Plan avoid the imposition of benefit limitations imposed under Code 
section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay BCBS KC the lesser of 
the Required Restorative Payment Amount, or the amount the Plan 
receives in proceeds from the Claims, ensuring that the Proposed 
Transactions will result in an increase in Plan assets of at least the 
total amount of Restorative Payments (less reasonable legal expenses 
related to the Claims paid by BCBS KC to unrelated third parties, as 
confirmed and approved by the Independent Fiduciary). Further, this 
exemption preserves any right, claim, demand and/or cause of action the 
Plan may have against: (a) any fiduciary of the Plan; (b) any fiduciary 
of the Trust; (c) BCBS KC; and/or (d) any person or entity related to a 
person or entity described in (a)-(c).

Summary

    29. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\18\
---------------------------------------------------------------------------

    \18\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBS KC on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBS KC to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to BCBS KC do not include: (1) legal 
expenses paid by the Plan; and (2) legal expenses paid by BCBS KC for 
representation of BCBC KC or the interests of any party other than the 
Plan.
    (b) The term ``BCBS KC'' means Blue Cross and Blue Shield of Kansas 
City.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between BCBS KC and the Plan, dated November 5, 2020, 
and its amendment that became effective on September 23, 2021, 
containing all material terms regarding BCBS KC's agreement to make 
Required Restorative Payments to the Plan in return for the Plan's 
potential Repayment to BCBS KC of an amount that is no more than lesser 
of the Required Restorative Payment Amount (as described in Section 
I(h)) or the amount of litigation proceeds the Plan receives from the 
Claims, plus reasonable attorney fees paid to unrelated third parties 
by BCBS KC in connection with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of BCBS KC and does not hold an ownership 
interest in BCBS KC or affiliates of BCBS KC;
    (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 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; 
\19\
---------------------------------------------------------------------------

    \19\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCBS KC or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBS KC or from affiliates of 
BCBS KC while serving as an Independent Fiduciary. This prohibition 
will continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Kansas City.
    (g) The term ``Plan Losses'' means the $139,613,178 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCBS KC to the Plan in connection with the Plan Losses, defined above, 
consisting of: (1) the past payment of $87,000,000 on September 9, 
2021; and (2) a second installment amount of $13,000,000 due to the 
Plan by December 31, 2024. The sum of (1) and (2) is the Required 
Restorative Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBS KC following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective November 5, 
2020, to the following transactions: BCBS KC's

[[Page 52129]]

transfer of Restorative Payments to the Plan; and, in return, the 
Plan's Repayment of an amount to BCBS KC, which must be no more than 
the lesser of the Restorative Payment or the amount of litigation 
proceeds the Plan received from the Claims, plus reasonable Attorney 
Fees, provided that the Definitions set forth in Section I and the 
Conditions set forth in Section III are met.

Section III. Conditions

    (a) The Plan receives the entire Restorative Payment Amount no 
later than December 31, 2024;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBS KC; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to BCBS KC is for no more than the lesser 
of the total Restorative Payments received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to BCBS KC may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
BCBS KC must be carried out in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBS KC for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS KC to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBS KC for reasonable legal expenses paid in connection with 
the Claims by BCBS KC to non-BCBS KC-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
KC under this proposal, the amount of reasonable attorney fees paid by 
BCBS KC on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS KC in connection 
with the Claims from any non-Plan party (i.e., pursuant to a court 
award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBS KC must notify the Department's Office of Exemption Determinations 
of the change in Independent Fiduciary and such notification must 
contain all material information regarding the successor Independent 
Fiduciary, including the successor Independent Fiduciary's 
qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice To Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mr. Nicholas Schroth of the 
Department, telephone (202) 693-8571. (This is not a toll-free number.)

[[Page 52130]]

Blue Cross and Blue Shield of Arizona, Inc.

Located in Phoenix, Arizona

[Application No. D-12035]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of Blue Cross and Blue Shield of Arizona, 
Inc. (the Plan) in the first quarter of 2020.\20\
---------------------------------------------------------------------------

    \20\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) the Blue 
Cross and Blue Shield of Arizona, Inc.; and/or (4) any person or 
entity related to a person or entity described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the Plan sponsor, Blue Cross 
and Blue Shield of Arizona, Inc. (BCBS AZ), to make a series of 
payments to the Plan, including: (a) past payments totaling 
$130,000,000; and (b) future amounts necessary for (i) the Plan's 
assets to be equal to or greater than 100% of the Plan's current 
liabilities, and (ii) the Plan to have an adjusted funding target 
attainment percentage (AFTAP) of 110% (the Restorative Payments).
    If the Plan receives litigation proceeds from the Claims, the Plan 
will transfer the lesser of the ligation proceeds amount or the 
Restorative Payments, plus reasonable attorney fees to BCBS AZ.

Summary of Facts and Representations 21
---------------------------------------------------------------------------

    \21\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12035 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. Blue Cross and Blue Shield of Arizona, Inc. (BCBS AZ or the 
Applicant) is a not-for-profit company that provides health insurance 
products and services. BCBS AZ is an independent licensee of the Blue 
Cross Blue Shield Association (BCBSA).
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of BCBS AZ and employees of 
affiliated employers. On June 30, 2012, the Plan was closed to new 
entrants. As of August 31, 2020, the Plan held $178,703,160 in total 
assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $369.3 million, which represented 77.67% of total Plan assets.\22\
---------------------------------------------------------------------------

    \22\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 77.67% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the

[[Page 52131]]

Claims, although Allianz had represented that it would buy hedges at 
strike prices ranging from 10% to 25% below the market, the hedges it 
actually held at the end of February 2020 were as much as 60% below the 
market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019, the market value of the Plan and its Code section 
401(h) Account were $416,127,759 and $59,347,737, respectively.\23\ As 
of March 31, 2020, the market value of the Plan's total assets and the 
Code section 401(h) Account decreased to $137,298,008 and $20,433,430, 
respectively. The Applicant represents that the Plan's total losses 
from the Allianz Structured Alpha Strategy were $302,470,379, which 
caused the Plan to be underfunded.
---------------------------------------------------------------------------

    \23\ Code Section 401(h) permits a pension or annuity plan to 
provide for payment of benefits for sickness, accident, 
hospitalization and medical expenses for retired employees, their 
spouses and dependents. In order for the pension or annuity plan to 
meet the provisions of Code Section 401(h), the medical benefits 
must be subordinate to pension benefits and must be established and 
maintained in a separate account.
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    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBS AZ took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on November 5, 
2020, BCBS AZ and the Plan entered into a Contribution and Assignment 
Agreement (the Contribution and Assignment Agreement).
    11. Pursuant to the Contribution and Assignment Agreement, BCBS AZ 
agreed to make $274 million in Restorative Payments to the Plan 
pursuant to an installment payment structure (the Restorative 
Payments). BCBS AZ made its first installment payment of $60 million to 
the Plan on September 15, 2020. Thereafter, BCBS AZ made a Restorative 
Payment to the Plan of $35,000,000 on December 28, 2020, and 
$10,000,000 on July 31, 2021. Thus, as of July 31, 2021, BCBS AZ had 
made Restorative Payments to the Plan totaling $105 million.
    12. On October 13, 2021, BCBS AZ and the Plan amended the 
Restorative Payments provision of the Contribution and Assignment 
Agreement (the Restorative Payment Amendment). BCBS AZ agreed that 
before December 31, 2023, it would contribute amounts necessary for the 
Plan to have: (a) an adjusted funding target attainment percentage of 
110% (after taking into account any waivers of the funding standard 
carryover balance by the Plan Sponsor); and (b) an amount of assets 
that is at least 100% of current Plan liabilities. In addition, any 
minimum required contributions made by BCBS AZ to the Plan on or after 
October 13, 2021, will not be included as part of the Restorative 
Payments required under the Contribution and Assignment Agreement. The 
prior restorative payments noted above in paragraph 11 together with 
the obligations noted here in paragraph 12 constitute the Required 
Restorative Payments under this exemption.
    13. On December 21, 2021, BCBS AZ made a fourth Restorative Payment 
to the Plan totaling $25,000,000.\24\ The Applicant represents that 
after making this most recent $25,000,000 Restorative Payment, BCBS AZ 
has brought the Plan's funding level to 110% of AFTAP and, thus, has 
met its obligation under item (a) of the Restorative Payment Amendment 
identified above. This exemption, if granted, requires BCBS AZ to make 
additional Restorative Contributions to the Plan before December 31, 
2023, to ensure that the Plan has an amount of assets that is at least 
100% of current Plan liabilities.
---------------------------------------------------------------------------

    \24\ With the $25,000,000 payment, total Restorative Payments to 
the Plan now total $130,000,000.
---------------------------------------------------------------------------

    14. In exchange for the Restorative Payments, the Plan assigned to 
BCBS AZ its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\25\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to BCBS AZ a repayment (the Repayment) that does not exceed 
the total Restorative Payments made by BCBS AZ, plus reasonable 
attorney fees paid by BCBS AZ on behalf of the Plan in connection with 
the Claims, if such fees are reviewed and approved by a qualified 
independent fiduciary who confirms that the fees were reasonably 
incurred and paid by BCBS AZ to unrelated third parties (the Attorney 
Fees). For the purposes of this exemption, Attorney Fees reimbursable 
to BCBS AZ do not include: (a) legal expenses paid by the Plan; and (b) 
legal expenses paid by BCBS AZ for representation of its own interests 
or the interests of any party other than the Plan. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
AZ under this exemption, the amount of reasonable attorney fees paid by 
BCBS AZ on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS AZ in connection 
with the Claims from any non-Plan party (for example, from a third 
party pursuant to a court award).
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    \25\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    15. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payments that BCBS AZ has made to the Plan, the Plan's Repayment to 
BCBS AZ will be limited to the amount of Restorative Payments actually 
made by BCBS AZ, plus Attorney Fees. For example, if BCBS AZ has made 
$130,000,000 in Restorative Payments to the Plan and reasonably 
incurred $100,000 in Attorney Fees, and the Plan receives $160,000,000 
in litigation proceeds, the Plan will make a Repayment to BCBS AZ 
totaling $130,100,000.
    16. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCBS 
AZ has made to the Plan, the Plan will transfer to BCBS AZ the lesser 
amount of litigation or settlement proceeds, plus Attorney Fees. For 
example, if BCBS AZ has made $130,000,000 in Restorative Payments to

[[Page 52132]]

the Plan and has reasonably incurred $100,000 in Attorney Fees, and the 
Plan receives $50,000,000 in litigation proceeds, the Plan will make a 
Repayment to BCBS AZ totaling $50,100,000.
    17. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    18. BCBS AZ retained Gallagher Fiduciary Advisors, LLC (Gallagher 
or the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    19. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    20. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCBS 
AZ and any BCBS AZ affiliates. Gallagher further represents the total 
revenues it has received from the Plan and from parties in interest to 
the Plan in connection with its engagement as Independent Fiduciary 
represents approximately 0.78% of Gallagher's total revenue.
    21. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    22. On November 3, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payments, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBS AZ only up to the Required 
Restorative Payment Amount, plus any reasonable legal expense paid to 
non-BCBS AZ-related parties that were incurred by, or allocated to, 
BCBS AZ as a result of the Claims.\26\ Thus, if the Plan's ultimate 
recovery amount from the Claims is less than the Required Restorative 
Payment Amount, plus related litigation expenses that were allocated to 
the Plan, BCBS AZ, not the Plan, will suffer the loss.
---------------------------------------------------------------------------

    \26\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCBS AZ in exchange for the 
Assignment.

ERISA Analysis

    23. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCBS AZ in exchange for the Plan's transfer of litigation 
or settlement proceeds to BCBS AZ would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. BCBS AZ, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to BCBS AZ with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (BCBS AZ) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. BCBS AZ's 
promise to make Required Restorative Payments to the Plan, over time, 
constitutes an impermissible extension of credit between the Plan and a 
party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBS AZ in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to a party-in-interest in violation of ERISA 
Section 406(a)(1)(D).

Conditions

    24. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the

[[Page 52133]]

Contribution and Assignment Agreement are prudent, in the interest of 
the Plan and its participants and beneficiaries, and protective of the 
rights of the Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBS AZ fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by BCBS AZ or 
the amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBS AZ for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS AZ to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of BCBS AZ or the interests of any party other than the 
Plan) where BCBS AZ was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\27\
---------------------------------------------------------------------------

    \27\ 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.''
---------------------------------------------------------------------------

    25. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    26. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBS AZ; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to BCBS AZ must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    27. The Plan may not make any Repayment to BCBS AZ before the date: 
the Plan has received from BCBS AZ the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to BCBS AZ in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    28. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBS AZ for reasonable legal 
expenses arising from the Claims that BCBS AZ paid to non-BCBS AZ-
related parties for representation of the Plan and its interests (as 
opposed to representation of BCBS AZ or the interests of any party 
other than the Plan) where BCBS AZ was not otherwise reimbursed by a 
non-Plan party.
    29. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    30. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\28\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
---------------------------------------------------------------------------

    \28\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments will substantially improve 
the Plan's funding status, which will enhance the Plan's ability to 
meet its obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay BCBS AZ the lesser of 
the Required Restorative Payment Amount already received, or the amount 
the Plan receives in proceeds from the Claims, ensuring that the 
Proposed Transactions will result in an increase in Plan assets to: (a) 
an adjusted funding target attainment percentage of at least 110%; and 
(b) and an amount that is at least equal to or greater than 100% of the 
current liabilities of the Plan (less reasonable legal expenses related 
to the Claims paid by BCBS AZ to unrelated third parties as confirmed 
and approved by the Independent Fiduciary). Further, this exemption 
preserves any right, claim, demand and/or cause of action the Plan may 
have against: (a) any fiduciary of the Plan; (b) any fiduciary of the 
Trust; (c) BCBS AZ; and/or (d)

[[Page 52134]]

any person or entity related to a person or entity described in (a)-
(c).

Summary

    31. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\29\
---------------------------------------------------------------------------

    \29\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBS AZ on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBS AZ to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to BCBS AZ do not include: (1) legal 
expenses paid by the Plan; and (2) legal expenses paid by BCBS AZ for 
representation of BCBC AZ or the interests of any party other than the 
Plan.
    (b) The term ``BCBS AZ'' means Blue Cross and Blue Shield of 
Arizona, Inc.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Amended Contribution and Assignment Agreement'' 
means the written agreement between BCBS AZ and the Plan, dated 
November 5, 2020, and its amendment that became effective on October 
13, 2021, containing all material terms regarding BCBS AZ's agreement 
to make Required Restorative Payments to the Plan in return for the 
Plan's potential Repayment to BCBS AZ of an amount that is no more than 
lesser of the Required Restorative Payment Amount (as described in 
Section I(h)) already received or the amount of litigation proceeds the 
Plan receives from the Claims, plus reasonable attorney fees paid to 
unrelated third parties by BCBS AZ in connection with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of BCBS AZ and does not hold an ownership 
interest in BCBS AZ or affiliates of BCBS AZ;
    (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 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; 
\30\
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    \30\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCBS AZ or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBS AZ or from affiliates of 
BCBS AZ while serving as an Independent Fiduciary. This prohibition 
will continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Arizona, Inc.
    (g) The term ``Plan Losses'' means the $302,470,379 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCBS AZ to the Plan in connection with the Plan Losses, defined above, 
consisting of: (1) a first installment amount of $60,000,000 that BCBS 
AZ contributed to the Plan on September 15, 2020; (2) a second 
installment amount of $35,000,000 that BCBS AZ contributed to the Plan 
on December 28, 2020; (3) a third installment amount of $10,000,000 
that BCBS AZ contributed to the Plan on July 30, 2021; (4) a fourth 
installment amount of $25,000,000 that BCBS AZ contributed to the Plan 
on December 21, 2021; and (5) other amounts contributed to the Plan by 
BCBS AZ before December 31, 2023 that are necessary for (i) the Plan to 
have an adjusted funding target attainment percentage of 110% after 
taking into account any waivers of the funding standard carryover 
balance by the Plan Sponsor, and (ii) the Plan's assets to be equal to 
or greater than 100% of the current liabilities of the Plan. The sum of 
(1)-(5) is the Required Restorative Payment Amount. The term ``Required 
Restorative Payment'' will not include any required minimum 
contributions that BCBS AZ makes to the Plan on and after October 13, 
2021.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBS AZ following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective September 15, 
2020, to the following transactions: BCBS AZ's transfer of Restorative 
Payments to the Plan; and, in return, the Plan's Repayment of an amount 
to BCBS AZ, which must be no more than the lesser of the Restorative 
Payment Amount already received or the amount of litigation proceeds 
the Plan received from the Claims, plus reasonable

[[Page 52135]]

Attorney Fees, provided that the Definitions set forth in Section I and 
the Conditions set forth in Section III are met.

Section III. Conditions

    (a) The Plan receives the entire Restorative Payment Amount no 
later than December 31, 2023;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBS AZ; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to BCBS AZ is for no more than the lesser 
of the total Restorative Payments received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to BCBS AZ may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
BCBS AZ must be carried out in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBS AZ for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS AZ to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBS AZ for reasonable legal expenses paid in connection with 
the Claims by BCBS AZ to non-BCBS AZ-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
AZ under this proposal, the amount of reasonable attorney fees paid by 
BCBS AZ on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS AZ in connection 
with the Claims from any non-Plan party (i.e., pursuant to a court 
award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBS AZ must notify the Department's Office of Exemption Determinations 
of the change in Independent Fiduciary and such notification must 
contain all material information regarding the successor Independent 
Fiduciary, including the successor Independent Fiduciary's 
qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mr. Frank Gonzalez of the 
Department, telephone (202) 693-8553. (This is not a toll-free number.)

