[Federal Register Volume 88, Number 36 (Thursday, February 23, 2023)]
[Notices]
[Pages 11676-11701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03632]



[[Page 11675]]

Vol. 88

Thursday,

No. 36

February 23, 2023

Part VI





 Department of Labor





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Employee Benefits Security Administration





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Exemptions From Certain Prohibited Transaction Restrictions; Notice

  Federal Register / Vol. 88, No. 36 / Thursday, February 23, 2023 / 
Notices  

[[Page 11676]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Exemptions From Certain Prohibited Transaction Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grants of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). 
This notice includes the following: 2023-03, Blue Cross and Blue Shield 
Association, D-12077; 2023-04, Blue Cross and Blue Shield of Arizona, 
Inc., D-12035; 2023-05, Blue Cross and Blue Shield of Vermont, D-12055; 
2023-06, Hawaii Medical Service Association, D-12038; 2023-07, BCS 
Financial Corporation, D-12036; 2023-08, Blue Cross and Blue Shield of 
Mississippi, D-12040; 2023-09, Blue Cross and Blue Shield of Nebraska, 
Inc., D-12041; 2023-10, BlueCross BlueShield of Tennessee, Inc., D-
12045; 2023-11, Midlands Management Corporation 401(k) Plan, D-12031; 
2023-12, DISH Network Corporation 401(k) Plan and the EchoStar 401(k) 
Plan, D-12012.

SUPPLEMENTARY INFORMATION: Notices were published in the Federal 
Register of the pendency before the Department of proposals to grant 
such exemptions. Each notice set forth a summary of the facts and 
representations made by the applicant for the exemption and referred 
interested persons to the application for a complete statement of the 
facts and representations. Each application is available for public 
inspection at the Department in Washington, DC. Each notice also 
invited interested persons to submit comments on the requested 
exemption to the Department. In addition, each notice stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). Each applicant has represented that it has 
complied with the requirements of the notification to interested 
persons. No requests for a hearing were received by the Department. 
Public comments were received by the Department as described in the 
granted exemption.
    Each notice of proposed exemption was issued, and each exemption is 
being granted, solely by the Department, because, 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 proposed to the Secretary of 
Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (76 FR 66637, 66644, October 27, 2011) and based upon 
the entire record, the Department makes the following findings:
    (a) Each exemption is administratively feasible;
    (b) Each exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) Each exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Blue Cross and Blue Shield Association Located in Chicago, Illinois

[Prohibited Transaction Exemption 2023-03; Exemption Application No. D-
12077]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \1\ permitting Blue Cross and Blue 
Shield Association (BCBSA) to make a series of payments to the Non-
Contributory Retirement Program for Certain Employees of Blue Cross and 
Blue Shield Association (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 must 
transfer the lesser of the ligation proceeds received or the 
Restorative Payments amount, plus reasonable attorneys' fees to BCBSA.
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    \1\ 87 FR 52118 (August 24, 2022).
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    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $183,368,144, or 77.82 
percent of its assets. These losses caused the Plan to be underfunded.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\2\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
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    \2\ Case number 20-CIV-07606.
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    Rather than wait for the Claims to be resolved through the 
litigation, BCBSA took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could result from a 
funding shortfall while the litigation was proceeding. Therefore, on 
November 24, 2020, BCBSA and the Plan entered into a Contribution and 
Assignment Agreement (the Contribution and Assignment Agreement). On 
June 22, 2022, BCBSA and the Plan amended the Contribution and 
Assignment Agreement to provide that BCBSA's Restorative Payments under 
the Agreement will consist of a $69,000,000 payment made on March 12, 
2021, and a $13,500,000 payment made on March 28, 2022.
    In exchange for the Restorative Payments, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCBSA.\3\ Pursuant to the 
assignment, if the Plan receives litigation proceeds from the Claims 
when the AGI US/Aon litigation is resolved, the Plan will

[[Page 11677]]

transfer a repayment (the Repayment) to BCBSA that does not exceed the 
total Restorative Payments made by BCBSA, plus reasonable attorneys' 
fees paid by BCBSA on behalf of the Plan in connection with the Claims. 
The attorneys' fees must be 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 Attorneys' 
Fees).
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    \3\ 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, Attorneys' Fees reimbursable to 
BCBSA do not include: (1) legal expenses paid by the Plan; or (2) 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 Attorneys' Fees the Plan may reimburse to BCBSA under 
this exemption, the amount of reasonable attorneys' fees paid by BCBSA 
on behalf of the Plan in connection with the Claims must be reduced by 
the amount of attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
In response, the Department received three written comments from Plan 
participants and no requests for a public hearing.

Comments From Plan Participants

    The first commenter stated that they do not agree that this 
exemption should be granted to BCBSA. They also stated that BCBSA has 
not been truthful in the past with how they have made changes to the 
Plan and the notice for this exemption was sent on the last possible 
day that BCBSA was required to provide notice.
    The second commenter stated that they are against the Department 
granting this exemption to BCBSA because the Plan was frozen as of 12/
31/2021, and, as a result, they are losing seven years of retirement 
income.
    The third commenter stated that they supported the exemption with 
one caveat: BCBSA should be required to bear the cost of the Attorneys' 
Fees incurred in connection with the plan's legal claims without 
getting reimbursed for those fees by the plan. The third commenter 
stated:
    ``While Allianz clearly bears primary responsibility for this 
situation, I believe BCBSA also bears significant responsibility for 
having made the ill-advised decision to invest such a large proportion 
of plan assets in the Structured Alpha Funds . . . Notwithstanding the 
generally favorable outcome of this situation in the fullness of time, 
I believe it is appropriate as a matter of public policy for BCBSA to 
bear some financial consequences in this matter.''

Department's Response

    With respect to the first commenter, the Department encourages them 
to contact the Department at any time if they believe that they have 
not received the benefits to which they are entitled under the Plan. 
Regarding the issues raised in the comment, the Department notes that 
changes to the Plan made by BCBSA in the past are not material to the 
terms of this exemption. Regarding BCBSA's requirement to provide 
notice within 15 calendar days of the proposed exemption's publication 
date, the Department has no reason to believe that BCBSA did not meet 
this requirement.
    With respect to the second commenter, the Department again 
encourages any participant to contact the Department if they believe 
they have not received all the benefits they are entitled to under the 
Plan. Regarding the substance of the comment, the Department notes that 
BCBS's decision to freeze the Plan in 2021 does not affect or relate to 
this exemption.
    With respect to the third commenter, the Department notes that in 
granting this exemption, the Department is explicitly not rendering 
judgment as to whether the Plan's fiduciaries have met their general 
fiduciary responsibilities of prudence and loyalty as set forth under 
ERISA Section 404. Further, condition (b) of this exemption expressly 
states, ``[i]n 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 . . .: (1) any fiduciary of the 
Plan.''
    Regarding Attorneys' Fees, this exemption also has strict standards 
that limit BCBSA's receipt of such fees to reasonable legal expenses 
paid by BCBSA on behalf of the Plan in connection with the Claims, if 
such fees are reviewed and approved by the Independent Fiduciary who 
confirms that the fees were reasonably incurred and paid by BCBSA to 
unrelated third parties.

Department's Additional Comment

    The Department is amending the last sentence of Section (III)(c) of 
the exemption by replacing the word ``minimize'' with ``avoid.'' The 
Department is making this revision to emphasize that the Repayment to 
BCBSA under this exemption should be carried out in a manner that 
avoids unnecessary costs and disruption to the Plan and Plan 
investments.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12077) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52118.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' 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 (AGI US) 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 not more than the 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 
Attorneys' Fees paid to unrelated third parties by BCBSA in connection 
with the Claims.

[[Page 11678]]

    (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 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; \4\
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    \4\ 29 CFR 2509.75-4.
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    (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. Covered Transactions

    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 Attorneys' 
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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified independent 
fiduciary (the Independent Fiduciary, as further defined in Section 
II(e)) 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 avoid 
unnecessary costs and disruption to the Plan and Plan investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payments and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payments, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests 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 its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative

[[Page 11679]]

Payments. However, if first approved by the Independent Fiduciary, the 
Plan may reimburse BCBSA for Attorneys' Fees. For purposes of 
determining the amount of Attorneys' 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 (i.e., pursuant to a court 
award);
    (i) The 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 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 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.
    Effective Date: This exemption is effective as of November 24, 
2020.
    For Further Information: Contact Mr. Joseph Brennan of the 
Department, telephone (202) 693-8456. (This is not a toll-free number.)