Blue Cross and Blue Shield of Vermont

Located in Berlin, Vermont

[Application No. D-12055]

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 Section 4975(c)(2) of the Internal

[[Page 52136]]

Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of Blue Cross and Blue Shield of Vermont 
(the Plan) in the first quarter of 2020.\31\
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    \31\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Blue 
Cross and Blue Shield of Vermont, Inc.; and/or (4) any person or 
entity related to a person or entity described in (1)-(3).
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    This proposed exemption would permit the Plan sponsor, Blue Cross 
and Blue Shield of Vermont (BCBS VT), to make a series of payments to 
the Plan over a four-year period (the Restorative Payments). The 
Restorative Payments will return the Plan to at least the Plan's 
funding level (126.61%) as of January 1, 2019. If the Plan receives 
litigation proceeds from the Claims, the Plan will transfer the lesser 
of the ligation proceeds amount or the Restorative Payments amount, 
plus reasonable attorney fees to BCBS VT.

Summary of Facts and Representations 32
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    \32\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12055 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
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    1. Blue Cross and Blue Shield of Vermont (BCBS VT or the Applicant) 
is a not-for-profit hospital and medical services corporation that 
issues and administers health care coverage for individuals and group 
health plans. BCBS VT is an independent licensee of the Blue Cross Blue 
Shield Association (BCBSA).
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of BCBS VT. As of August 31, 2020, 
the Plan held $28,331,698 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $53,105,089, which represented 76.48% of total Plan assets.\33\
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    \33\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 76.48% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
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    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31,

[[Page 52137]]

2019, the market value of the Plan's total assets was $69,439,545. As 
of March 31, 2020, the market value of the Plan's total assets 
decreased to $25,510,951. The Plan's total losses from the Allianz 
Structured Alpha Strategy were $41,588,205, which caused the Plan to be 
underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBS VT took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on December 21, 
2020, BCBS VT and the Plan entered into a Contribution and Assignment 
Agreement (the Contribution and Assignment Agreement).
    11. The Restorative Payments. In the Contribution and Assignment 
Agreement, BCBS VT agreed to make an initial $13,000,000 lump sum 
payment to the Plan which was expected to restore the Plan to an AFTAP 
funding level of approximately 80% as of the January 1, 2021 valuation 
of the Plan. BCBS VT also agreed to make such additional payments to 
the Plan as necessary to maintain the Plan's funding level at 80% as of 
such date, to the extent the preliminary $13,000,000 installment 
payment fails to do so.\34\ Finally, BCBS VT stated that it intended to 
make subsequent installment payments to the Plan on at least an annual 
basis and over a four-year period to restore Plan funding to 
approximately the level that was reported prior to the losses sustained 
within the Allianz Structured Alpha strategy.
---------------------------------------------------------------------------

    \34\ BCBS VT has made two Restorative Payments to the Plan: a 
$13,000,000 payment remitted on December 23, 2020, and a $3,100,000 
payment remitted on September 14, 2021.
---------------------------------------------------------------------------

    12. Since the effective date of the Contribution and Assignment 
Agreement, BCBS VT has made two Restorative Payments to the Plan: a 
$13,000,000 payment remitted on December 23, 2020, and a $3,100,000 
payment remitted on September 14, 2021.
    13. Department's Note: This exemption, if granted, requires BCBS VT 
to make the Restorative Payments necessary to bring the Plan's funding 
percentage to at least its January 1, 2019, pre-loss funded percentage 
of 126.61%, by December 31, 2024. The prior restorative payments noted 
above in paragraph 12 together with the funding obligations noted here 
in paragraph 13 constitute the Required Restorative Payments under this 
exemption.
    14. In exchange for the Restorative Payments, the Plan assigned to 
BCBS VT its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\35\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to BCBS VT a repayment (the Repayment) that does not exceed 
the total Restorative Payments made by BCBS VT, plus reasonable 
attorney fees paid by BCBS VT on behalf of the Plan in connection with 
the Claims, if such fees are reviewed and approved by a qualified 
independent fiduciary who confirms that the fees were reasonably 
incurred and paid by BCBS VT to unrelated third parties (the Attorney 
Fees). For the purposes of this exemption, Attorney Fees reimbursable 
to BCBS VT do not include: (a) legal expenses paid by the Plan; and (b) 
legal expenses paid by BCBS VT for representation of its own interests 
or the interests of any party other than the Plan. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
VT under this exemption, the amount of reasonable attorney fees paid by 
BCBS VT on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS VT in connection 
with the Claims from any non-Plan party (for example, from a third 
party pursuant to a court award).
---------------------------------------------------------------------------

    \35\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    15. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payments that BCBS VT has made to the Plan, the Plan's Repayment to 
BCBS VT will be limited to the amount of Restorative Payments actually 
made by BCBS VT, plus Attorney Fees. For example, if BCBS VT made 
$18,000,000 in Restorative Payments to the Plan and reasonably incurred 
$100,000 in Attorney Fees, and if the Plan receives $30,000,000 in 
litigation proceeds, the Plan will make a Repayment to BCBS VT totaling 
$18,100,000.
    16. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCBS 
VT has made to the Plan, the Plan will transfer to BCBS VT the lesser 
amount of litigation or settlement proceeds, plus Attorney Fees. For 
example, if BCBS VT made $18,000,000 in Restorative Payments to the 
Plan and has reasonably incurred $100,000 in Attorney Fees, and if the 
Plan receives $10,000,000 in litigation proceeds, the Plan will make a 
Repayment to BCBS VT totaling $10,100,000.
    17. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    18. BCBS VT retained Gallagher Fiduciary Advisors, LLC (Gallagher 
or the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    19. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    20. Gallagher represents that it does not have any prior 
relationship with any

[[Page 52138]]

parties in interest to the Plan, including BCBS VT and any BCBS VT 
affiliates. Gallagher further represents the total revenues it has 
received from the Plan and from parties in interest to the Plan in 
connection with its engagement as Independent Fiduciary represents 
approximately 0.78% of Gallagher's total revenue.
    21. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    22. On December 21, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payments, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBS VT only up to the Required 
Restorative Payment Amount received, plus any reasonable legal expense 
paid to non-BCBS VT-related parties that were incurred by, or allocated 
to, BCBS VT as a result of the Claims.\36\ Thus, if the Plan's ultimate 
recovery amount from the Claims is less than the Required Restorative 
Payment Amount, plus related litigation expenses that were allocated to 
the Plan, BCBS VT, not the Plan, will suffer the loss.
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    \36\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCBS VT in exchange for the 
Assignment.

ERISA Analysis

    23. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCBS VT in exchange for the Plan's transfer of litigation 
or settlement proceeds to BCBS VT would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. BCBS VT, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to BCBS VT with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (BCBS VT) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. BCBS VT's 
promise to make Required Restorative Payments to the Plan, over time, 
constitutes an impermissible extension of credit between the Plan and a 
party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBS VT in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to a party-in-interest in violation of ERISA 
Section 406(a)(1)(D).

Conditions

    24. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBS VT fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by BCBS VT or 
the amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBS VT for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS VT to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of BCBS VT or the interests of any party other than the 
Plan) where BCBS VT was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section

[[Page 52139]]

410 or Department Regulations codified at 29 CFR 2509.75-4.\37\
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    \37\ 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.''
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    25. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    26. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBS VT; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to BCBS VT must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    27. The Plan may not make any Repayment to BCBS VT before the date: 
the Plan has received from BCBS VT the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to BCBS VT in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    28. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBS VT for reasonable legal 
expenses arising from the Claims that BCBS VT paid to non-BCBS VT-
related parties for representation of the Plan and its interests (as 
opposed to representation of BCBS VT or the interests of any party 
other than the Plan) where BCBS VT was not otherwise reimbursed by a 
non-Plan party.
    29. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    30. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\38\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
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    \38\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments will substantially improve 
the Plan's funding status, which will enhance the Plan's ability to 
meet its obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay BCBS VT the lesser of 
the Required Restorative Payment Amount received, or the amount the 
Plan receives in proceeds from the Claims, ensuring that the Proposed 
Transactions will result in an increase in Plan assets of at least the 
total amount of Restorative Payments (less reasonable legal expenses 
related to the Claims paid by BCBS VT to unrelated third parties, as 
confirmed and approved by the Independent Fiduciary). Further, this 
exemption preserves any right, claim, demand and/or cause of action the 
Plan may have against: (a) any fiduciary of the Plan; (b) any fiduciary 
of the Trust; (c) BCBS VT; and/or (d) any person or entity related to a 
person or entity described in (a)-(c).

Summary

    31. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\39\
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    \39\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
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Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBS VT on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBS VT to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to BCBS VT do not include: (1) legal 
expenses paid by the Plan; and (2) legal expenses paid by BCBS VT for 
representation of BCBC VT or the interests of any party other than the 
Plan.
    (b) The term ``BCBS VT'' means Blue Cross and Blue Shield of 
Vermont.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between BCBS VT

[[Page 52140]]

and the Plan, dated December 21, 2020, containing all material terms 
regarding BCBS VT's agreement to make Restorative Payments (as 
described in Section I(h)) to the Plan in return for the Plan's 
potential Repayment to BCBS VT of an amount that is no more than the 
lesser of the total Restorative Payments or the amount of litigation 
proceeds the Plan receives from the Claims, plus reasonable Attorney 
Fees paid to unrelated third parties by BCBS VT in connection with the 
Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of BCBS VT and does not hold an ownership 
interest in BCBS VT or affiliates of BCBS VT;
    (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 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; 
\40\
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    \40\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCBS VT or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBS VT or from affiliates of 
BCBS VT while serving as an Independent Fiduciary. This prohibition 
will continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Vermont.
    (g) The term ``Plan Losses'' means the $41,588,205 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCBS VT to the Plan in connection with the Plan Losses, including: (1) 
the past payment of $13,000,000 made on December 23, 2020, (2) the past 
payment of $3,100,000 made on September 14, 2021, and (3) amounts 
necessary to restore the Plan to its funding level of 126.91% before 
December 31, 2024. The sum of (1)-(3) is the Required Restorative 
Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBS VT following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective December 21, 
2020, to the following transactions: BCBS VT's transfer of Restorative 
Payments to the Plan; and, in return, the Plan's Repayment of an amount 
to BCBS VT, which must be no more than the lesser of the Restorative 
Payment Amount or the amount of litigation proceeds the Plan received 
from the Claims, plus reasonable Attorney Fees, provided that the 
Definitions set forth in Section I and the Conditions set forth in 
Section III are met.

Section III. Conditions

    (a) The Plan receives the entire Restorative Payment Amount no 
later than December 31, 2024;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBS VT; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to BCBS VT is for no more than the lesser 
of the total Restorative Payments received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to BCBS VT may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
BCBS VT must be carried out in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBS VT for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS VT to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and

[[Page 52141]]

conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBS VT for reasonable legal expenses paid in connection with 
the Claims by BCBS VT to non-BCBS VT-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
VT under this proposal, the amount of reasonable attorney fees paid by 
BCBS VT on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS VT in connection 
with the Claims from any non-Plan party (i.e., pursuant to a court 
award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBS VT must notify the Department's Office of Exemption Determinations 
of the change in Independent Fiduciary and such notification must 
contain all material information regarding the successor Independent 
Fiduciary, including the successor Independent Fiduciary's 
qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mr. Nicholas Schroth of the 
Department, telephone (202) 693-8571. (This is not a toll-free number.)

Hawaii Medical Service Association

Located in Honolulu, Hawaii

[Application No. D-12038]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of Hawaii Medical Service Association 
(the Plan) in the first quarter of 2020.\41\
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    \41\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Hawaii 
Medical Service Association; and/or (4) any person or entity related 
to a person or entity described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the past payment of 
$50,000,000 by Hawaii Medical Service Association (HMSA), the Plan 
sponsor, to the Plan (the Restorative Payment). If the Plan receives 
litigation proceeds from the Claims, the Plan will transfer the lesser 
of the ligation proceeds amount or the Restorative Payment amount, plus 
reasonable attorney fees to HMSA.

Summary of Facts and Representations 42
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    \42\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12038 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. HMSA is a not-for-profit company that provides health insurance 
products and services. HMSA is an independent licensee of the Blue 
Cross Blue Shield Association (BCBSA).
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of HMSA and employees of affiliated 
employers. On December 31, 2014, the Plan was closed to new entrants. 
In August 2020, the Sponsor elected to freeze Plan benefits for all 
participants effective December 31, 2024. As of December 31, 2020, the 
Plan covered 1,638 participants and held $167,536,184 in total assets.
    3. Up until 2020, the Plan held a beneficial interest in the Blue 
Cross and Blue Shield National Retirement Trust (the Trust).\43\ The 
Trust is a master trust that holds the assets of 16 defined benefit 
pension plans that participate in the BCBSA's National Retirement

[[Page 52142]]

Program (the Participating Plans). Northern Trust serves as Trustee and 
asset custodian to the Trust and maintains separate records that 
reflect the net asset value of each Participating Plan. The Trust's 
earnings, market adjustments, and administrative expenses are allocated 
among the Participating Plans based on the respective Participating 
Plan's share of the Trust's assets. A Participating Plan's interest in 
the Trust's net assets is based on its share of the Trust.
---------------------------------------------------------------------------

    \43\ The Plan withdrew substantially all of its assets from the 
Trust in advance of the Trust's August 31, 2020 valuation date.
---------------------------------------------------------------------------

    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $229,799,688, which represented 86.11% of total Plan assets.\44\
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    \44\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 86.11% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019, the market value of the Plan was $266,849,059. As of 
March 31, 2020, the market value of the Plan's total assets decreased 
to $90,420,304. The Applicant represents that the Plan's total losses 
from the Allianz Structured Alpha Strategy were $187,271,581, which 
caused the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, HMSA took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on November 3, 
2020, HMSA and the Plan entered into a Contribution and Assignment 
Agreement (the Contribution and Assignment Agreement) whereby HMSA 
agreed to make a $50,000,000 Restorative Payment to the Plan. 
Subsequently, on December 18, 2020, HMSA made a $50,000,000 Restorative 
Payment to the Plan. This $50,000,000 payment is the Required 
Restorative Payment Amount under this exemption.
    11. In exchange for the Restorative Payment, the Plan assigned to 
HMSA its right to retain certain litigation and/or settlement proceeds 
recovered from the Claims (the Assigned Interests).\45\ Per the 
assignment, once the Allianz/Aon litigation is resolved and if the Plan 
receives litigation proceeds from the Claims, the Plan will transfer to 
HMSA a repayment (the Repayment) that does not exceed the total 
Restorative Payment made by HMSA as of that date, plus reasonable 
attorney fees paid by HMSA on behalf of the Plan in connection with the 
Claims, if such fees are reviewed and approved by a qualified 
independent fiduciary who confirms that the fees were reasonably 
incurred and paid by HMSA to unrelated third parties (the Attorney 
Fees).
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    \45\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    For the purposes of this exemption, Attorney Fees reimbursable to 
HMSA do not include: (a) legal expenses paid by

[[Page 52143]]

the Plan; and (b) legal expenses paid by HMSA for representation of its 
own interests or the interests of any party other than the Plan. For 
purposes of determining the amount of Attorney Fees the Plan may 
reimburse to HMSA under this exemption, the amount of reasonable 
attorney fees paid by HMSA on behalf of the Plan in connection with the 
Claims must be reduced by the amount of legal fees received by HMSA in 
connection with the Claims from any non-Plan party (for example, from a 
third party pursuant to a court award).
    12. The Plan must ultimately receive at least the full value of the 
promised Restorative Payment, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the $50,000,000 
Restorative Payment that HMSA made to the Plan, the Plan's Repayment to 
HMSA will be limited to $50,000,000 plus Attorney Fees. For example, if 
the Plan receives $80,000,000 in litigation proceeds and HMSA has 
reasonably incurred $100,000 in Attorney Fees, the Plan will make a 
Repayment to HMSA totaling $50,100,000.
    13. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the $50,000,000 Restorative Payment that HMSA 
made to the Plan, the Plan will transfer to HMSA the lesser amount of 
litigation or settlement proceeds, plus Attorney Fees. For example, if 
the Plan receives $30,000,000 in litigation proceeds and HMSA has 
reasonably incurred $100,000 in Attorney Fees, the Plan will make a 
Repayment to HMSA totaling $30,100,000.
    14. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    15. HMSA retained Gallagher Fiduciary Advisors, LLC (Gallagher or 
the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payment and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    16. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    17. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including HMSA 
and any HMSA affiliates. Gallagher further represents the total 
revenues it has received from the Plan and from parties in interest to 
the Plan in connection with its engagement as Independent Fiduciary 
represents approximately 0.78% of Gallagher's total revenue.
    18. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    19. On March 18, 2021, Gallagher completed an Independent Fiduciary 
Report (the Independent Fiduciary Report) finding that the massive 
losses caused by the Trust's investment in the Allianz Structured Alpha 
Strategy resulted in a significant reduction to the Plan's total assets 
and funding level. Gallagher represents that the Required Restorative 
Payment, which will be received by the Plan substantially in advance of 
a final resolution of the Claims against Allianz and Aon, should 
restore the Plan's funded percentage to its pre-loss funded percentage 
as of January 1, 2019. The restoration of the Plan's funding status 
will secure ongoing benefit payments to participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse HMSA only up to the Required 
Restorative Payment Amount, plus any reasonable legal expense paid to 
non-HMSA-related parties that were incurred by, or allocated to, HMSA 
as a result of the Claims.\46\ Thus, if the Plan's ultimate recovery 
amount from the Claims is less than the Required Restorative Payment 
Amount, plus related litigation expenses that were allocated to the 
Plan, HMSA, not the Plan, will suffer the loss.
---------------------------------------------------------------------------

    \46\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payment from HMSA in exchange for the Assignment.

ERISA Analysis

    20. Absent an exemption, the Plan's receipt of the Restorative 
Payment from HMSA in exchange for the Plan's transfer of litigation or 
settlement proceeds to HMSA would violate ERISA. In this regard, ERISA 
Section 406(a)(1)(A) prohibits a plan fiduciary from causing the plan 
to engage in a transaction if the fiduciary knows or should know that 
such transaction constitutes a direct or indirect sale or exchange of 
any property between a plan and a party in interest. HMSA, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payment to the Plan and the Plan's potential 
repayment to HMSA with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (HMSA) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the

[[Page 52144]]

transaction constitutes a direct or indirect transfer to, or use by or 
for the benefit of, a party-in-interest, of the income or assets of the 
plan. The transfer of Plan assets to HMSA in connection with the 
Repayment would constitute an impermissible transfer of Plan assets to 
a party-in-interest in violation of ERISA Section 406(a)(1)(D).

Conditions

    21. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payment, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payment, the Repayment, and the Contribution and Assignment 
Agreement are prudent, in the interest of the Plan and its participants 
and beneficiaries, and protective of the rights of the Plan's 
participants and beneficiaries;
    (c) confirm that the Required Restorative Payment was fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to HMSA fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payment actually made to the Plan by HMSA or the 
amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to HMSA for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by HMSA to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of HMSA or the interests of any party other than the 
Plan) where HMSA was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\47\
---------------------------------------------------------------------------

    \47\ 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.''
---------------------------------------------------------------------------

    22. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    23. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) HMSA; and/or (d) any person or entity related to a person or entity 
described in (a)-(c) of this paragraph. Additionally, any Repayment by 
the Plan to HMSA must be made in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments.
    24. The Plan may not make any Repayment to HMSA before the date: 
the Plan has received from HMSA the entire amount of the Restorative 
Payment agreed to in the Contribution and Assignment Agreement; and all 
the Claims are settled. Furthermore, the Plan may not pay any interest 
to HMSA in connection with its receipt of the Required Restorative 
Payment, nor pledge Plan assets to secure any portion of the Required 
Restorative Payment.
    25. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse HMSA for reasonable legal expenses 
arising from the Claims that HMSA paid to non-HMSA-related parties for 
representation of the Plan and its interests (as opposed to 
representation of HMSA or the interests of any party other than the 
Plan) where HMSA was not otherwise reimbursed by a non-Plan party.
    26. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    27. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\48\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
---------------------------------------------------------------------------

    \48\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payment will substantially improve 
the Plan's funding status, which will enhance the Plan's ability to 
meet its obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. The Proposed Exemption Is ``Protective of the Plan.'' The

[[Page 52145]]

Department has tentatively determined that the proposed exemption is 
protective of the rights of the Plan's participants and beneficiaries 
because, among other things, the Plan will repay HMSA the lesser of the 
Required Restorative Payment Amount, or the amount the Plan receives in 
proceeds from the Claims, ensuring that the Proposed Transactions will 
result in an increase in Plan assets of at least the total amount of 
Restorative Payment (less reasonable legal expenses related to the 
Claims paid by HMSA to unrelated third parties, as confirmed and 
approved by the Independent Fiduciary). Further, this exemption 
preserves any right, claim, demand and/or cause of action the Plan may 
have against: (a) any fiduciary of the Plan; (b) any fiduciary of the 
Trust; (c) HMSA; and/or (d) any person or entity related to a person or 
entity described in (a)-(c).

Summary

    28. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\49\
---------------------------------------------------------------------------

    \49\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by HMSA on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by HMSA to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to HMSA do not include: (1) legal expenses 
paid by the Plan; and (2) legal expenses paid by HMSA for 
representation of HMSA or the interests of any party other than the 
Plan.
    (b) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (c) The term ``Contribution and Assignment Agreement'' means the 
written agreement between HMSA and the Plan, dated November 3, 2020, 
containing all material terms regarding HMSA's agreement to make a 
$50,000,000 payment to the Plan in return for the Plan's potential 
Repayment to HMSA of an amount that is no more than the lesser of the 
total Restorative Payments actually made by HMSA or the amount of 
litigation proceeds the Plan receives from the Claims, plus reasonable 
Attorney Fees paid to unrelated third parties by HMSA in connection 
with the Claims.
    (d) The term ``HMSA'' means Hawaii Medical Service Association.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of HMSA and does not hold an ownership 
interest in HMSA or affiliates of HMSA;
    (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 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; 
\50\
---------------------------------------------------------------------------

    \50\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from HMSA or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 HMSA or from affiliates of HMSA 
while serving as an Independent Fiduciary. This prohibition will 
continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Hawaii Medical Service Association.
    (g) The term ``Plan Losses'' means the $187,271,581 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payment'' means the payment made by HMSA 
to the Plan in connection with the Plan Losses, defined above, 
consisting of a $50,000,000 payment that HMSA contributed to the Plan 
on December 18, 2020. This $50,000,000 payment is the Required 
Restorative Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to HMSA following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A) and (D), does not apply, effective November 3, 2020, to 
the following transactions: HMSA's transfer of Restorative Payment to 
the Plan; and, in return, the Plan's Repayment of an amount to HMSA, 
which must be no more than the lesser of the Restorative Payment Amount 
or the amount of litigation proceeds the Plan received from the Claims, 
plus reasonable Attorney Fees, provided that the Definitions set forth 
in Section I and the Conditions set forth in Section III are met.

[[Page 52146]]

Section III. Conditions

    (a) The Plan received the entire Restorative Payment on December 
18, 2020;
    (b) In connection with its receipt of the Restorative Payment, the 
Plan does not release any claims, demands and/or causes of action the 
Plan may have against the following: (1) any fiduciary of the Plan; (2) 
any fiduciary of the Trust; (3) HMSA; and/or (4) any person or entity 
related to a person or entity identified in (1)-(3) of this paragraph;
    (c) The Plan's Repayment to HMSA is for no more than the lesser of 
the total Restorative Payment received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to HMSA may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received the Restorative Payment it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
HMSA must be carried out in a manner designed to minimize unnecessary 
costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payment and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payment, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to HMSA for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by HMSA to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payment;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payment;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse HMSA for reasonable legal expenses paid in connection with 
the Claims by HAS to non-HMSA-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to HMSA 
under this proposal, the amount of reasonable attorney fees paid by 
HMSA on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by HMSA in connection with 
the Claims from any non-Plan party (i.e., pursuant to a court award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
HMSA must notify the Department's Office of Exemption Determinations of 
the change in Independent Fiduciary and such notification must contain 
all material information regarding the successor Independent Fiduciary, 
including the successor Independent Fiduciary's qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mrs. Blessed Chuksorji-Keefe of 
the Department, telephone (202) 693-8567. (This is not a toll-free 
number.)

BCS Financial Corporation

Located in Oakbrook Terrace, Illinois

[Application No. D-12036]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory

[[Page 52147]]

Retirement Program for Certain Employees of BCS Financial Corporation 
(the Plan) in the first quarter of 2020.\51\
---------------------------------------------------------------------------

    \51\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) BCS 
Financial Corporation; and/or (4) any person or entity related to a 
person or entity described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the Plan sponsor, BCS 
Financial Corporation (BCS), to make a series of payments to the Plan, 
including: (a) past payments totaling $19,600,000; and (b) a payment of 
$1,800,000 on or before September 13, 2023 (the Restorative Payments). 
If the Plan receives litigation proceeds from the Claims, the Plan will 
transfer the lesser of the ligation proceeds amount or the Restorative 
Payments, plus reasonable attorney fees to BCS.

Summary of Facts and Representations 52
---------------------------------------------------------------------------

    \52\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12036 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. BCS is a not-for-profit company that provides health insurance 
products and services. BCS is wholly-owned by all of the primary 
licensees of Blue Cross Blue Shield Association (BCBSA) that are 
headquartered in Illinois.
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of BCS. On December 31, 2019, the 
Plan was closed to new entrants. As of December 31, 2020, the Plan 
covered 242 participants and held $35,258,813 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $36,190,972, which represented 77.66% of total Plan assets.\53\
---------------------------------------------------------------------------

    \53\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 77.66% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019, the market value of the Plan was $46,599,770. As of 
March 31, 2020, the market value of the Plan's total assets decreased 
to $15,806,147. The Applicant represents that the Plan's total losses 
from the Allianz Structured Alpha Strategy were $29,496,983, which 
caused the Plan to be underfunded.

[[Page 52148]]

    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCS took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on October 9, 2020, 
BCS and the Plan entered into a Contribution and Assignment Agreement 
(the Contribution and Assignment Agreement).
    11. Pursuant to the Contribution and Assignment Agreement, BCS 
agreed to make a $16,000,000 Restorative Payment to the Plan within 
seven business days after the Agreement's effective date. Subsequently, 
on October 13, 2020, BCS made a $16,000,000 Restorative Payment to the 
Plan.
    12. On September 27, 2021, BCS and the Plan amended the Restorative 
Payments provision of the Contribution and Assignment Agreement (the 
Restorative Payment Amendment). Pursuant to the amendment, BCS agreed 
to make the following three additional Restorative Payments to the 
Plan: (a) a payment of $1,800,000 on or before September 13, 2021; (b) 
a payment of $1,800,000 on or before September 13, 2022; and (c) a 
payment of $1,800,000 on or before September 13, 2023. Since the 
effective date of the Restorative Payment Amendment, BCS Financial has 
made two additional Restorative Payments to the Plan: a $1,800,000 
payment on September 14, 2021, and a $1,800,000 payment on January 14, 
2022.
    13. In exchange for the Restorative Payments, the Plan assigned to 
BCS its right to retain certain litigation and/or settlement proceeds 
recovered from the Claims (the Assigned Interests).\54\ Per the 
assignment, once the Allianz/Aon litigation is resolved and if the Plan 
receives litigation proceeds from the Claims, the Plan will transfer to 
BCS a repayment (the Repayment) that does not exceed the total 
Restorative Payments made by BCS, plus reasonable attorney fees paid by 
BCS on behalf of the Plan in connection with the Claims, if such fees 
are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCS to 
unrelated third parties (the Attorney Fees). For the purposes of this 
exemption, Attorney Fees reimbursable to BCS do not include: (a) legal 
expenses paid by the Plan; and (b) legal expenses paid by BCS for 
representation of its own interests or the interests of any party other 
than the Plan. For purposes of determining the amount of Attorney Fees 
the Plan may reimburse to BCS under this exemption, the amount of 
reasonable attorney fees paid by BCS on behalf of the Plan in 
connection with the Claims must be reduced by the amount of legal fees 
received by BCS in connection with the Claims from any non-Plan party 
(for example, from a third party pursuant to a court award).
---------------------------------------------------------------------------

    \54\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
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    14. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payments that BCS has made to the Plan, the Plan's Repayment to BCS 
will be limited to the amount of Restorative Payments actually made by 
BCS, plus Attorney Fees. For example, if BCS has made $19,600,000 in 
Restorative Payments to the Plan and reasonably incurred $100,000 in 
Attorney Fees, and if the Plan receives $30,000,000 in litigation 
proceeds, the Plan will make a Repayment to BCS totaling $19,700,000.
    15. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCS 
has made to the Plan, the Plan will transfer to BCS the lesser amount 
of litigation or settlement proceeds, plus Attorney Fees. For example, 
if BCS has made $19,600,000 in Restorative Payments to the Plan and has 
reasonably incurred $100,000 in Attorney Fees, and if the Plan receives 
$10,000,000 in litigation proceeds, the Plan will make a Repayment to 
BCS totaling $10,100,000.
    16. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    17. BCS retained Gallagher Fiduciary Advisors, LLC (Gallagher or 
the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    18. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    19. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCS 
and any BCS affiliates. Gallagher further represents the total revenues 
it has received from the Plan and from parties in interest to the Plan 
in connection with its engagement as Independent Fiduciary represents 
approximately 0.78% of Gallagher's total revenue.
    20. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    21. On October 9, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the

[[Page 52149]]

Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payments, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCS only up to the Required 
Restorative Payment Amount, plus any reasonable legal expense paid to 
non-BCS-related parties that were incurred by, or allocated to, BCS as 
a result of the Claims.\55\ Thus, if the Plan's ultimate recovery 
amount from the Claims is less than the Required Restorative Payment 
Amount, plus related litigation expenses that were allocated to the 
Plan, BCS, not the Plan, will suffer the loss.
---------------------------------------------------------------------------

    \55\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCS in exchange for the Assignment.

ERISA Analysis

    22. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCS in exchange for the Plan's transfer of litigation or 
settlement proceeds to BCS would violate ERISA. In this regard, ERISA 
Section 406(a)(1)(A) prohibits a plan fiduciary from causing the plan 
to engage in a transaction if the fiduciary knows or should know that 
such transaction constitutes a direct or indirect sale or exchange of 
any property between a plan and a party in interest. BCS, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to BCS with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (BCS) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. BCS's 
promise to make Required Restorative Payments to the Plan, over time, 
constitutes an impermissible extension of credit between the Plan and a 
party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCS in connection 
with the Repayment would constitute an impermissible transfer of Plan 
assets to a party-in-interest in violation of ERISA Section 
406(a)(1)(D).

Conditions

    23. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCS fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by BCS or the 
amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCS for legal expenses 
in connection with the Claims is limited to only reasonable legal 
expenses that were paid by BCS to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of BCS or the interests of any party other than the 
Plan) where BCS was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\56\
---------------------------------------------------------------------------

    \56\ 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.''
---------------------------------------------------------------------------

    24. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    25. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCS; and/or (d) any person or entity related to a person or entity 
described in (a)-(c) of this paragraph. Additionally, any Repayment by 
the Plan to BCS must be made in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments.

[[Page 52150]]

    26. The Plan may not make any Repayment to BCS before the date: the 
Plan has received from BCS the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to BCS in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    27. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCS for reasonable legal expenses 
arising from the Claims that BCS paid to non-BCS-related parties for 
representation of the Plan and its interests (as opposed to 
representation of BCS or the interests of any party other than the 
Plan) where BCS was not otherwise reimbursed by a non-Plan party.
    28. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    29. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\57\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
---------------------------------------------------------------------------

    \57\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments will substantially improve 
the Plan's funding status, which will enhance the Plan's ability to 
meet its obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay BCS the lesser of the 
Required Restorative Payment Amount, or the amount the Plan receives in 
proceeds from the Claims, ensuring that the Proposed Transactions will 
result in an increase in Plan assets of at least the total amount of 
Restorative Payments (less reasonable legal expenses related to the 
Claims paid by BCS to unrelated third parties, as confirmed and 
approved by the Independent Fiduciary). Further, this exemption 
preserves any right, claim, demand and/or cause of action the Plan may 
have against: (a) any fiduciary of the Plan; (b) any fiduciary of the 
Trust; (c) BCS; and/or (d) any person or entity related to a person or 
entity described in (a)-(c).

Summary

    30. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\58\
---------------------------------------------------------------------------

    \58\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCS on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCS to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to BCS do not include: (1) legal expenses 
paid by the Plan; and (2) legal expenses paid by BCS for representation 
of BCS or the interests of any party other than the Plan.
    (b) The term ``BCS'' means BCS Financial Corporation.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between BCS and the Plan, dated October 9, 2020, and 
its amendment that became effective on September 27, 2021, containing 
all material terms regarding BCS's agreement to make Required 
Restorative Payments (as described in Section I(h)) to the Plan in 
return for the Plan's potential Repayment to BCS of an amount that is 
no more than the lesser of the total Restorative Payments or the amount 
of litigation proceeds the Plan receives from the Claims, plus 
reasonable Attorney Fees paid to unrelated third parties by BCS in 
connection with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of BCS and does not hold an ownership 
interest in BCS or affiliates of BCS;
    (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 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

[[Page 52151]]

    (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; 
\59\
---------------------------------------------------------------------------

    \59\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCS or its affiliates during 
any fiscal year in an amount that exceeds two percent (2%) of the 
Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCS or from affiliates of BCS 
while serving as an Independent Fiduciary. This prohibition will 
continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of BCS Financial Corporation.
    (g) The term ``Plan Losses'' means the $29,496,983 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCS in connection with the Plan Losses, defined above, consisting of: 
(1) the past payment of $16,000,000, made on October 13, 2020; (2) the 
past payment of $1,800,000, made on September 14, 2021; (3) the past 
payment of $1,800,000 made on January 14, 2022; and (4) a payment of 
$1,800,000 to be made on or before September 13, 2023. The sum of (1)-
(4) is the Required Restorative Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCS following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective October 9, 2020, 
to the following transactions: BCS's transfer of Restorative Payments 
to the Plan; and, in return, the Plan's Repayment of an amount to BCS, 
which must be no more than the lesser of the Restorative Payment Amount 
or the amount of litigation proceeds the Plan received from the Claims, 
plus reasonable Attorney Fees, provided that the Definitions set forth 
in Section I and the Conditions set forth in Section III are met.