Blue Cross and Blue Shield of Arizona, Inc., Located in Phoenix, 
Arizona

[Prohibited Transaction Exemption 2023-04; Exemption Application No. D-
12035]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \5\ permitting Blue Cross and Blue 
Shield of Arizona, Inc. (BCBS AZ) to make a series of payments to the 
Non-Contributory Retirement Program for Certain Employees of Blue Cross 
and Blue Shield of Arizona, Inc. (the Plan), including: (1) past 
payments totaling $130,000,000; and (2) future amounts necessary for 
(a) the Plan's assets to be equal to or greater than 100% of the Plan's 
current liabilities, and (b) 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 must transfer the lesser of the ligation proceeds received or 
the Restorative Payments amount, plus reasonable attorneys' fees to 
BCBS AZ.
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    \5\ 87 FR 52130 (August 24, 2022).
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    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $302,470,379.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\6\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
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    \6\ Case number 20-CIV-07606.
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    Rather than wait for the Claims to be resolved through the 
litigation, BCBS AZ took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could result 
from a funding shortfall while the litigation was proceeding. 
Therefore, on November 5, 2020, BCBS AZ and the Plan entered into a 
Contribution and Assignment Agreement (the Contribution and Assignment 
Agreement). 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 Restorative 
Payments to the Plan of $35,000,000, on December 28, 2020, $10,000,000, 
on July 31, 2021, and $25,000,000 on December 21, 2021.
    On October 13, 2021, BCBS AZ and the Plan amended the Restorative 
Payments provision of the Contribution and Assignment Agreement to 
state that, before December 31, 2023, BCBS AZ 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.
    In exchange for the Restorative Payments, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCBS AZ.\7\ Pursuant to the 
assignment, if the Plan receives litigation proceeds from the Claims 
when the AGI US/Aon litigation is resolved, the Plan will

[[Page 11680]]

transfer a repayment (the Repayment) to BCBS AZ that does not exceed 
the total Restorative Payments made by BCBS AZ, plus reasonable 
attorneys' fees paid by BCBS AZ on behalf of the Plan in connection 
with the Claims. The attorneys' fees must be 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 
Attorneys' Fees).
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    \7\ 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, Attorneys' Fees reimbursable to 
BCBS AZ do not include: (1) legal expenses paid by the Plan; or (2) 
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 Attorneys' Fees the Plan may reimburse to 
BCBS AZ under this exemption, the amount of reasonable attorneys' fees 
paid by BCBS AZ on behalf of the Plan in connection with the Claims 
must be reduced by the amount of attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12035) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52130.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' 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 BCBS 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 (AGI US) 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 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 not 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 Attorneys' 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; \8\
---------------------------------------------------------------------------

    \8\ 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

[[Page 11681]]

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. Covered Transactions

    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 or the amount of 
litigation proceeds the Plan received from the Claims, plus reasonable 
Attorneys' 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 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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified independent 
fiduciary (the Independent Fiduciary, as further defined in Section 
II(e)) 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 avoid 
unnecessary costs and disruption to the Plan and Plan investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payments and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payments, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests 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 its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payments. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
BCBS AZ for Attorneys' Fees. For purposes of determining the amount of 
Attorneys' 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 (i.e., pursuant to a court award);
    (i) The 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 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 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.
    Effective Date: This exemption is effective as of September 15, 
2020.
    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

[Prohibited Transaction Exemption 2023-05; Exemption Application No. D-
12055]

Exemption

    On August 24, 2022, the Department published a notice of proposed

[[Page 11682]]

exemption in the Federal Register \9\ permitting Blue Cross and Blue 
Shield of Vermont (BCBS VT) to make a series of payments to the Non-
Contributory Retirement Program for Certain Employees of Blue Cross and 
Blue Shield of Vermont (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 must 
transfer the lesser of the ligation proceeds received or the 
Restorative Payment amount, plus reasonable attorneys' fees to BCBS VT.
---------------------------------------------------------------------------

    \9\ 87 FR 52135 (August 24, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $41,588,205.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\10\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
---------------------------------------------------------------------------

    \10\ Case number 20-CIV-07606.
---------------------------------------------------------------------------

    Rather than wait for the Claims to be resolved through the 
litigation, BCBS VT took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could result 
from a funding shortfall while the litigation was proceeding. 
Therefore, on December 21, 2020, BCBS VT and the Plan entered into a 
Contribution and Assignment Agreement (the Contribution and Assignment 
Agreement).
    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. 
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.
    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.
    This exemption 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 together with the funding 
obligations noted here constitute the Required Restorative Payments 
under this exemption.
    In exchange for the Restorative Payments, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCBS VT.\11\ Pursuant to 
the assignment, if the Plan receives litigation proceeds from the 
Claims when the AGI US/Aon litigation is resolved, the Plan will 
transfer a repayment (the Repayment) to BCBS VT that does not exceed 
the total Restorative Payments made by BCBS VT, plus reasonable 
attorneys' fees paid by BCBS VT on behalf of the Plan in connection 
with the Claims. The attorneys' fees must be 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 
Attorneys' Fees).
---------------------------------------------------------------------------