Section III. Conditions

    (a) The Plan receives the entire Restorative Payment Amount no 
later than September 13, 2023;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCS; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to BCS is for no more than the lesser of 
the total Restorative Payments received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to BCS may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
BCS must be carried out in a manner designed to minimize unnecessary 
costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCS for legal expenses 
in connection with the Claims is limited to only reasonable legal 
expenses that were paid by BCS to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCS for reasonable legal expenses paid in connection with the 
Claims by BCS to non-BCS-related parties. For purposes of determining 
the amount of Attorney Fees the Plan may reimburse to BCS under this 
proposal, the amount of reasonable attorney fees paid by BCS on behalf 
of the Plan in connection with the Claims must be reduced by the amount 
of legal fees received by BCS in connection with the Claims from any 
non-Plan party (i.e., pursuant to a court award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;

[[Page 52152]]

    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCS must notify the Department's Office of Exemption Determinations of 
the change in Independent Fiduciary and such notification must contain 
all material information regarding the successor Independent Fiduciary, 
including the successor Independent Fiduciary's qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mr. Frank Gonzalez of the 
Department, telephone (202) 693-8553. (This is not a toll-free number.)

Blue Cross and Blue Shield of Mississippi, A Mutual Insurance Company

Located in Flowood, Mississippi

[Application No. D-12040]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of Blue Cross and Blue Shield of 
Mississippi (the Plan) in the first quarter of 2020.\60\
---------------------------------------------------------------------------

    \60\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Blue 
Cross and Blue Shield of Mississippi, a Mutual Insurance Company; 
and/or (4) any person or entity related to a person or entity 
described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the past payments of 
$70,000,000 and $12,000,000 by the Plan sponsor, Blue Cross and Blue 
Shield of Mississippi, A Mutual Insurance Company (BCBS MS), to the 
Plan (the Restorative Payments). If the Plan receives litigation 
proceeds from the Claims, the Plan will transfer the lesser of the 
ligation proceeds amount or the Restorative Payments, plus reasonable 
attorney fees to BCBS MS.

Summary of Facts and Representations 61
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    \61\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12040 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. BCBS MS is a not-for-profit company that provides health 
insurance products and services. BCBS MS is an independent licensee of 
the Blue Cross Blue Shield Association (BCBSA).
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of BCBS MS and employees of 
affiliated employers. As of December 31, 2006, the Plan was closed to 
new entrants. As of December 31, 2020, the Plan covered 976 
participants and held $153,536,775 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy

[[Page 52153]]

consisted of alpha and beta components. According to the applicant, the 
alpha component was an options trading strategy that Allianz claimed 
would seek targeted positive return potential while maintaining 
structural risk protections. The beta component was intended to provide 
broad market exposure to a particular asset class through investments 
in financial products similar to an exchange-traded fund that 
replicates the performance of a market index, such as the S&P 500. 
According to the Applicant, Allianz represented that the Structured 
Alpha Strategy would capitalize on the return-generating features of 
option selling (short volatility) while simultaneously benefitting from 
the risk-control attributes associated with option buying (long 
volatility). According to the Applicant, Allianz represented further 
that the alpha component would include position hedging consisting of 
long-volatility positions designed to protect the portfolio in the 
event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $122,962,882, which represented 71.18% of total Plan assets.\62\
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    \62\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 71.18% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
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    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019 the market value of Plan assets was $172,731,750. As 
of March 31, 2020, the market value of Plan assets decreased to 
$67,238,446. The Applicant represents that the Plan's total losses from 
the Allianz Structured Alpha Strategy were $102,446,155, which caused 
the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBS MS took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on September 17, 
2020, BCBS MS and the Plan entered into a Contribution and Assignment 
Agreement (the Contribution and Assignment Agreement).
    11. Pursuant to the Contribution and Assignment Agreement, BCBS MS 
agreed to make the following Restorative Payments to the Plan: (a) a 
$70,000,000 payment within seven business days of the effective date of 
the Contribution and Assignment Agreement; and (b) a $12,000,000 
payment on or about November 24, 2020. BCBS MS subsequently made the 
following Restorative Payments to the Plan: (a) a payment of 
$70,000,000 on September 21, 2020; and (b) a payment of $12,000,000 on 
November 25, 2020.
    12. In exchange for the Restorative Payments, the Plan assigned to 
BCBS MS its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\63\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to BCBS MS a repayment (the Repayment) that does not exceed 
the total Restorative Payments made by BCBS MS as of that date, plus 
reasonable attorney fees paid by BCBS MS on behalf of the Plan in 
connection with the Claims, if such fees are reviewed and approved by a 
qualified independent fiduciary who confirms that the fees were 
reasonably incurred and paid by BCBS MS to unrelated third parties (the 
Attorney Fees).
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    \63\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    For the purposes of this exemption, Attorney Fees reimbursable to 
BCBS MS do not include: (a) legal expenses paid by the Plan; and (b) 
legal expenses paid by BCBS MS for representation of its own interests 
or the interests of any party other than the Plan. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
MS under this exemption, the amount of reasonable attorney fees paid by 
BCBS MS on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS MS in connection 
with the Claims from any non-Plan party (for example, from a third 
party pursuant to a court award).
    13. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan, 
however, may ultimately receive more than the Restorative Payment 
amount required under the Contribution and Assignment Agreement. If the 
Plan receives litigation or settlement proceeds that exceed the amount 
of Restorative Payments that BCBS MS has made to the Plan, the Plan's 
Repayment to BCBS MS will be limited to the amount of

[[Page 52154]]

Restorative Payments actually made by BCBS MS, plus Attorney Fees. For 
example, if BCBS MS reasonably incurred $100,000 in Attorney Fees, and 
the Plan receives $100,000,000 in litigation proceeds, the Plan will 
make a Repayment to BCBS MS totaling $82,100,000.
    14. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCBS 
MS has made to the Plan, the Plan will transfer to BCBS MS the lesser 
amount of litigation or settlement proceeds, plus Attorney Fees. For 
example, if BCBS MS has reasonably incurred $100,000 in Attorney Fees, 
and the Plan receives $50,000,000 in litigation proceeds, the Plan will 
make a Repayment to BCBS MS totaling $50,100,000.
    15. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    16. BCBS MS retained Gallagher Fiduciary Advisors, LLC (Gallagher 
or the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    17. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    18. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCBS 
MS and any BCBS MS affiliates. Gallagher further represents the total 
revenues it has received from the Plan and from parties in interest to 
the Plan in connection with its engagement as Independent Fiduciary 
represents approximately 0.78% of Gallagher's total revenue.
    19. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    20. On September 17, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payments, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBS MS only up to the Required 
Restorative Payment Amount received by the Plan, plus any reasonable 
legal expense paid to non-BCBS MS-related parties that were incurred 
by, or allocated to, BCBS MS as a result of the Claims.\64\ Thus, if 
the Plan's ultimate recovery amount from the Claims is less than the 
Required Restorative Payment Amount, plus related litigation expenses 
that were allocated to the Plan, BCBS MS, not the Plan, will suffer the 
loss.
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    \64\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCBS MS in exchange for the 
Assignment.

ERISA Analysis

    21. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCBS MS in exchange for the Plan's transfer of litigation 
or settlement proceeds to BCBS MS would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. BCBS MS, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to BCBS MS with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (BCBS MS) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. BCBS MS's 
promise to make Required Restorative Payments to the Plan, over time, 
constitutes an impermissible extension of credit between the Plan and a 
party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBS MS in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to a party-in-interest in violation of ERISA 
Section 406(a)(1)(D).

[[Page 52155]]

Conditions

    22. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBS MS fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by BCBS MS or 
the amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBS MS for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS MS to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of BCBS MS or the interests of any party other than the 
Plan) where BCBS MS was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\65\
---------------------------------------------------------------------------

    \65\ 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.''
---------------------------------------------------------------------------

    23. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    24. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBS MS; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to BCBS MS must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    25. The Plan may not make any Repayment to BCBS MS before the date: 
the Plan has received from BCBS MS the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to BCBS MS in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    26. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBS MS for reasonable legal 
expenses arising from the Claims that BCBS MS paid to non-BCBS MS-
related parties for representation of the Plan and its interests (as 
opposed to representation of BCBS MS or the interests of any party 
other than the Plan) where BCBS MS was not otherwise reimbursed by a 
non-Plan party.
    27. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    28. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\66\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
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    \66\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments substantially improved the 
Plan's funding status, which enhanced the Plan's ability to meet its 
obligations to fund benefit obligations to participants and 
beneficiaries and helped the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because,

[[Page 52156]]

among other things, the Plan will repay BCBS MS the lesser of the 
Required Restorative Payment Amount received by the Plan, or the amount 
the Plan receives in proceeds from the Claims, ensuring that the 
Proposed Transactions will result in an increase in Plan assets of at 
least the total amount of Restorative Payments (less reasonable legal 
expenses related to the Claims paid by BCBS MS to unrelated third 
parties, as confirmed and approved by the Independent Fiduciary). 
Further, this exemption preserves any right, claim, demand and/or cause 
of action the Plan may have against: (a) any fiduciary of the Plan; (b) 
any fiduciary of the Trust; (c) BCBS MS; and/or (d) any person or 
entity related to a person or entity described in (a)-(c).

Summary

    29. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\67\
---------------------------------------------------------------------------

    \67\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBS MS on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBS MS to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to BCBS MS do not include: (1) legal 
expenses paid by the Plan; and (2) legal expenses paid by BCBS MS for 
representation of BCBC MS or the interests of any party other than the 
Plan.
    (b) The term ``BCBS MS'' means Blue Cross and Blue Shield of 
Mississippi, a Mutual Insurance Company.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between BCBS MS and the Plan, dated September 17, 
2020, containing all material terms regarding BCBS MS's agreement to 
make Required Restorative Payments to the Plan in return for the Plan's 
potential Repayment to BCBS MS of an amount that is no more than lesser 
of the Required Restorative Payment Amount (as described in Section 
I(h)) or the amount of litigation proceeds the Plan receives from the 
Claims, plus reasonable attorney fees paid to unrelated third parties 
by BCBS MS in connection with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of BCBS MS and does not hold an ownership 
interest in BCBS MS or affiliates of BCBS MS;
    (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 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; 
\68\
---------------------------------------------------------------------------

    \68\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCBS MS or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBS MS or from affiliates of 
BCBS MS while serving as an Independent Fiduciary. This prohibition 
will continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Mississippi.
    (g) The term ``Plan Losses'' means the $102,446,155 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCBS MS to the Plan in connection with the Plan Losses, defined above, 
consisting of: (1) the past payment of $70,000,000 made on September 
21, 2020; and (2) the past payment of $12,000,000 made on November 25, 
2020. The sum of (1) and (2) is the Required Restorative Payment 
Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBS MS following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims; and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective September 17, 
2020, to the following transactions: BCBS MS's transfer of Restorative 
Payments to the Plan; and, in return, the Plan's Repayment of an amount 
to BCBS MS, which must be no more than the lesser of the Restorative 
Payments or the amount of litigation proceeds the Plan received from 
the Claims, plus reasonable Attorney Fees, provided that the 
Definitions set forth in Section I and the Conditions set forth in 
Section III are met.

[[Page 52157]]

Section III. Conditions

    (a) The Plan received the entire Restorative Payment Amount no 
later than November 25, 2020;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBS MS; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to BCBS MS is for no more than the lesser 
of the total Restorative Payments received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to BCBS MS may only occur after the Independent Fiduciary has 
determined that: all the conditions of the exemption are met; the Plan 
has received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
BCBS MS must be carried out in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payments were fully and 
timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBS MS for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by BCBS MS to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBS MS for reasonable legal expenses paid in connection with 
the Claims by BCBS MS to non-BCBS MS-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
MS under this proposal, the amount of reasonable attorney fees paid by 
BCBS MS on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS MS in connection 
with the Claims from any non-Plan party (i.e., pursuant to a court 
award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBS MS must notify the Department's Office of Exemption Determinations 
of the change in Independent Fiduciary and such notification must 
contain all material information regarding the successor Independent 
Fiduciary, including the successor Independent Fiduciary's 
qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mrs. Blessed Chuksorji-Keefe of 
the Department, telephone (202) 693-8567. (This is not a toll-free 
number.)

Blue Cross and Blue Shield of Nebraska, Inc.

Located in Omaha, Nebraska

[Application No. D-12041]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S.

[[Page 52158]]

LLC (Allianz) and Aon Investments USA Inc. (Aon), that arose from 
certain losses incurred by the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Nebraska, Inc. (the 
Plan) in the first quarter of 2020.\69\
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    \69\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Blue 
Cross and Blue Shield of Nebraska, Inc.; and/or (4) any person or 
entity related to a person or entity described in (1)-(3).
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    This proposed exemption would permit the past payments of 
$7,000,000 and $6,600,000 by the Plan sponsor, Blue Cross and Blue 
Shield of Nebraska, Inc. (BCBS Nebraska or the Applicant), to the Plan 
(the Restorative Payments). If the Plan receives litigation proceeds 
from the Claims, the Plan will transfer the lesser of the ligation 
proceeds amount or the Restorative Payments, plus reasonable attorney 
fees to BCBS Nebraska.

Summary of Facts and Representations 70
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    \70\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12041 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
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    1. BCBS Nebraska is a not-for-profit company that provides health 
insurance products and services. BCBS Nebraska is an independent 
licensee of the Blue Cross Blue Shield Association (BCBSA).
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of BCBS Nebraska. The Plan was 
amended, effective January 1, 2006, to close participation to new 
entrants as of December 31, 2005. As of August 31, 2020, the Plan 
covered 418 participants and held $36,863,722 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $42,147,684, which represented 59.39% of total Plan assets.\71\
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    \71\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 59.39% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
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    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019 the market value of Plan assets was $70,967,280. As 
of March 31, 2020, the market value of Plan assets decreased to 
$36,028,581. The Applicant represents

[[Page 52159]]

that the Plan's total losses from the Allianz Structured Alpha Strategy 
were $33,649,481, which caused the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBS Nebraska took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could apply to 
the Plan as a result of a funding shortfall. Therefore, on November 5, 
2020, BCBS Nebraska and the Plan entered into a Contribution and 
Assignment Agreement (the Contribution and Assignment Agreement). 
Pursuant to the Contribution and Assignment Agreement, BCBS Nebraska 
agreed to make Restorative Payments to the Plan not in excess of 
$33,649,481 by September 15, 2022. Subsequently, on August 25, 2021, 
BCBS Nebraska made a $7,000,000 Restorative Payment to the Plan.
    11. On March 17, 2022, BCBS Nebraska and the Plan amended the 
Restorative Payments provision of the Contribution and Assignment 
Agreement to require BCBS Nebraska to make one additional Restorative 
Payment of $6,600,000 to the Plan by September 15, 2022. Subsequently, 
on March 29, 2022, BCBS Nebraska made a $6,600,000 Restorative Payment 
to the Plan.
    12. In exchange for the Restorative Payments, the Plan assigned to 
BCBS Nebraska its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\72\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to BCBS Nebraska a repayment (the Repayment) that does not 
exceed the total Restorative Payments made by BCBS Nebraska as of that 
date, plus reasonable attorney fees paid by BCBS Nebraska on behalf of 
the Plan in connection with the Claims, if such fees are reviewed and 
approved by a qualified independent fiduciary who confirms that the 
fees were reasonably incurred and paid by BCBS Nebraska to unrelated 
third parties (the Attorney Fees).
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    \72\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
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    For the purposes of this exemption, Attorney Fees reimbursable to 
BCBS Nebraska do not include: (a) legal expenses paid by the Plan; and 
(b) legal expenses paid by BCBS Nebraska for representation of its own 
interests or the interests of any party other than the Plan. For 
purposes of determining the amount of Attorney Fees the Plan may 
reimburse to BCBS Nebraska under this exemption, the amount of 
reasonable attorney fees paid by BCBS Nebraska on behalf of the Plan in 
connection with the Claims must be reduced by the amount of legal fees 
received by BCBS Nebraska in connection with the Claims from any non-
Plan party (for example, from a third party pursuant to a court award).
    13. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payments that BCBS Nebraska has made to the Plan, the Plan's Repayment 
to BCBS Nebraska will be limited to the amount of Restorative Payments 
actually made by BCBS Nebraska, plus Attorney Fees. For example, if 
BCBS Nebraska has reasonably incurred $100,000 in Attorney Fees, and 
the Plan receives $30,000,000 in litigation proceeds, the Plan will 
make a Repayment to BCBS Nebraska totaling $13,700,000.
    14. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that BCBS 
Nebraska has made to the Plan, the Plan will transfer to BCBS Nebraska 
the lesser amount of litigation or settlement proceeds, plus Attorney 
Fees. For example, if BCBS Nebraska reasonably incurred $100,000 in 
Attorney Fees, and the Plan receives $5,000,000 in litigation proceeds, 
the Plan will make a Repayment to BCBS Nebraska totaling $5,100,000.
    15. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    16. BCBS Nebraska retained Gallagher Fiduciary Advisors, LLC 
(Gallagher or the Independent Fiduciary) of New York, New York, to 
serve as the Plan's independent fiduciary with respect to the Required 
Restorative Payments and the potential repayment by the Plan of those 
Payments (collectively, the Proposed Transactions). Gallagher 
represents that it has extensive experience in institutional investment 
consulting and fiduciary decision-making regarding traditional and 
alternative investments. Gallagher further represents that its 
independent fiduciary decision-making work involves acting as a 
fiduciary advisor or decision-maker for plans and other ERISA-regulated 
asset pools and that it has experience with a wide range of asset 
classes and litigation claims.
    17. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    18. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCBS 
Nebraska and any BCBS Nebraska affiliates. Gallagher further represents 
the total revenues it has received from the Plan and from parties in 
interest to the Plan in connection with its engagement as Independent 
Fiduciary represents approximately 0.78% of Gallagher's total revenue.
    19. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    20. On November 5, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level.

[[Page 52160]]

Gallagher represents that the Required Restorative Payments, which will 
be received by the Plan substantially in advance of a final resolution 
of the Claims against Allianz and Aon, should restore the Plan's funded 
percentage to its pre-loss funded percentage as of January 1, 2019. The 
restoration of the Plan's funding status will secure ongoing benefit 
payments to participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBS Nebraska only up to the 
Required Restorative Payment Amount received by the Plan, plus any 
reasonable legal expense paid to non-BCBS Nebraska-related parties that 
were incurred by, or allocated to, BCBS Nebraska as a result of the 
Claims.\73\ Thus, if the Plan's ultimate recovery amount from the 
Claims is less than the Required Restorative Payment Amount, plus 
related litigation expenses that were allocated to the Plan, BCBS 
Nebraska, not the Plan, will suffer the loss.
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    \73\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from BCBS Nebraska in exchange for the 
Assignment.

ERISA Analysis

    21. Absent an exemption, the Plan's receipt of the Restorative 
Payments from BCBS Nebraska in exchange for the Plan's transfer of 
litigation or settlement proceeds to BCBS Nebraska would violate ERISA. 
In this regard, ERISA Section 406(a)(1)(A) prohibits a plan fiduciary 
from causing the plan to engage in a transaction if the fiduciary knows 
or should know that such transaction constitutes a direct or indirect 
sale or exchange of any property between a plan and a party in 
interest. BCBS Nebraska, as an employer whose employees are covered by 
the Plan, is a party in interest with respect to the Plan under ERISA 
Section 3(14)(C). The Required Restorative Payments to the Plan and the 
Plan's potential repayment to BCBS Nebraska with litigation or 
settlement proceeds would constitute impermissible exchanges between 
the Plan and a party-in-interest (BCBS Nebraska) in violation of ERISA 
Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. BCBS 
Nebraska's promise to make Required Restorative Payments to the Plan, 
over time, constitutes an impermissible extension of credit between the 
Plan and a party-in-interest in violation of ERISA Section 
406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBS Nebraska in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to a party-in-interest in violation of ERISA 
Section 406(a)(1)(D).

Conditions

    22. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBS Nebraska fully 
complies with the terms of this exemption and is for no more than the 
lesser of the total Restorative Payments actually made to the Plan by 
BCBS Nebraska or the amount the Plan received from the Claims, plus 
Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBS Nebraska for 
legal expenses in connection with the Claims is limited to only 
reasonable legal expenses that were paid by BCBS Nebraska to unrelated 
third parties for representation of the Plan and its interests (as 
opposed to representation of BCBS Nebraska or the interests of any 
party other than the Plan) where BCBS Nebraska was not otherwise 
reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\74\
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    \74\ 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.''
---------------------------------------------------------------------------

    23. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    24. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBS

[[Page 52161]]

Nebraska; and/or (d) any person or entity related to a person or entity 
described in (a)-(c) of this paragraph. Additionally, any Repayment by 
the Plan to BCBS Nebraska must be made in a manner designed to minimize 
unnecessary costs and disruption to the Plan and its investments.
    25. The Plan may not make any Repayment to BCBS Nebraska before the 
date: the Plan has received from BCBS Nebraska the entire amount of the 
Restorative Payments agreed to in the Amended Contribution and 
Assignment Agreement, and all the Claims are settled. Furthermore, the 
Plan may not pay any interest to BCBS Nebraska in connection with its 
receipt of the Required Restorative Payments, nor pledge Plan assets to 
secure any portion of the Required Restorative Payments.
    26. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBS Nebraska for reasonable legal 
expenses arising from the Claims that BCBS Nebraska paid to non-BCBS 
Nebraska-related parties for representation of the Plan and its 
interests (as opposed to representation of BCBS Nebraska or the 
interests of any party other than the Plan) where BCBS Nebraska was not 
otherwise reimbursed by a non-Plan party.
    27. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    28. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\75\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
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    \75\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments substantially improved the 
Plan's funding status, which enhanced the Plan's ability to meet its 
obligations to fund benefit obligations to participants and 
beneficiaries and helped the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay BCBS Nebraska the 
lesser of the Required Restorative Payment Amount received by the Plan, 
or the amount the Plan receives in proceeds from the Claims, ensuring 
that the Proposed Transactions will result in an increase in Plan 
assets of at least the total amount of Restorative Payments (less 
reasonable legal expenses related to the Claims paid by BCBS Nebraska 
to unrelated third parties, as confirmed and approved by the 
Independent Fiduciary). Further, this exemption preserves any right, 
claim, demand and/or cause of action the Plan may have against: (a) any 
fiduciary of the Plan; (b) any fiduciary of the Trust; (c) BCBS 
Nebraska; and/or (d) any person or entity related to a person or entity 
described in (a)-(c).

Summary

    29. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\76\
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    \76\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
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Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBS Nebraska on behalf of the Plan in connection with the Claims, 
if such fees are reviewed and approved by a qualified independent 
fiduciary who confirms that the fees were reasonably incurred and paid 
by BCBS Nebraska to unrelated third parties. For the purposes of this 
exemption, the Attorney Fees reimbursable to BCBS Nebraska do not 
include: (1) legal expenses paid by the Plan; and (2) legal expenses 
paid by BCBS Nebraska for representation of BCBC Nebraska or the 
interests of any party other than the Plan.
    (b) The term ``BCBS Nebraska'' means Blue Cross and Blue Shield of 
Nebraska, Inc.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between BCBS Nebraska and the Plan, dated November 5, 
2020, and its amendment that became effective on March 17, 2022, 
containing all material terms regarding BCBS Nebraska's agreement to 
make Required Restorative Payments to the Plan in return for the Plan's 
potential Repayment to BCBS Nebraska of an amount that is no more than 
lesser of the Required Restorative Payment Amount (as described in 
Section I(h)) received by the Plan or the amount of litigation proceeds 
the Plan receives from the Claims, plus reasonable attorney fees paid 
to unrelated third parties by BCBS Nebraska in connection with the 
Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:

[[Page 52162]]

    (1) Is not an affiliate of BCBS Nebraska and does not hold an 
ownership interest in BCBS Nebraska or affiliates of BCBS Nebraska;
    (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 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; 
\77\
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    \77\ 29 CFR 2509.75-4.
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    (5) Has not received gross income from BCBS Nebraska or its 
affiliates during any fiscal year in an amount that exceeds two percent 
(2%) of the Independent Fiduciary's gross income from all sources for 
the prior fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBS Nebraska or from affiliates 
of BCBS Nebraska while serving as an Independent Fiduciary. This 
prohibition will continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Nebraska, Inc.
    (g) The term ``Plan Losses'' means the $33,649,481 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the payments made by 
BCBS Nebraska to the Plan in connection with the Plan Losses, defined 
above, consisting of: (1) the past payment of $7,000,000 on August 25, 
2021; and (2) the past payment of $6,600,000 on March 29, 2022. The sum 
of (1) and (2) is the Required Restorative Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBS Nebraska following the Plan's receipt of proceeds from 
the Claims, where the Repayment is made following the full and complete 
resolution of the Claims, and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective November 5, 
2020, to the following transactions: BCBS Nebraska's transfer of 
Restorative Payments to the Plan; and, in return, the Plan's Repayment 
of an amount to BCBS Nebraska, which must be no more than the lesser of 
the Restorative Payment received by the Plan or the amount of 
litigation proceeds the Plan received from the Claims, plus reasonable 
Attorney Fees, provided that the Definitions set forth in Section I and 
the Conditions set forth in Section III are met.

Section III. Conditions

    (a) The Plan received the entire Restorative Payment Amount no 
later than March 29, 2022;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBS Nebraska; and/or (4) 
any person or entity related to a person or entity identified in (1)-
(3) of this paragraph;
    (c) The Plan's Repayment to BCBS Nebraska is for no more than the 
lesser of the total Restorative Payments received by the Plan or the 
amount of litigation proceeds the Plan receives from the Claims. The 
Plan's Repayment to BCBS Nebraska may only occur after the Independent 
Fiduciary has determined that: all the conditions of the exemption are 
met; the Plan has received all the Restorative Payments it is due; and 
the Plan has received all the litigation proceeds it is due. The Plan's 
Repayment to BCBS Nebraska must be carried out in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBS Nebraska for 
legal expenses in connection with the Claims is limited to only 
reasonable legal expenses that were paid by BCBS Nebraska to unrelated 
third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBS Nebraska for reasonable legal expenses paid in 
connection with the Claims by BCBS

[[Page 52163]]

Nebraska to non-BCBS Nebraska-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to BCBS 
Nebraska under this proposal, the amount of reasonable attorney fees 
paid by BCBS Nebraska on behalf of the Plan in connection with the 
Claims must be reduced by the amount of legal fees received by BCBS 
Nebraska in connection with the Claims from any non-Plan party (i.e., 
pursuant to a court award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBS Nebraska must notify the Department's Office of Exemption 
Determinations of the change in Independent Fiduciary and such 
notification must contain all material information regarding the 
successor Independent Fiduciary, including the successor Independent 
Fiduciary's qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mrs. Blessed Chuksorji-Keefe of 
the Department, telephone (202) 693-8567. (This is not a toll-free 
number.)

BlueCross BlueShield of Tennessee, Inc.

Located in Chattanooga, Tennessee

[Application No. D-12045]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the BlueCross BlueShield of 
Tennessee, Inc. Pension Plan (the Plan) in the first quarter of 
2020.\78\
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    \78\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) BlueCross 
BlueShield of Tennessee, Inc.; and/or (4) any person or entity 
related to a person or entity described in (1)-(3).
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    This proposed exemption would permit the past payment of 
$100,000,000 to the Plan by the Plan sponsor, BlueCross BlueShield of 
Tennessee, Inc. (BCBS Tennessee). If the Plan receives litigation 
proceeds from the Claims, the Plan will transfer the lesser of the 
ligation proceeds amount or the Restorative Payment, plus reasonable 
attorney fees to BCBS Tennessee.

Summary of Facts and Representations 79
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    \79\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12045 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
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    1. BCBS Tennessee is a not-for-profit company incorporated in 
Tennessee with its principal office in Chattanooga, Tennessee. BCBS 
Tennessee issues and administers health care coverage for individuals 
and group health plans sponsored by Tennessee-based employers and is an 
independent licensee of the Blue Cross Blue Shield Association (BCBSA).
    2. The Plan is an ERISA-covered, frozen defined benefit pension 
plan that covers eligible employees of BCBS Tennessee and employees of 
affiliated employers. BCBS Tennessee makes all contributions to the 
Plan for the exclusive benefit of participants and their beneficiaries, 
and to cover administrative expenses. As of August 31, 2020, the Plan 
covered 2,628 participants and held $203,341,148 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's

[[Page 52164]]

board of directors. In 2011, the Committee invested a portion of the 
Trust's assets in funds managed by Allianz Global Investors U.S. LLC 
(Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $138,015,536, which represented 68.57% of total Plan assets.\80\
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    \80\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 68.57% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019, the market value of the Plan's assets was 
$201,265,786. As of March 31, 2020, the market value of the Plan's 
assets decreased to $103,023,619. The Applicant represents that the 
Plan's total losses from the Allianz Structured Alpha Strategy were 
$93,576,015, which caused the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, BCBS Tennessee took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could apply to 
the Plan as a result of a funding shortfall. Therefore, on October 8, 
2020, BCBS Tennessee and the Plan entered into a Contribution and 
Assignment Agreement (the Contribution and Assignment Agreement), 
whereby BCBS Tennessee agreed to make a $100,000,000 payment to the 
Plan within seven business days of the effective date of the 
Contribution and Assignment Agreement (the Restorative Payment). BCBS 
Tennessee remitted $100,000,000 to the Plan on October 8, 2020.
    11. In exchange for the Restorative Payment, the Plan assigned to 
BCBS Tennessee its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\81\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to BCBS Tennessee a repayment (the Repayment) that does not 
exceed the total Restorative Payment made by BCBS Tennessee, plus 
reasonable attorney fees paid by BCBS Tennessee on behalf of the Plan 
in connection with the Claims, if such fees are reviewed and approved 
by a qualified independent fiduciary who confirms that the fees were 
reasonably incurred and paid by BCBS Tennessee to unrelated third 
parties (the Attorney Fees). For the purposes of this exemption, 
Attorney Fees reimbursable to BCBS Tennessee do not include: (a) legal 
expenses paid by the Plan; and (b) legal expenses paid by BCBS 
Tennessee for representation of its own interests or the interests of 
any party other than the Plan. For purposes of determining the amount 
of Attorney Fees the Plan may reimburse to BCBS Tennessee under this 
exemption, the amount of reasonable attorney fees paid by BCBS 
Tennessee on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by BCBS Tennessee in 
connection with the Claims from any non-Plan party (for example, from a 
third party pursuant to a court award).
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    \81\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    12. The Plan must ultimately receive at least the full value of the 
promised

[[Page 52165]]

Restorative Payment, minus the Attorney Fees. The Plan, however, may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of the 
Restorative Payment that BCBS Tennessee made to the Plan, the Plan's 
Repayment to BCBS Tennessee will be limited to the amount of 
Restorative Payment made by BCBS Tennessee, plus Attorney Fees. For 
example, if BCBS Tennessee has reasonably incurred $100,000 in Attorney 
Fees, and the Plan receives $120,000,000 in litigation proceeds, the 
Plan will make a Repayment to BCBS Tennessee totaling $100,100,000.
    13. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of the Restorative Payment that 
BCBS Tennessee made to the Plan, the Plan will transfer to BCBS 
Tennessee the lesser amount of litigation or settlement proceeds, plus 
Attorney Fees. For example, if BCBS Tennessee has reasonably incurred 
$100,000 in Attorney Fees, and the Plan receives $50,000,000 in 
litigation proceeds, the Plan will make a Repayment to BCBS Tennessee 
totaling $50,100,000.
    14. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    15. BCBS Tennessee retained Gallagher Fiduciary Advisors, LLC 
(Gallagher or the Independent Fiduciary) of New York, New York, to 
serve as the Plan's independent fiduciary with respect to the Required 
Restorative Payment and the potential repayment by the Plan of that 
Payment (collectively, the Proposed Transactions). Gallagher represents 
that it has extensive experience in institutional investment consulting 
and fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    16. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    17. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including BCBS 
Tennessee and any BCBS Tennessee affiliates. Gallagher further 
represents the total revenues it has received from the Plan and from 
parties in interest to the Plan in connection with its engagement as 
Independent Fiduciary represents approximately 0.78% of Gallagher's 
total revenue.
    18. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    19. On October 8, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payment, which was received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse BCBS Tennessee only up to the 
Required Restorative Payment Amount received, plus any reasonable legal 
expense paid to non-BCBS Tennessee-related parties that were incurred 
by, or allocated to, BCBS Tennessee as a result of the Claims.\82\ 
Thus, if the Plan's ultimate recovery amount from the Claims is less 
than the Required Restorative Payment Amount, plus related litigation 
expenses that were allocated to the Plan, BCBS Tennessee, not the Plan, 
will suffer the loss.
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    \82\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payment from BCBS Tennessee in exchange for the 
Assignment.

ERISA Analysis

    20. Absent an exemption, the Plan's receipt of the Restorative 
Payment from BCBS Tennessee in exchange for the Plan's transfer of 
litigation or settlement proceeds to BCBS Tennessee would violate 
ERISA. In this regard, ERISA Section 406(a)(1)(A) prohibits a plan 
fiduciary from causing the plan to engage in a transaction if the 
fiduciary knows or should know that such transaction constitutes a 
direct or indirect sale or exchange of any property between a plan and 
a party in interest. BCBS Tennessee, as an employer whose employees are 
covered by the Plan, is a party in interest with respect to the Plan 
under ERISA Section 3(14)(C). The Required Restorative Payment to the 
Plan and the Plan's potential repayment to BCBS Tennessee with 
litigation or settlement proceeds would constitute impermissible 
exchanges between the Plan and a party-in-interest (BCBS Tennessee) in 
violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to BCBS Tennessee in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to

[[Page 52166]]

a party-in-interest in violation of ERISA Section 406(a)(1)(D).