    \11\ 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, Attorneys' Fees reimbursable to 
BCBS VT do not include: (1) legal expenses paid by the Plan; or (2) 
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 Attorneys' Fees the Plan may reimburse to 
BCBS VT under this exemption, the amount of reasonable attorneys' fees 
paid by BCBS VT on behalf of the Plan in connection with the Claims 
must be reduced by the amount of attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12055) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52135.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' Fees reimbursable to BCBS VT do not include: 
(1) legal expenses paid by the

[[Page 11683]]

Plan; and (2) legal expenses paid by BCBS VT for representation of BCBS 
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 (AGI US) 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 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 not 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 Attorneys' 
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; 
\12\
---------------------------------------------------------------------------

    \12\ 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, Inc.
    (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, defined above, 
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. Covered Transactions

    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 VT's 
transfer of the 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 
Attorneys' 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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified independent 
fiduciary (the Independent Fiduciary, as further defined in Section 
II(e)) 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 avoid 
unnecessary costs and disruption to the Plan and Plan investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payments and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payments, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests of the Plan and its participants and 
beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;

[[Page 11684]]

    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payments. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
BCBS VT for Attorneys' Fees. For purposes of determining the amount of 
Attorneys' 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 (i.e., pursuant to a court award);
    (i) The 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 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 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.
    Effective Date: This exemption is effective as of December 21, 
2020.
    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

[Prohibited Transaction Exemption 2023-06; Exemption Application No. D-
12038]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \13\ permitting the past restorative 
payment of $50,000,000 (the Restorative Payment) by Hawaii Medical 
Service Association (HMSA) to the Non-Contributory Retirement Program 
for Certain Employees of Hawaii Medical Service Association (the Plan). 
If the Plan receives litigation proceeds from the Claims, the Plan must 
transfer the lesser of the ligation proceeds received or the 
Restorative Payment amount, plus reasonable attorneys' fees to HMSA.
---------------------------------------------------------------------------

    \13\ 87 FR 52141 (August 24, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $187,271,581.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\14\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
---------------------------------------------------------------------------

    \14\ Case number 20-CIV-07606.
---------------------------------------------------------------------------

    Rather than wait for the Claims to be resolved through the 
litigation, HMSA took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could result from a 
funding shortfall while the litigation was proceeding. 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.
    In exchange for the Restorative Payment, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to HMSA.\15\ Pursuant to the 
assignment, if the Plan receives litigation proceeds from the Claims 
when the AGI US/Aon litigation is resolved, the Plan will

[[Page 11685]]

transfer a repayment (the Repayment) to HMSA that does not exceed the 
total Restorative Payment made by HMSA, plus reasonable attorneys' fees 
paid by HMSA on behalf of the Plan in connection with the Claims. The 
attorneys' fees must be 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 Attorneys' 
Fees).
---------------------------------------------------------------------------

    \15\ 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, Attorneys' Fees reimbursable to 
HMSA do not include: (1) legal expenses paid by the Plan; or (2) 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 Attorneys' Fees the Plan may reimburse to HMSA under this 
exemption, the amount of reasonable attorneys' fees paid by HMSA on 
behalf of the Plan in connection with the Claims must be reduced by the 
amount of attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12038) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52141.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' 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 ``HMSA'' means Hawaii Medical Service Association.
    (c) The term ``Claims'' means the legal claims against Allianz 
Global Investors U.S. LLC (AGI US) 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 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 not 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 Attorneys' Fees paid to unrelated 
third parties by HMSA 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 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; 
\16\
---------------------------------------------------------------------------

    \16\ 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 payments 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. Covered Transactions

    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 3, 2020, to the following transactions: HMSA's 
transfer of the Restorative Payment to

[[Page 11686]]

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 Attorneys' 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 on 
December 18, 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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified independent 
fiduciary (the Independent Fiduciary, as further defined in Section 
II(e)) 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 HMSA must be carried out in a manner designed to avoid 
unnecessary costs and disruption to the Plan and Plan investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payment and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payment, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests 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 its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payment. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
HMSA for Attorneys' Fees. For purposes of determining the amount of 
Attorneys' 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 (i.e., pursuant to a court award);
    (i) The 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 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 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.
    Effective Date: This exemption is effective as of November 3, 2020.
    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

[Prohibited Transaction Exemption 2023-07; Application No. D-12036]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \17\ permitting BCS Financial 
Corporation (BCS) to make a series of payments to the Non-Contributory 
Retirement Program for Certain Employees of BCS Financial Corporation 
(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 must transfer the lesser of the ligation proceeds 
received or the Restorative Payment amount, plus reasonable attorneys' 
fees to BCS.
---------------------------------------------------------------------------

    \17\ 87 FR 52146 (August 24, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

[[Page 11687]]

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $29,496,983.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\18\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
---------------------------------------------------------------------------

    \18\ Case number 20-CIV-07606.
---------------------------------------------------------------------------

    Rather than wait for the Claims to be resolved through the 
litigation, BCS took steps to protect Plan benefits and avoid onerous 
benefit restrictions under Code section 436 that could result from a 
funding shortfall while the litigation was proceeding. Therefore, on 
October 9, 2020, BCS and the Plan entered into a Contribution and 
Assignment Agreement (the Contribution and Assignment Agreement). 
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.
    On September 27, 2021, BCS and the Plan amended the Restorative 
Payments provision of the Contribution and Assignment Agreement. 
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.
    In exchange for the Restorative Payments, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCS.\19\ Pursuant to the 
assignment, if the Plan receives litigation proceeds from the Claims 
when the AGI US/Aon litigation is resolved, the Plan will transfer a 
repayment (the Repayment) to BCS that does not exceed the total 
Restorative Payments made by BCS, plus reasonable attorneys' fees paid 
by BCS on behalf of the Plan in connection with the Claims. The 
attorneys' fees must be 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 Attorneys' 
Fees).
---------------------------------------------------------------------------

    \19\ 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, Attorneys' Fees reimbursable to 
BCS do not include: (1) legal expenses paid by the Plan; or (2) 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 Attorneys' Fees the Plan may reimburse to BCS under this 
exemption, the amount of reasonable attorneys' fees paid by BCS on 
behalf of the Plan in connection with the Claims must be reduced by the 
amount of attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12036) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52146.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' 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 (AGI US) 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 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 not 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 Attorneys' 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

[[Page 11688]]

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; 
\20\
---------------------------------------------------------------------------

    \20\ 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 to the Plan in connection with the Plan Losses, defined above, 
including: (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. Covered Transactions

    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: BCS's 
transfer of the 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 Attorneys' 
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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified independent fiduciary 
(the Independent Fiduciary, as further defined in Section II(e)) 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 avoid unnecessary costs 
and disruption to the Plan and Plan investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payments and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payments, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests 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 its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payments. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
BCS for Attorneys' Fees. For purposes of determining the amount of 
Attorneys' 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 
(i.e., pursuant to a court award);
    (i) The transactions do not involve any risk of loss to either the 
Plan or the Plan's participants and beneficiaries;

[[Page 11689]]

    (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 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 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.
    Effective Date: This exemption is effective as of October 9, 2020.
    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

[Prohibited Transaction Exemption 2023-08; Application No. D-12040]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \21\ permitting the past payments of 
$70,000,000 and $12,000,000 (the Restorative Payments) by the Plan 
sponsor, Blue Cross and Blue Shield of Mississippi, A Mutual Insurance 
Company (BCBS MS), to the Non-Contributory Retirement Program for 
Certain Employees of Blue Cross and Blue Shield of Mississippi (the 
Plan). If the Plan receives litigation proceeds from the Claims, the 
Plan must transfer the lesser of the ligation proceeds received or the 
Restorative Payment amount, plus reasonable attorneys' fees to BCBS MS.
---------------------------------------------------------------------------

    \21\ 87 FR 52152 (August 24, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $102,446,155.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\22\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
---------------------------------------------------------------------------

    \22\ Case number 20-CIV-07606.
---------------------------------------------------------------------------

    Rather than wait for the Claims to be resolved through the 
litigation, BCBS MS took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could result 
from a funding shortfall while the litigation was proceeding. 
Therefore, on September 17, 2020, BCBS MS and the Plan entered into a 
Contribution and Assignment Agreement (the Contribution and Assignment 
Agreement).
    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.
    In exchange for the Restorative Payments, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCBS MS.\23\ Pursuant to 
the assignment, if the Plan receives litigation proceeds from the 
Claims when the AGI US/Aon litigation is resolved, the Plan will 
transfer a repayment (the Repayment) to BCBS MS that does not exceed 
the total Restorative Payments made by BCBS MS, plus reasonable 
attorneys' fees paid by BCBS MS on behalf of the Plan in connection 
with the Claims. The attorneys' fees must be 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 
Attorneys' Fees).
---------------------------------------------------------------------------