Conditions

    21. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payment, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payment, the Repayment, and the Contribution and Assignment 
Agreement are prudent, in the interest of the Plan and its participants 
and beneficiaries, and protective of the rights of the Plan's 
participants and beneficiaries;
    (c) confirm that the Required Restorative Payment was fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to BCBS Tennessee fully 
complies with the terms of this exemption and is for no more than the 
lesser of the total Restorative Payment actually made to the Plan by 
BCBS Tennessee or the amount the Plan received from the Claims, plus 
Attorney Fees;
    (f) ensure that any Repayment by the Plan to BCBS Tennessee for 
legal expenses in connection with the Claims is limited to only 
reasonable legal expenses that were paid by BCBS Tennessee to unrelated 
third parties for representation of the Plan and its interests (as 
opposed to representation of BCBS Tennessee or the interests of any 
party other than the Plan) where BCBS Tennessee was not otherwise 
reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\83\
---------------------------------------------------------------------------

    \83\ 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.''
---------------------------------------------------------------------------

    22. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    23. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) BCBS Tennessee; and/or (d) any person or entity related to a person 
or entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to BCBS Tennessee must be made in a manner 
designed to minimize unnecessary costs and disruption to the Plan and 
its investments.
    24. The Plan may not make any Repayment to BCBS Tennessee before 
the date: the Plan has received from BCBS Tennessee the entire amount 
of the Restorative Payment agreed to in the Amended Contribution and 
Assignment Agreement; and all the Claims are settled. Furthermore, the 
Plan may not pay any interest to BCBS Tennessee in connection with its 
receipt of the Required Restorative Payment, nor pledge Plan assets to 
secure any portion of the Required Restorative Payment.
    25. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse BCBS Tennessee for reasonable 
legal expenses arising from the Claims that BCBS Tennessee paid to non-
BCBS Tennessee-related parties for representation of the Plan and its 
interests (as opposed to representation of BCBS Tennessee or the 
interests of any party other than the Plan) where BCBS Tennessee was 
not otherwise reimbursed by a non-Plan party.
    26. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    27. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\84\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
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    \84\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payment substantially improved the 
Plan's funding status, which enhanced the Plan's ability to meet its 
obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because,

[[Page 52167]]

among other things, the Plan will repay BCBS Tennessee the lesser of 
the Required Restorative Payment Amount received, or the amount the 
Plan receives in proceeds from the Claims, ensuring that the Proposed 
Transactions will result in an increase in Plan assets of at least the 
total amount of Restorative Payment (less reasonable legal expenses 
related to the Claims paid by BCBS Tennessee to unrelated third 
parties, as confirmed and approved by the Independent Fiduciary). 
Further, this exemption preserves any right, claim, demand and/or cause 
of action the Plan may have against: (a) any fiduciary of the Plan; (b) 
any fiduciary of the Trust; (c) BCBS Tennessee; and/or (d) any person 
or entity related to a person or entity described in (a)-(c).

Summary

    28. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\85\
---------------------------------------------------------------------------

    \85\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by BCBS Tennessee on behalf of the Plan in connection with the Claims, 
if such fees are reviewed and approved by a qualified independent 
fiduciary who confirms that the fees were reasonably incurred and paid 
by BCBS Tennessee to unrelated third parties. For the purposes of this 
exemption, the Attorney Fees reimbursable to BCBS Tennessee do not 
include: (1) legal expenses paid by the Plan; and (2) legal expenses 
paid by BCBS Tennessee for representation of BCBC Tennessee or the 
interests of any party other than the Plan.
    (b) The term ``BCBS Tennessee'' means BlueCross BlueShield of 
Tennessee, Inc.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between BCBS Tennessee and the Plan, dated October 8, 
2020, containing all material terms regarding Tennessee's agreement to 
make the Required Restorative Payment to the Plan in return for the 
Plan's potential Repayment to BCBS Tennessee of an amount that is no 
more than lesser of the Required Restorative Payment Amount (as 
described in Section I(h)) received or the amount of litigation 
proceeds the Plan receives from the Claims, plus reasonable attorney 
fees paid to unrelated third parties by BCBS Tennessee in connection 
with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of BCBS Tennessee and does not hold an 
ownership interest in BCBS Tennessee or affiliates of BCBS Tennessee;
    (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 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; 
\86\
---------------------------------------------------------------------------

    \86\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from BCBS Tennessee or its 
affiliates during any fiscal year in an amount that exceeds two percent 
(2%) of the Independent Fiduciary's gross income from all sources for 
the prior fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 BCBS Tennessee or from affiliates 
of BCBS Tennessee while serving as an Independent Fiduciary. This 
prohibition will continue for 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.
    (f) The ``Plan'' means the BlueCross BlueShield of Tennessee, Inc. 
Pension Plan.
    (g) The term ``Plan Losses'' means the $93,576,015 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payment'' means the payment made by BCBS 
Tennessee to the Plan in connection with the Plan Losses, defined 
above, consisting of a $100,000,000 payment that BCBS Tennessee 
contributed to the Plan on October 8, 2020. This $100,000,000 payment 
is the Required Restorative Payment Amount.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to BCBS Tennessee following the Plan's receipt of proceeds 
from the Claims, where the Repayment is made following the full and 
complete resolution of the Claims; and in a manner that is consistent 
with the terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective September 15, 
2020, to the following transactions: BCBS Tennessee's transfer of the 
Restorative Payment to the Plan; and, in return, the Plan's Repayment 
of an amount to BCBS Tennessee, which must be no more than the lesser 
of the Restorative Payment Amount received or the amount of litigation 
proceeds the Plan received from the Claims, plus reasonable Attorney 
Fees, provided that the Definitions set forth in Section I and the 
Conditions set forth in Section III are met.

[[Page 52168]]

Section III. Conditions

    (a) The Plan received the entire Restorative Payment Amount no 
later than October 8, 2020;
    (b) In connection with its receipt of the Required Restorative 
Payment, the Plan does not release any claims, demands and/or causes of 
action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) BCBS Tennessee; and/or 
(4) any person or entity related to a person or entity identified in 
(1)-(3) of this paragraph;
    (c) The Plan's Repayment to BCBS Tennessee is for no more than the 
lesser of the total Restorative Payment received by the Plan or the 
amount of litigation proceeds the Plan receives from the Claims. The 
Plan's Repayment to BCBS Tennessee may only occur after the Independent 
Fiduciary has determined that: all the conditions of the exemption are 
met; the Plan has received the entirety of the Restorative Payment it 
is due; and the Plan has received all the litigation proceeds it is 
due. The Plan's Repayment to BCBS Tennessee must be carried out in a 
manner designed to minimize unnecessary costs and disruption to the 
Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payment and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payment, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to BCBS Tennessee for 
legal expenses in connection with the Claims is limited to only 
reasonable legal expenses that were paid by BCBS Tennessee to unrelated 
third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payment;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payment;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse BCBS Tennessee for reasonable legal expenses paid in 
connection with the Claims by BCBS Tennessee to non-BCBS Tennessee-
related parties. For purposes of determining the amount of Attorney 
Fees the Plan may reimburse to BCBS Tennessee under this proposal, the 
amount of reasonable attorney fees paid by BCBS Tennessee on behalf of 
the Plan in connection with the Claims must be reduced by the amount of 
legal fees received by BCBS Tennessee in connection with the Claims 
from any non-Plan party (i.e., pursuant to a court award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
BCBS Tennessee must notify the Department's Office of Exemption 
Determinations of the change in Independent Fiduciary and such 
notification must contain all material information regarding the 
successor Independent Fiduciary, including the successor Independent 
Fiduciary's qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Ms. Blessed Chuksorji-Keefe of the 
Department, telephone (202) 693-8567. (This is not a toll-free number.)

Triple-S Management Corporation

Located in San Juan, Puerto Rico

[Application No. D-12042]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims)

[[Page 52169]]

against Allianz Global Investors U.S. LLC (Allianz) and Aon Investments 
USA Inc. (Aon), that arose from certain losses incurred by the Triple-S 
Management Corporation Non-Contributory Retirement Plan (the Plan) in 
the first quarter of 2020.\87\
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    \87\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) Triple-S 
Management Corporation and/or (4) any person or entity related to a 
person or entity described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the past payment of 
$10,000,000 by Triple-S Management Corporation (Triple-S), the Plan 
sponsor, to the Plan (the Restorative Payment). If the Plan receives 
litigation proceeds from the Claims, the Plan will transfer the lesser 
of the ligation proceeds amount or the Restorative Payment amount, plus 
reasonable attorney fees to Triple-S.

Summary of Facts and Representation 88
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    \88\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12042 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. Triple-S is an insurance holding company that provides health 
insurance products and services. Triple-S is the only independent 
licensee of the Blue Cross Blue Shield Association (BCBSA) in Puerto 
Rico and has a presence in markets such as the U.S. Virgin Islands and 
Costa Rica.
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees or participants of Triple-S. The 
Plan was amended effective January 31, 2017, to freeze benefit accruals 
as of that date with respect to all participants. As of August 31, 
2020, the Plan covered 1,144 participants and held $64,771,505 in total 
assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz represented that the 
Structured Alpha Strategy would capitalize on the return-generating 
features of option selling (short volatility) while simultaneously 
benefitting from the risk-control attributes associated with option 
buying (long volatility). According to the Applicant, Allianz 
represented further that the alpha component would include position 
hedging consisting of long-volatility positions designed to protect the 
portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $127,024,812, which represented 77.66% of total Plan assets.\89\
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    \89\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 77.66% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31,

[[Page 52170]]

2019 the market value of Plan assets was $163,558,110. As of March 31, 
2020, the market value of Plan assets decreased to $54,855,395. The 
Applicant represents that the Plan's total losses from the Allianz 
Structured Alpha Strategy were $103,793,253, which caused the Plan to 
be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, Triple-S took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could apply to 
the Plan as a result of a funding shortfall. Therefore, on November 6, 
2020, Triple-S and the Plan entered into a Contribution and Assignment 
Agreement whereby Triple-S agreed to make a $10,000,000 Restorative 
Payment to the Plan not later than December 31, 2021 (the Contribution 
and Assignment Agreement). Subsequently, on June 28, 2021, Triple-S 
made a $10,000,000 Restorative Payment to the Plan.
    11. In exchange for the Restorative Payment, the Plan assigned to 
Triple-S its right to retain certain litigation and/or settlement 
proceeds recovered from the Claims (the Assigned Interests).\90\ Per 
the assignment, once the Allianz/Aon litigation is resolved and if the 
Plan receives litigation proceeds from the Claims, the Plan will 
transfer to Triple-S a repayment (the Repayment) that does not exceed 
the total Restorative Payment made by Triple-S as of that date, plus 
reasonable attorney fees paid by Triple-S on behalf of the Plan in 
connection with the Claims, if such fees are reviewed and approved by a 
qualified independent fiduciary who confirms that the fees were 
reasonably incurred and paid by Triple-S to unrelated third parties 
(the Attorney Fees).
---------------------------------------------------------------------------

    \90\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    For the purposes of this exemption, Attorney Fees reimbursable to 
Triple-S do not include: (a) legal expenses paid by the Plan; and (b) 
legal expenses paid by Triple-S for representation of its own interests 
or the interests of any party other than the Plan. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to 
Triple-S under this exemption, the amount of reasonable attorney fees 
paid by Triple-S on behalf of the Plan in connection with the Claims 
must be reduced by the amount of legal fees received by Triple-S in 
connection with the Claims from any non-Plan party (for example, from a 
third party pursuant to a court award).
    12. The Plan must ultimately receive at least the full value of the 
promised Restorative Payment, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payment that Triple-S has made to the Plan, the Plan's Repayment to 
Triple-S will be limited to the Restorative Payment amount, plus 
Attorney Fees. For example, if Triple-S reasonably incurred $100,000 in 
Attorney Fees, and the Plan receives $20,000,000 in litigation 
proceeds, the Plan will make a Repayment to Triple-S totaling 
$10,100,000.
    13. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of the Restorative Payment, the 
Plan will transfer to Triple-S the lesser amount of litigation or 
settlement proceeds, plus Attorney Fees. For example, if Triple-S 
reasonably incurred $100,000 in Attorney Fees, and the Plan receives 
$5,000,000 in litigation proceeds, the Plan will make a Repayment to 
Triple-S totaling $5,100,000.
    14. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    15. Triple-S retained Gallagher Fiduciary Advisors, LLC (Gallagher 
or the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payment and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    16. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    17. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including 
Triple-S and any Triple-S affiliates. Gallagher further represents the 
total revenues it has received from the Plan and from parties in 
interest to the Plan in connection with its engagement as Independent 
Fiduciary represents approximately 0.78% of Gallagher's total revenue.
    18. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    19. On November 5, 2020, Gallagher completed an Independent 
Fiduciary Report (the Independent Fiduciary Report) finding that the 
massive losses caused by the Trust's investment in the Allianz 
Structured Alpha Strategy resulted in a significant reduction to the 
Plan's total assets and funding level. Gallagher represents that the 
Required Restorative Payment, which will be received by the Plan 
substantially in advance of a final resolution of the Claims against 
Allianz and Aon, should restore the Plan's funded percentage to its 
pre-loss funded percentage as of January 1, 2019. The restoration of 
the Plan's funding status will secure ongoing benefit payments to 
participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse Triple-S only up to the Required 
Restorative

[[Page 52171]]

Payment Amount received by the Plan, plus any reasonable legal expense 
paid to non-Triple-S-related parties that were incurred by, or 
allocated to, Triple-S as a result of the Claims.\91\ Thus, if the 
Plan's ultimate recovery amount from the Claims is less than the 
Required Restorative Payment Amount, plus related litigation expenses 
that were allocated to the Plan, Triple-S, not the Plan, will suffer 
the loss.
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    \91\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payment from Triple-S in exchange for the 
Assignment.

ERISA Analysis

    20. Absent an exemption, the Plan's receipt of the Restorative 
Payment from Triple-S in exchange for the Plan's transfer of litigation 
or settlement proceeds to Triple-S would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. Triple-S, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payment to the Plan and the Plan's potential 
repayment to Triple-S with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (Triple-S) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. Triple's 
promise to make the Required Restorative Payment to the Plan, over 
time, constitutes an impermissible extension of credit between the Plan 
and a party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to Triple-S in 
connection with the Repayment would constitute an impermissible 
transfer of Plan assets to a party-in-interest in violation of ERISA 
Section 406(a)(1)(D).

Conditions

    21. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of 
prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payment, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payment, the Repayment, and the Contribution and Assignment 
Agreement are prudent, in the interest of the Plan and its participants 
and beneficiaries, and protective of the rights of the Plan's 
participants and beneficiaries;
    (c) confirm that the Required Restorative Payment was fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to Triple-S fully 
complies with the terms of this exemption and is for no more than the 
lesser of the total Restorative Payment or the amount the Plan received 
from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to Triple-S for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by Triple-S to unrelated third parties 
for representation of the Plan and its interests (as opposed to 
representation of Triple-S or the interests of any party other than the 
Plan) where Triple-S was not otherwise reimbursed from a non-Plan 
party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\92\
---------------------------------------------------------------------------

    \92\ 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.''
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    22. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    23. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) Triple-S; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to Triple-S must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    24. The Plan may not make any Repayment to Triple-S before the 
date: the Plan has received from Triple-S the entire amount of the 
Restorative Payment agreed to in the Amended Contribution and 
Assignment Agreement; and all the Claims are settled. Furthermore, the 
Plan may not pay any interest to Triple-S in connection with its 
receipt of the Required Restorative Payment, nor pledge Plan assets to 
secure any portion of the Required Restorative Payment.

[[Page 52172]]

    25. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse Triple-S for reasonable legal 
expenses arising from the Claims that Triple-S paid to non-Triple-S-
related parties for representation of the Plan and its interests (as 
opposed to representation of Triple-S or the interests of any party 
other than the Plan) where Triple-S was not otherwise reimbursed by a 
non-Plan party.
    26. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    27. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\93\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
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    \93\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payment substantially improved the 
Plan's funding status, which enhanced the Plan's ability to meet its 
obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay Triple-S the lesser of 
the Required Restorative Payment Amount received by the Plan, or the 
amount the Plan receives in proceeds from the Claims, ensuring that the 
Proposed Transactions will result in an increase in Plan assets of at 
least the total amount of Restorative Payment (less reasonable legal 
expenses related to the Claims paid by Triple-S to unrelated third 
parties, as confirmed and approved by the Independent Fiduciary). 
Further, this exemption preserves any right, claim, demand and/or cause 
of action the Plan may have against: (a) any fiduciary of the Plan; (b) 
any fiduciary of the Trust; (c) Triple-S; and/or (d) any person or 
entity related to a person or entity described in (a)-(c).

Summary

    28. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\94\
---------------------------------------------------------------------------

    \94\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 
1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by Triple-S on behalf of the Plan in connection with the Claims, if 
such fees are reviewed and approved by a qualified independent 
fiduciary who confirms that the fees were reasonably incurred and paid 
by Triple-S to unrelated third parties. For the purposes of this 
exemption, the Attorney Fees reimbursable to Triple-S do not include: 
(1) legal expenses paid by the Plan; and (2) legal expenses paid by 
Triple-S for representation of Triple-S or the interests of any party 
other than the Plan.
    (b) The term ``Triple-S'' means Triple-S Management Corporation.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between Triple-S and the Plan, dated November 6, 
2020, containing all material terms regarding Triple-S's agreement to 
make Required Restorative Payment to the Plan in return for the Plan's 
potential Repayment to Triple-S of an amount that is no more than 
lesser of the Required Restorative Payment Amount (as described in 
Section I(h)) received by the Plan or the amount of litigation proceeds 
the Plan receives from the Claims, plus reasonable attorney fees paid 
to unrelated third parties by Triple-S in connection with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of Triple-S and does not hold an ownership 
interest in Triple-S or affiliates of Triple-S;
    (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 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; 
\95\
---------------------------------------------------------------------------

    \95\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from Triple-S or its affiliates 
during any fiscal year in an amount that exceeds

[[Page 52173]]

two percent (2%) of the Independent Fiduciary's gross income from all 
sources for the prior fiscal year. This provision also applies to a 
partnership or corporation of which the Independent Fiduciary 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 Triple-S or from affiliates of 
Triple-S while serving as an Independent Fiduciary. This prohibition 
will continue for 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.
    (f) The ``Plan'' means the Triple-S Management Corporation Non-
Contributory Retirement Plan.
    (g) The term ``Plan Losses'' means the $103,793,253 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payment'' means the payment made by 
Triple-S of $10,000,000 to the Plan in connection with the Plan Losses, 
defined above, consisting of a $10,000,000 payment that Triple-S 
contributed to the Plan on June 28, 2021.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to Triple-S following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims, and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B), and (D) and the sanctions resulting from 
the application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective November 5, 
2020, to the following transactions: Triple-S's transfer of Restorative 
Payment to the Plan; and, in return, the Plan's Repayment of an amount 
to Triple-S, which must be no more than the lesser of the Restorative 
Payment received by the Plan or the amount of litigation proceeds the 
Plan received from the Claims, plus reasonable Attorney Fees, provided 
that the Definitions set forth in Section I and the Conditions set 
forth in Section III are met.