    \23\ 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, Attorneys' Fees reimbursable to 
BCBS MS do not include: (1) legal expenses paid by the Plan; or (2) 
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 Attorneys' Fees the Plan may reimburse to 
BCBS MS under this exemption, the amount of reasonable attorneys' fees 
paid by BCBS MS on behalf of the Plan in connection with the Claims 
must be reduced by the amount of attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The

[[Page 11690]]

Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12040) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52152.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' 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 BCBS 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 (AGI US) 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 (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, in return for the 
Plan's potential Repayment to BCBS MS of an amount that is not 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 Attorneys' 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; 
\24\
---------------------------------------------------------------------------

    \24\ 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) a payment of $70,000,000 on September 21, 2020; and 
(2) a payment of $12,000,000 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. Covered Transactions

    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 the 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 Payment Amount or the amount of 
litigation proceeds the Plan received from the Claims, plus reasonable 
Attorneys' 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 by 
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 Blue Cross and Blue Shield National 
Retirement Trust (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 not more than the lesser of 
the total Restorative Payments received by the Plan or the amount of 
litigation

[[Page 11691]]

proceeds the Plan receives from the Claims. The Plan's Repayment to 
BCBS MS may only occur after a qualified independent fiduciary (the 
Independent Fiduciary, as further defined in Section II(e)) 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 avoid unnecessary 
costs and disruption to the Plan and Plan investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payments and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payments, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests 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 its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payments. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
BCBS MS for Attorneys' Fees. For purposes of determining the amount of 
Attorneys' 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 (i.e., pursuant to a court award);
    (i) The 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 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 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.
    Effective Date: This exemption is effective as of September 17, 
2020.
    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

[Prohibited Transaction Exemption 2023-09; Application No. D-12041]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \25\ permitting the past payments of 
$7,000,000 and $6,600,000 (the Restorative Payments) by the Plan 
sponsor, Blue Cross and Blue Shield of Nebraska, Inc. (BCBS Nebraska), 
to the Non-Contributory Retirement Program for Certain Employees of 
Blue Cross and Blue Shield of Nebraska, Inc. (the Plan). If the Plan 
receives litigation proceeds from the Claims, the Plan must transfer 
the lesser of the ligation proceeds received or the Restorative Payment 
amount, plus reasonable attorneys' fees to BCBS Nebraska.
---------------------------------------------------------------------------

    \25\ 87 FR 52157 (August 24, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $33,649,481.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach

[[Page 11692]]

of contract (the Claims).\26\ At the time of filing, the Applicant 
anticipated that a resolution of the Claims could take an extended 
period of time.
---------------------------------------------------------------------------

    \26\ Case number 20-CIV-07606.
---------------------------------------------------------------------------

    Rather than wait for the Claims to be resolved through the 
litigation, BCBS Nebraska took steps to protect Plan benefits and avoid 
onerous benefit restrictions under Code section 436 that could result 
from a funding shortfall while the litigation was proceeding. 
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.
    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.
    In exchange for the Restorative Payments, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCBS Nebraska.\27\ Pursuant 
to the assignment, if the Plan receives litigation proceeds from the 
Claims when the AGI US/Aon litigation is resolved, the Plan will 
transfer a repayment (the Repayment) to BCBS Nebraska that does not 
exceed the total Restorative Payments made by BCBS Nebraska, plus 
reasonable attorneys' fees paid by BCBS Nebraska on behalf of the Plan 
in connection with the Claims. The attorneys' fees must be 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 Attorneys' Fees).
---------------------------------------------------------------------------

    \27\ 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, Attorneys' Fees reimbursable to 
BCBS Nebraska do not include: (1) legal expenses paid by the Plan; or 
(2) 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 Attorneys' Fees the Plan may 
reimburse to BCBS Nebraska under this exemption, the amount of 
reasonable attorneys' fees paid by BCBS Nebraska on behalf of the Plan 
in connection with the Claims must be reduced by the amount of 
attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12041) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022. at 87 FR 52157.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' 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 BCBS 
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 (AGI US) 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 (a) a payment not in excess of $33,649,481 by September 15, 2022, 
and (b) a payment of $6,600,000 by September 15, 2022, in return for 
the Plan's potential Repayment to BCBS Nebraska of an amount that is 
not 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 Attorneys' 
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:
    (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; 
\28\
---------------------------------------------------------------------------