Section III. Conditions

    (a) The Plan received the entire Restorative Payment Amount no 
later than June 28, 2021;
    (b) In connection with its receipt of the Required Restorative 
Payment, the Plan does not release any claims, demands and/or causes of 
action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) Triple-S; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to Triple-S is for no more than the lesser 
of the total Restorative Payment received by the Plan or the amount of 
litigation proceeds the Plan receives from the Claims. The Plan's 
Repayment to Triple-S may only occur after the Independent Fiduciary 
has determined that: all the conditions of the exemption are met; the 
Plan has received all the Restorative Payments it is due; and the Plan 
has received all the litigation proceeds it is due. The Plan's 
Repayment to Triple-S must be carried out in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payment and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payment, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to Triple-S for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by Triple-S to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payment;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payment;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse Triple-S for reasonable legal expenses paid in connection 
with the Claims by Triple-S to non-Triple-S-related parties. For 
purposes of determining the amount of Attorney Fees the Plan may 
reimburse to Triple-S under this proposal, the amount of reasonable 
attorney fees paid by Triple-S on behalf of the Plan in connection with 
the Claims must be reduced by the amount of legal fees received by 
Triple-S in connection with the Claims from any non-Plan party (i.e., 
pursuant to a court award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity

[[Page 52174]]

that: (1) meets the definition of Independent Fiduciary detailed above 
in Section II(e); and (2) otherwise meets all of the qualification, 
independence, prudence and diligence requirements set forth in this 
exemption. Further, any such successor Independent Fiduciary must 
assume all of the duties of the outgoing Independent Fiduciary. As soon 
as possible, including before the appointment of a successor 
Independent Fiduciary, Triple-S must notify the Department's Office of 
Exemption Determinations of the change in Independent Fiduciary and 
such notification must contain all material information regarding the 
successor Independent Fiduciary, including the successor Independent 
Fiduciary's qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Ms. Anna Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

National Account Service Company LLC

Located in Atlanta, Georgia

[Application No. D-12049]

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 Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code). The proposed exemption 
relates to legal actions and claims (the Claims) against Allianz Global 
Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), that 
arose from certain losses incurred by the Non-Contributory Retirement 
Program for Certain Employees of National Account Service Company (the 
Plan) in the first quarter of 2020.\96\
---------------------------------------------------------------------------

    \96\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of any Claim against 
Allianz and Aon, or whether the Plan's fiduciaries met their 
fiduciary duties with respect to Plan assets that are the subject of 
the Claims. Further, in proposing this exemption, the Department is 
not limiting any party's claim, demand and/or cause of action 
arising from the Plan's 2020 first quarter losses in any way. Among 
other things, this exemption preserves any right, claim, demand and/
or cause of action the Plan may have against the following: (1) any 
fiduciary of the Plan; (2) any fiduciary of the Trust; (3) National 
Account Service Company LLC; and/or (4) any person or entity related 
to a person or entity described in (1)-(3).
---------------------------------------------------------------------------

    This proposed exemption would permit the Plan sponsor, the National 
Account Service Company LLC (NASCO), to make payments totaling $50 
million to the Plan (the Restorative Payments). If the Plan receives 
litigation proceeds from the Claims, the Plan will transfer the lesser 
of the ligation proceeds amount or the Restorative Payments, plus 
reasonable attorney fees to NASCO.

Summary of Facts and Representations 97
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    \97\ The Department notes that availability of this exemption is 
subject to the express condition that the material facts and 
representations contained in application D-12049 are true and 
complete at all times 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. The Summary of 
Facts and Representations is based on the Applicant's 
representations, as well as factual representations contained in the 
Claims' cause of action (as described below) and does not reflect 
factual findings or opinions of the Department, unless indicated 
otherwise.
---------------------------------------------------------------------------

    1. NASCO is a healthcare technology company dedicated to co-
creating digital health solutions for Blue Cross and Blue Shield 
companies. NASCO provides information technology products and services 
and offers payment management, system delivery, business optimization 
solutions, membership enrollment, and other related services. NASCO is 
owned by Blue Cross Blue Shield of Michigan Mutual Insurance Company.
    2. The Plan is an ERISA-covered qualified defined benefit pension 
plan that covers eligible employees of NASCO. The Plan was amended 
effective January 1, 2009 to close participation to new entrants as of 
December 31, 2008. As of December 31, 2020, the Plan covered 264 
participants and held $47,306,049 in total assets.
    3. The Plan holds a beneficial interest in the Blue Cross and Blue 
Shield National Retirement Trust (the Trust). The Trust is a master 
trust that holds the assets of 16 defined benefit pension plans that 
participate in the BCBSA's National Retirement Program (the 
Participating Plans). Northern Trust serves as Trustee and asset 
custodian to the Trust and maintains separate records that reflect the 
net asset value of each Participating Plan. The Trust's earnings, 
market adjustments, and administrative expenses are allocated among the 
Participating Plans based on the respective Participating Plan's share 
of the Trust's assets. A Participating Plan's interest in the Trust's 
net assets is based on its share of the Trust.
    4. The Committee serves as named fiduciary and administrator for 
each Participating Plan. The Committee is a standing committee of the 
BCBSA's board of directors. In 2011, the Committee invested a portion 
of the Trust's assets in funds managed by Allianz Global Investors U.S. 
LLC (Allianz), as part of a Structured Alpha Investment Strategy. These 
funds included: (a) AllianzGI Structured Alpha Multi-Beta Series LLC I; 
(b) AllianzGI Structured Alpha Emerging Markets Equity 350 LLC; and (c) 
AllianzGI Structured Alpha 1000 LLC (collectively, the Structured Alpha 
Funds).
    5. The Applicant represents that the Allianz Structured Alpha 
strategy consisted of alpha and beta components. According to the 
applicant, the alpha component was an options trading strategy that 
Allianz claimed would seek targeted positive return potential while 
maintaining structural risk protections. The beta component was 
intended to provide broad market exposure to a particular asset class 
through investments in financial products similar to an exchange-traded 
fund that replicates the performance of a market index, such as the S&P 
500. According to the Applicant, Allianz

[[Page 52175]]

represented that the Structured Alpha Strategy would capitalize on the 
return-generating features of option selling (short volatility) while 
simultaneously benefitting from the risk-control attributes associated 
with option buying (long volatility). According to the Applicant, 
Allianz represented further that the alpha component would include 
position hedging consisting of long-volatility positions designed to 
protect the portfolio in the event of a market crash.
    6. As of December 31, 2019, the total market value of the Plan's 
portion of the Trust's investment in the Allianz Structured Alpha Funds 
was $63,571,918, which represented 77.66% of total Plan assets.\98\
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    \98\ By proposing this exemption, the Department does not, in 
any way, suggest a conclusion that the Plan's fiduciaries met their 
ERISA Section 404 duties when they caused the Trust to invest 77.66% 
of the Plan's total assets in the Allianz Structured Alpha Funds.
---------------------------------------------------------------------------

    7. In 2009, the Committee retained Aon (then called Ennis Knupp) to 
provide investment advice regarding the investment of Plan assets held 
in the Trust. The Applicant represents that Aon provided regular 
investment advice pursuant to a written contract between it and the 
Committee. Pursuant to its engagement, Aon agreed to provide the 
following: ``recommendations to [the Committee] regarding asset 
allocation'' within the Trust; ``recommendations to [the Committee] 
regarding the specific asset allocation and other investment 
guidelines'' for the Trust's investment managers such as Allianz; and 
advice ``regarding the diversification of assets'' held in the Trust.'' 
The Applicant represents that Aon agreed to: conduct ``active, ongoing 
monitoring'' of Allianz to ``identify any forward-looking'' risks 
``that could impact performance;'' and ``inform itself'' of any 
information necessary to discharge its duty to monitor, including 
information about the actual options positions Allianz had constructed.
    8. The Applicant represents that when equity markets sharply 
declined in February and March of 2020, volatility spiked and the 
options positions held within the Structured Alpha Strategy were 
exposed to a heightened risk of loss. The Applicant represents that, 
unbeknownst to the Committee, and in violation of Allianz's stated 
investment strategy, Allianz abandoned the hedging strategy that was 
the supposed cornerstone of the Structured Alpha Strategy, leaving the 
portfolio almost entirely unhedged against a spike in market 
volatility. As described in the Claims, although Allianz had 
represented that it would buy hedges at strike prices ranging from 10% 
to 25% below the market, the hedges it actually held at the end of 
February 2020 were as much as 60% below the market.
    The Applicant represents that, as of January 31, 2020, the Trust 
had invested approximately $2,916,049,486 in the Structured Alpha 
Strategy. Six weeks later, the Trust faced a margin call, which the 
Applicant states left it no choice but to liquidate the investment. The 
Trust was ultimately able to redeem only $646,762,678 of its 
$2,916,049,486 investment, resulting in a total loss of $2,269,286,808.
    Specifically, regarding the Plan's portion of the loss, as of 
December 31, 2019 the market value of Plan assets was $81,855,683. As 
of March 31, 2020, the market value of Plan assets decreased to 
$28,120,905. The Applicant represents that the Plan's total losses from 
the Allianz Structured Alpha Strategy were $51,662,561, which caused 
the Plan to be underfunded.
    9. On September 16, 2020, the Committee filed a cause of action in 
the United States District Court for the Southern District of New York 
(Case number 20-CIV-07606) against Allianz and Aon for Breach of 
Fiduciary Duty under ERISA Section 404, Breach of Co-Fiduciary Duty 
under ERISA Section 405, and violation of ERISA Section 406(b) for 
managing the Plan assets in its self-interest and breach of contract. 
It is possible that resolution of this claim and other legal actions 
against Allianz and Aon in connection with the Plan's losses (the 
Claims) could take an extended period of time.
    10. The Applicant states that rather than wait for the Claims to be 
resolved, NASCO took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could apply to the 
Plan as a result of a funding shortfall. Therefore, on March 1, 2021, 
NASCO and the Plan entered into a Contribution and Assignment Agreement 
pursuant to which NASCO agreed to make Restorative Payments to the Plan 
not in excess of $50,000,000 over the course of 2021 through 2025 (the 
Contribution and Assignment Agreement).
    11. NASCO has made Restorative Payments to the Plan totaling 
$22,800,000, including: (a) a $2,000,000 payment on August 3, 2020; (b) 
a $2,000,000 payment on September 2, 2020; (c) a $3,625,000 payment on 
June 21, 2021; (d) a $3,625,000 payment on July 21, 2021; (e) a 
$3,625,000 payment on August 16, 2021; (f) a $3,625,000 payment on 
September 13, 2021; and (g) a $4,300,000 payment on June 21, 2021.
    12. In exchange for the Restorative Payments, the Plan assigned to 
NASCO its right to retain certain litigation and/or settlement proceeds 
recovered from the Claims (the Assigned Interests).\99\ Per the 
assignment, once the Allianz/Aon litigation is resolved and if the Plan 
receives litigation proceeds from the Claims, the Plan will transfer to 
NASCO a repayment (the Repayment) that does not exceed the total 
Restorative Payments made by NASCO as of that date, plus reasonable 
attorney fees paid by NASCO on behalf of the Plan in connection with 
the Claims, if such fees are reviewed and approved by a qualified 
independent fiduciary who confirms that the fees were reasonably 
incurred and paid by NASCO to unrelated third parties (the Attorney 
Fees).
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    \99\ Under the Contribution and Assignment Agreement, if the 
Plan receives litigation or settlement proceeds from the Claims, the 
proceeds would first flow to the Trust, and then each Plan's pro 
rata portion of the proceeds would be deposited into the individual 
trust funding that Plan.
---------------------------------------------------------------------------

    For the purposes of this exemption, Attorney Fees reimbursable to 
NASCO do not include: (a) legal expenses paid by the Plan; and (b) 
legal expenses paid by NASCO for representation of its own interests or 
the interests of any party other than the Plan. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to NASCO 
under this exemption, the amount of reasonable attorney fees paid by 
NASCO on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by NASCO in connection 
with the Claims from any non-Plan party (for example, from a third 
party pursuant to a court award).
    13. The Plan must ultimately receive at least the full value of the 
promised Restorative Payments, minus the Attorney Fees. The Plan may 
ultimately receive more than the Restorative Payment amount required 
under the Contribution and Assignment Agreement. If the Plan receives 
litigation or settlement proceeds that exceed the amount of Restorative 
Payments that NASCO has made to the Plan, the Plan's Repayment to NASCO 
will be limited to the amount of Restorative Payments actually made by 
NASCO, plus Attorney Fees. For example, if NASCO has made $22,800,000 
in Restorative Payments to the Plan and reasonably incurred $100,000 in 
Attorney Fees, and the Plan receives $50,000,000 in litigation 
proceeds, the Plan will make a Repayment to NASCO totaling $22,900,000.
    14. Alternatively, if the Plan receives less litigation or 
settlement proceeds than the amount of Restorative Payments that NASCO 
has made to the

[[Page 52176]]

Plan, the Plan will transfer to NASCO the lesser amount of litigation 
or settlement proceeds, plus Attorney Fees. For example, if NASCO has 
made $22,800,000 in Restorative Payments to the Plan and has reasonably 
incurred $100,000 in Attorney Fees, and the Plan receives $10,000,000 
in litigation proceeds, the Plan will not make any Repayment to NASCO. 
Under this scenario, NASCO will remain obligated to complete the 
Restorative Payments to the Plan (totaling $50,000,000) by December 31, 
2025, prior to the Plan making any 10,100,000 Repayment to NASCO.
    15. The Department notes that if the Plan receives any restitution 
that is tied to the conduct underlying the Claims but was ordered 
pursuant to a proceeding or directive that is external to Case number 
20-CIV-07606, the disposition of such proceeds must conform to the 
requirements of this exemption.
    16. NASCO retained Gallagher Fiduciary Advisors, LLC (Gallagher or 
the Independent Fiduciary) of New York, New York, to serve as the 
Plan's independent fiduciary with respect to the Required Restorative 
Payments and the potential repayment by the Plan of those Payments 
(collectively, the Proposed Transactions). Gallagher represents that it 
has extensive experience in institutional investment consulting and 
fiduciary decision-making regarding traditional and alternative 
investments. Gallagher further represents that its independent 
fiduciary decision-making work involves acting as a fiduciary advisor 
or decision-maker for plans and other ERISA-regulated asset pools and 
that it has experience with a wide range of asset classes and 
litigation claims.
    17. Gallagher represents that it understands its duties and 
responsibilities under ERISA in acting as a fiduciary on behalf of the 
Plan. Gallagher also acknowledges that it is authorized to take all 
appropriate actions to safeguard the Plan's interests, and that it will 
monitor the Proposed Transactions on the Plan's behalf on a continuous 
basis and throughout the term required by this exemption.
    18. Gallagher represents that it does not have any prior 
relationship with any parties in interest to the Plan, including NASCO 
and any NASCO affiliates. Gallagher further represents the total 
revenues it has received from the Plan and from parties in interest to 
the Plan in connection with its engagement as Independent Fiduciary 
represents approximately 0.78% of Gallagher's total revenue.
    19. Gallagher represents that no party associated with this 
exemption application has or will indemnify it, in whole or in part, 
for negligence of any kind and/or any violation of state or federal law 
that may be attributable to Gallagher's performance of its duties as 
Independent Fiduciary to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument entered into by 
Gallagher as Independent Fiduciary may purport to waive any liability 
under state or federal law for any such violation.
    20. On March 1, 2021, Gallagher completed an Independent Fiduciary 
Report (the Independent Fiduciary Report) finding that the massive 
losses caused by the Trust's investment in the Allianz Structured Alpha 
Strategy resulted in a significant reduction to the Plan's total assets 
and funding level. Gallagher represents that the Required Restorative 
Payments, which will be received by the Plan substantially in advance 
of a final resolution of the Claims against Allianz and Aon, should 
restore the Plan's funded percentage to its pre-loss funded percentage 
as of January 1, 2019. The restoration of the Plan's funding status 
will secure ongoing benefit payments to participants and beneficiaries.
    Gallagher notes that the Contribution and Assignment Agreement 
provides that the Trust must reimburse NASCO only up to the Required 
Restorative Payment Amount received by the Plan, plus any reasonable 
legal expense paid to non-NASCO-related parties that were incurred by, 
or allocated to, NASCO as a result of the Claims.\100\ Thus, if the 
Plan's ultimate recovery amount from the Claims is less than the 
Required Restorative Payment Amount, plus related litigation expenses 
that were allocated to the Plan, NASCO, not the Plan, will suffer the 
loss.
---------------------------------------------------------------------------

    \100\ Currently, legal fees and expenses associated with the 
Claims are being paid by most of the Participating Plan's trusts on 
a pro rata basis according to each Participating Plan's total 
invested assets held in the Master Trust's Allianz Structured Alpha 
Strategy before the losses were incurred in the first quarter 2020. 
The Applicant represents that the Committee reviews and approves 
these legal fees before passing them through to each Participating 
Plan.
---------------------------------------------------------------------------

    Gallagher states that the Proposed Transactions and the terms of 
the Contribution and Assignment Agreement were negotiated and approved 
by Gallagher in its role as the Plan's Independent Fiduciary. Gallagher 
states that it approved the Proposed Transactions only after conducting 
an extensive analysis of the damages suffered by the Plan as a result 
of the failed Allianz Structured Alpha Strategy. Gallagher represents 
that it conducted numerous discussions with Trust representatives and 
counsel, along with the Plan's representatives and counsel to ensure 
that the interests of the Plan's participants and beneficiaries were 
protected with respect to all aspects of the Proposed Transactions. 
Based upon its assessment, Gallagher approved the Plan's receipt of the 
Required Restorative Payments from NASCO in exchange for the 
Assignment.