    \28\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------

    (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

[[Page 11693]]

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) a payment of $7,000,000 on August 25, 2021; 
and (2) a 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. Covered Transactions

    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 
Nebraska's transfer of the 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 Amount or the 
amount of litigation proceeds the Plan received from the Claims, plus 
reasonable Attorneys' 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 by 
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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified 
independent fiduciary (the Independent Fiduciary, as further defined in 
Section II(e)) 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 avoid unnecessary costs and disruption to the Plan and Plan 
investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payments and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payments, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests 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 its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payments. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
BCBS Nebraska for Attorneys' Fees. For purposes of determining the 
amount of Attorneys' 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 (i.e., pursuant to a 
court award);
    (i) The 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 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 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

[[Page 11694]]

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.
    Effective Date: This exemption is effective as of November 5, 2020.
    For Further Information: Contact Ms. Anna Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

BlueCross BlueShield of Tennessee, Inc. Located in Chattanooga, 
Tennessee

[Prohibited Transaction Exemption 2023-10; Application No. D-12045]

Exemption

    On August 24, 2022, the Department published a notice of proposed 
exemption in the Federal Register \29\ permitting the past restorative 
payment of $100,000,000 to the BlueCross BlueShield of Tennessee, Inc. 
Pension Plan (the Plan) Plan by the Plan sponsor, BlueCross BlueShield 
of Tennessee, Inc. (BCBS Tennessee). If the Plan receives litigation 
proceeds from the Claims, the Plan must transfer the lesser of the 
ligation proceeds received or the Restorative Payment amount, plus 
reasonable attorneys' fees to BCBS Tennessee.
---------------------------------------------------------------------------

    \29\ 87 FR 52163 (August 24, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the notice of proposed exemption, 
in March 2020 the Plan sustained significant asset losses through its 
investment in a series of Structured Alpha Funds managed by AGI US. 
These investment losses were caused, in significant part, by a 
fraudulent risk misrepresentation and forgery scheme carried out by 
three fund managers within AGI US. In March 2020, when equity markets 
declined sharply and volatility spiked, AGI US's promised risk 
protections were absent, and the Plan lost $93,576,015.
    On September 16, 2020, the Blue Cross and Blue Shield Association 
National Employee Benefits Committee (the Committee) filed a cause of 
action in the United States District Court for the Southern District of 
New York against AGI US and Aon for Breach of Fiduciary Duty under 
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405, 
violation of ERISA Section 406(b) for the self-interested management of 
Plan assets, and breach of contract (the Claims).\30\ At the time of 
filing, the Applicant anticipated that a resolution of the Claims could 
take an extended period of time.
---------------------------------------------------------------------------

    \30\ Case number 20-CIV-07606.
---------------------------------------------------------------------------

    Rather than wait for the Claims to be resolved through the 
litigation, BCBS Tennessee took steps to protect Plan benefits and 
avoid onerous benefit restrictions under Code section 436 that could 
result from a funding shortfall while the litigation was proceeding. 
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. This 
$100,0000 payment is the Required Restorative Payment Amount under this 
exemption. BCBS Tennessee remitted $100,000,000 to the Plan on October 
8, 2020.
    In exchange for the Restorative Payment, the Plan assigned its 
right to retain certain litigation and/or settlement proceeds recovered 
from the Claims (the Assigned Interests) to BCBS Tennessee.\31\ 
Pursuant to the assignment, if the Plan receives litigation proceeds 
from the Claims when the AGI US/Aon litigation is resolved, the Plan 
will transfer a repayment (the Repayment) to BCBS Tennessee that does 
not exceed the total Restorative Payment made by BCBS Tennessee, plus 
reasonable attorneys' fees paid by BCBS Tennessee on behalf of the Plan 
in connection with the Claims. The attorneys' fees must be 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 Attorneys' Fees).
---------------------------------------------------------------------------

    \31\ 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, Attorneys' Fees reimbursable to 
BCBS Tennessee do not include: (1) legal expenses paid by the Plan; or 
(2) 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 Attorneys' Fees the Plan may 
reimburse to BCBS Tennessee under this exemption, the amount of 
reasonable attorneys' fees paid by BCBS Tennessee on behalf of the Plan 
in connection with the Claims must be reduced by the amount of 
attorneys' 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).