ERISA Analysis

    21. Absent an exemption, the Plan's receipt of the Restorative 
Payments from NASCO in exchange for the Plan's transfer of litigation 
or settlement proceeds to NASCO would violate ERISA. In this regard, 
ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from causing the 
plan to engage in a transaction if the fiduciary knows or should know 
that such transaction constitutes a direct or indirect sale or exchange 
of any property between a plan and a party in interest. NASCO, as an 
employer whose employees are covered by the Plan, is a party in 
interest with respect to the Plan under ERISA Section 3(14)(C). The 
Required Restorative Payments to the Plan and the Plan's potential 
repayment to NASCO with litigation or settlement proceeds would 
constitute impermissible exchanges between the Plan and a party-in-
interest (NASCO) in violation of ERISA Section 406(a)(1)(A).
    ERISA Section 406(a)(1)(B) prohibits the lending of money or other 
extension of credit between a plan and a party-in-interest. NASCO's 
promise to make Required Restorative Payments to the Plan, over time, 
constitutes an impermissible extension of credit between the Plan and a 
party-in-interest in violation of ERISA Section 406(a)(1)(B).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The transfer of Plan assets to NASCO in connection 
with the Repayment would constitute an impermissible transfer of Plan 
assets to a party-in-interest in violation of ERISA Section 
406(a)(1)(D).

Conditions

    22. This proposed exemption contains a number of conditions that 
must be met. For example, the proposed exemption mandates that the 
Independent Fiduciary, in full accordance with its obligations of

[[Page 52177]]

prudence and loyalty under ERISA Section 404(a)(1)(A) and (B) must:
    (a) review, negotiate, and approve the terms and conditions of the 
Required Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement, before the Plan enters into such payments and the 
agreement;
    (b) determine that the terms and conditions of the Required 
Restorative Payments, the Repayment, and the Contribution and 
Assignment Agreement are prudent, in the interest of the Plan and its 
participants and beneficiaries, and protective of the rights of the 
Plan's participants and beneficiaries;
    (c) confirm that the Required Restorative Payments are fully and 
timely made;
    (d) monitor the Claims and confirm that the Plan receives its 
proper share of any litigation or settlement proceeds received by the 
Trust in connection with the Claims;
    (e) ensure that any Repayment by the Plan to NASCO fully complies 
with the terms of this exemption and is for no more than the lesser of 
the total Restorative Payments actually made to the Plan by NASCO or 
the amount the Plan received from the Claims, plus Attorney Fees;
    (f) ensure that any Repayment by the Plan to NASCO for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by NASCO to unrelated third parties for 
representation of the Plan and its interests (as opposed to 
representation of NASCO or the interests of any party other than the 
Plan) where NASCO was not otherwise reimbursed from a non-Plan party;
    (g) monitor the Plan's Assigned Interests on an ongoing basis to 
determine and confirm that any excess recovery amount from the Claims 
(i.e., any amount that exceeds the Required Restorative Payment Amount) 
is retained by the Plan;
    (h) ensure that all of the conditions and definitions of this 
proposed exemption are met; and
    (i) represent that it has not and will not enter into any agreement 
or instrument that violates ERISA Section 410 or Department Regulations 
codified at 29 CFR 2509.75-4.\101\
---------------------------------------------------------------------------

    \101\ 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.''
---------------------------------------------------------------------------

    23. This proposed exemption also requires Gallagher to respond in 
writing to any information requests from the Department regarding 
Gallagher's activities as the Plan's Independent Fiduciary. 
Additionally, no later than 90 days after the resolution of the 
litigation, Gallagher must submit a written report to the Department 
demonstrating that all terms and conditions of the exemption have been 
met.
    24. This proposed exemption requires that the Plan has not and will 
not release any claims, demands and/or causes of action it may have 
against: (a) any fiduciary of the Plan; (b) any fiduciary of the Trust; 
(c) NASCO; and/or (d) any person or entity related to a person or 
entity described in (a)-(c) of this paragraph. Additionally, any 
Repayment by the Plan to NASCO must be made in a manner designed to 
minimize unnecessary costs and disruption to the Plan and its 
investments.
    25. The Plan may not make any Repayment to NASCO before the date: 
the Plan has received from NASCO the entire amount of the Restorative 
Payments agreed to in the Amended Contribution and Assignment 
Agreement; and all the Claims are settled. Furthermore, the Plan may 
not pay any interest to NASCO in connection with its receipt of the 
Required Restorative Payments, nor pledge Plan assets to secure any 
portion of the Required Restorative Payments.
    26. Pursuant to this proposed exemption, the Plan may not incur any 
expenses, commissions, or transaction costs in connection with the 
Proposed Transactions. However, as noted above, under certain 
circumstances the Plan may reimburse NASCO for reasonable legal 
expenses arising from the Claims that NASCO paid to non-NASCO-related 
parties for representation of the Plan and its interests (as opposed to 
representation of NASCO or the interests of any party other than the 
Plan) where NASCO was not otherwise reimbursed by a non-Plan party.
    27. Finally, the exemptive relief provided under this proposed 
exemption is conditioned upon the Department's assumption that the 
material facts and representations set forth above in the Summary of 
Facts and Representation section are true and accurate at all times. In 
the event that a material fact or representation detailed above is 
untrue or inaccurate, the exemptive relief provided under this 
exemption will cease immediately.

Statutory Findings

    28. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria is 
discussed below.
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible because, among other things, the Independent 
Fiduciary will represent the interests of the Plan for all purposes 
with respect to the Proposed Transactions.\102\ In this regard, not 
later than 90 days after the resolution of the litigation, the 
Independent Fiduciary must submit a written report to the Department 
demonstrating that all of the requirements of this exemption have been 
met.
---------------------------------------------------------------------------

    \102\ This proposed exemption would require that if the 
Independent Fiduciary resigns, is removed, or for any reason is 
unable to serve as an Independent Fiduciary, the successor 
Independent Fiduciary must, among other things, assume all of the 
duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent 
Fiduciary, the Plan Sponsor and the Plan must notify the 
Department's Office of Exemption Determinations of the change in 
Independent Fiduciaries. The notification must contain all material 
information including the qualifications of the successor 
Independent Fiduciary.
---------------------------------------------------------------------------

    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of the Plan because, among other things, the Plan's 
receipt of the Required Restorative Payments will substantially improve 
the Plan's funding status, which will enhance the Plan's ability to 
meet its obligations to fund benefit obligations to participants and 
beneficiaries and help the Plan avoid the imposition of benefit 
limitations imposed under Code section 436.
    c. 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's participants and beneficiaries 
because, among other things, the Plan will repay NASCO the lesser of 
the Required Restorative Payment Amount received by the Plan, or the 
amount the Plan receives in proceeds from the Claims, ensuring that the 
Proposed Transactions will result in an increase in Plan assets of at 
least the total amount of Restorative Payments (less reasonable legal 
expenses related to the Claims paid by NASCO to unrelated third 
parties, as confirmed and approved by the Independent Fiduciary). 
Further,

[[Page 52178]]

this exemption preserves any right, claim, demand and/or cause of 
action the Plan may have against: (a) any fiduciary of the Plan; (b) 
any fiduciary of the Trust; (c) NASCO; and/or (d) any person or entity 
related to a person or entity described in (a)-(c).

Summary

    29. Based on the conditions described above, the Department has 
tentatively determined that the relief sought by the Applicant 
satisfies the statutory requirements under ERISA Section 408(a) for the 
Department to make findings that support its issuance of a proposed 
exemption.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in the Department's exemption 
procedure regulation.\103\
---------------------------------------------------------------------------

    \103\ 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 
10, 1990).
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``Attorney Fees'' means reasonable legal expenses paid 
by NASCO on behalf of the Plan in connection with the Claims, if such 
fees are reviewed and approved by a qualified independent fiduciary who 
confirms that the fees were reasonably incurred and paid by NASCO to 
unrelated third parties. For the purposes of this exemption, the 
Attorney Fees reimbursable to NASCO do not include: (1) legal expenses 
paid by the Plan; and (2) legal expenses paid by NASCO for 
representation of NASCO or the interests of any party other than the 
Plan.
    (b) The term ``NASCO'' means National Account Service Company LLC.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (Allianz) and Aon Investments USA Inc. (Aon), 
to recover certain losses incurred by the Plan in the first quarter of 
2020.
    (d) The term ``Contribution and Assignment Agreement'' means the 
written agreement between NASCO and the Plan, dated March 1, 2021, 
containing all material terms regarding NASCO's agreement to make 
Required Restorative Payments to the Plan in return for the Plan's 
potential Repayment to NASCO of an amount that is no more than lesser 
of the Required Restorative Payment Amount (as described in Section 
I(h)) received by the Plan or the amount of litigation proceeds the 
Plan receives from the Claims, plus reasonable attorney fees paid to 
unrelated third parties by NASCO in connection with the Claims.
    (e) The term ``Independent Fiduciary'' means Gallagher Fiduciary 
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the 
extent Gallagher or the successor Independent Fiduciary continues to 
serve in such capacity who:
    (1) Is not an affiliate of NASCO and does not hold an ownership 
interest in NASCO or affiliates of NASCO;
    (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 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; 
\104\
---------------------------------------------------------------------------

    \104\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (5) Has not received gross income from NASCO or its affiliates 
during any fiscal year in an amount that exceeds two percent (2%) of 
the Independent Fiduciary's gross income from all sources for the prior 
fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary 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 NASCO or from affiliates of NASCO 
while serving as an Independent Fiduciary. This prohibition will 
continue for 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.
    (f) The ``Plan'' means the Non-Contributory Retirement Program for 
Certain Employees of National Account Service Company.
    (g) The term ``Plan Losses'' means the $51,662,561 in Plan losses 
the BCBSA's National Employee Benefits Committee alleges were the 
result of breaches of fiduciary responsibilities and breaches of 
contract by Allianz Global Investors U.S. LLC and/or Aon Investments 
USA Inc.
    (h) The term ``Restorative Payments'' means the $50 Million in 
payments NASCO is required to pay the Plan by December 21, 2025, as set 
forth in the Contribution and Assignment Agreement.
    (i) The ``Repayment'' means the payment, if any, that the Plan will 
transfer to NASCO following the Plan's receipt of proceeds from the 
Claims, where the Repayment is made following the full and complete 
resolution of the Claims, and in a manner that is consistent with the 
terms of the exemption.

Section II. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A), (B) and (D) and the sanctions resulting from the 
application of Code Section 4975, by reason of Code Sections 
4975(c)(1)(A), (B) and (D), shall not apply, effective September 2, 
2020, to the following transactions: NASCO's transfer of Restorative 
Payments to the Plan; and, in return, the Plan's Repayment of an amount 
to NASCO, which must be no more than the lesser of the Restorative 
Payment received by the Plan or the amount of litigation proceeds the 
Plan received from the Claims, plus reasonable Attorney Fees, provided 
that the Definitions set forth in Section I and the Conditions set 
forth in Section III are met.

Section III. Conditions

    (a) The Plan receives the entire Restorative Payment Amount no 
later than December 31, 2025;
    (b) In connection with its receipt of the Required Restorative 
Payments, the Plan does not release any claims, demands and/or causes 
of action the Plan may have against the following: (1) any fiduciary of 
the Plan; (2) any fiduciary of the Trust; (3) NASCO; and/or (4) any 
person or entity related to a person or entity identified in (1)-(3) of 
this paragraph;
    (c) The Plan's Repayment to NASCO is for no more than the lesser of 
the total Restorative Payments received by the Plan or the amount of 
litigation

[[Page 52179]]

proceeds the Plan receives from the Claims. The Plan's Repayment to 
NASCO may only occur after the Independent Fiduciary has determined 
that: all the conditions of the exemption are met; the Plan has 
received all the Restorative Payments it is due; and the Plan has 
received all the litigation proceeds it is due. The Plan's Repayment to 
NASCO must be carried out in a manner designed to minimize unnecessary 
costs and disruption to the Plan and its investments;
    (d) A qualified independent fiduciary (the Independent Fiduciary, 
as further defined in Section II(e)), acting solely on behalf of the 
Plan in full accordance with its obligations of prudence and loyalty 
under ERISA Sections 404(a)(1)(A) and (B) must:
    (1) Review, negotiate and approve the terms and conditions of the 
Restorative Payments and the Repayment and the Contribution and 
Assignment Agreement, all of which must be in writing, before the Plan 
enters into those transactions/agreement;
    (2) Determine that the Restorative Payments, the Repayment, and the 
terms of the Contribution and Assignment Agreement, are prudent and in 
the interest of the Plan and its participants and beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;
    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives, in a timely manner, its proper share of any 
litigation or settlement proceeds received by the Trust;
    (5) Ensure that any Repayment by the Plan to NASCO for legal 
expenses in connection with the Claims is limited to only reasonable 
legal expenses that were paid by NASCO to unrelated third parties;
    (6) Ensure that all of the conditions and definitions of this 
proposed exemption are met;
    (7) Submit a written report to the Department's Office of Exemption 
Determinations demonstrating and confirming that the terms and 
conditions of the exemption were met, within 90 days after the 
Repayment; and
    (8) Not enter into any agreement or instrument that violates ERISA 
Section 410 or the Department's Regulations codified at 29 CFR Section 
2509.75-4.
    (f) The Plan pays no interest in connection with the Restorative 
Payments;
    (g) The Plan does not pledge any Plan assets to secure any portion 
of the Restorative Payments;
    (h) The Plan does not incur any expenses, commissions, or 
transaction costs in connection with the Proposed Transactions. 
However, if first approved by the Independent Fiduciary, the Plan may 
reimburse NASCO for reasonable legal expenses paid in connection with 
the Claims by NASCO to non-NASCO-related parties. For purposes of 
determining the amount of Attorney Fees the Plan may reimburse to NASCO 
under this proposal, the amount of reasonable attorney fees paid by 
NASCO on behalf of the Plan in connection with the Claims must be 
reduced by the amount of legal fees received by NASCO in connection 
with the Claims from any non-Plan party (i.e., pursuant to a court 
award);
    (i) The proposed transactions do not involve any risk of loss to 
either the Plan or the Plan's participants and beneficiaries;
    (j) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party, in whole or in part, for 
negligence and/or any violation of state or federal law that may be 
attributable to the Independent Fiduciary in performing its duties to 
the Plan with respect to the Proposed Transactions. In addition, no 
contract or instrument may purport to waive any liability under state 
or federal law for any such violation.
    (k) If an Independent Fiduciary resigns, is removed, or for any 
reason is unable to serve as an Independent Fiduciary, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section II(e); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set forth in this exemption. 
Further, any such successor Independent Fiduciary must assume all of 
the duties of the outgoing Independent Fiduciary. As soon as possible, 
including before the appointment of a successor Independent Fiduciary, 
NASCO must notify the Department's Office of Exemption Determinations 
of the change in Independent Fiduciary and such notification must 
contain all material information regarding the successor Independent 
Fiduciary, including the successor Independent Fiduciary's 
qualifications; and
    (l) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate at all times.

Notice to Interested Persons

    The Applicant will give notice of the proposed exemption to all 
interested persons and all of the parties to the litigation described 
above, within fifteen calendar days after the publication of the notice 
of proposed exemption in the Federal Register. The notice will contain 
a copy of the notice of proposed exemption, as published in the Federal 
Register, and a supplemental statement, as required pursuant to the 
Department's regulations codified at 29 CFR 2570.43(a)(2). The 
supplemental statement will inform interested persons of their right to 
comment on the pending exemption. Written comments are due by October 
11, 2022.
    All comments will be made available to the public.
    Warning: 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 a Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    For Further Information Contact: Mr. Joseph Brennan of the 
Department, telephone (202) 693-8456. (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;

[[Page 52180]]

    (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 Washington, DC, this 16th day of August, 2022.
Timothy D. Hauser,
Deputy Assistant Secretary for Program Operations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2022-17995 Filed 8-23-22; 8:45 am]
BILLING CODE 4510-29-P