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by October 11, 2022. 
The Department received no comments or requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption.
    The complete application file (D-12045) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on August 24, 2022 at 87 FR 52163.

Exemption

Section I. Definitions

    (a) The term ``Attorneys' 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 Attorneys' Fees reimbursable to BCBS 
Tennessee do not include: (1) legal

[[Page 11695]]

expenses paid by the Plan; and (2) legal expenses paid by BCBS 
Tennessee for representation of BCBS 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 (AGI US) 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 BCBS Tennessee's 
agreement to make a $100,000,000 payment to the Plan in return for the 
Plan's potential Repayment to BCBS Tennessee of an amount that is not 
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 Attorneys' 
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; 
\32\
---------------------------------------------------------------------------

    \32\ 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 payments 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. Covered Transactions

    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 8, 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 or the 
amount of litigation proceeds the Plan received from the Claims, plus 
reasonable Attorneys' 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 by 
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 Blue Cross and Blue Shield National 
Retirement Trust (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 not 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 a qualified 
independent fiduciary (the Independent Fiduciary, as further defined in 
Section II(e)) 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 Tennessee must be carried out in a manner 
designed to avoid unnecessary costs and disruption to the Plan and Plan 
investments;
    (d) The Independent Fiduciary, 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) Have reviewed, negotiated, and approved the terms and 
conditions of the Restorative Payment and the Repayment under the 
Contribution and Assignment Agreement, all of which must be in writing, 
before the Plan entered into those transactions/agreement;
    (2) Have determined that the Restorative Payment, the Repayment, 
and the terms of the Contribution and Assignment Agreement, are prudent 
and in the interests of the Plan and its participants and 
beneficiaries;
    (3) Confirm that the Required Restorative Payment Amount was fully 
and timely made;

[[Page 11696]]

    (4) Monitor the litigation related to the Claims and confirm that 
the Plan receives its proper share of any litigation or settlement 
proceeds received by the Trust in a timely manner;
    (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 the conditions and definitions of this 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 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 Restorative Payment. However, 
if first approved by the Independent Fiduciary, the Plan may reimburse 
BCBS Tennessee for Attorneys' Fees. For purposes of determining the 
amount of Attorneys' 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 (i.e., pursuant to a 
court award);
    (i) The 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 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 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.
    Effective Date: This exemption is effective as of October 8, 2020.
    For Further Information: Contact Ms. Blessed Chuksorji-Keefe of the 
Department, telephone (202) 693-8567. (This is not a toll-free number.)

Midlands Management Corporation 401(k) Plan Oklahoma City, OK

[Prohibited Transaction Exemption 2023-11; Application No. D-12031]

Exemption

    On March 9, 2022, the Department published a notice of proposed 
exemption in the Federal Register \33\ that would permit: (1) the 
December 18, 2018 Restorative payment of $8,292,189 to the Plan by 
Safety National in exchange for the Plan's assignment to Midlands of 
the Assigned Interests; and (2) the potential additional cash 
payment(s) by Midlands to the Plan if the amount(s) Midlands receives 
from the Assigned Interests exceeds $8,292,189, provided the conditions 
described in the proposal were met.
---------------------------------------------------------------------------

    \33\ 87 FR 13315 (March 9, 2022).
---------------------------------------------------------------------------

    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of ERISA expressly 
stated herein.
    Accordingly, affected parties should be aware that the conditions 
incorporated in this exemption are, taken individually and as a whole, 
necessary for the Department to grant the relief requested by the 
Applicant. Absent these or similar conditions, the Department would not 
have granted this exemption.

Background

    As discussed in further detail in the proposed exemption, beginning 
as early as 2013, and continuing through 2017, the Plan's former third 
party administrator, Vantage Benefit Administrators (Vantage), caused 
the unauthorized transfers of Plan assets directly to an account that 
Vantage used to operate its own business. Vantage caused 180 such 
unauthorized transfers that totaled in excess of $5.5 million. Midlands 
Management Corporation (Midlands), the Plan sponsor, became aware of 
the unauthorized withdrawals on October 25, 2017 and engaged an 
unrelated party, Beasley & Company (Beasley), to investigate and assess 
associated Plan losses. Beasley ultimately found that the Plan's losses 
were $9,292,189.\34\
---------------------------------------------------------------------------

    \34\ Amount includes both principal amount and associated lost 
interest.
---------------------------------------------------------------------------

    The Plan and Midlands filed suit against Vantage and its 
principals, Jeffrey and Wendy Richie, and on March 18, 2018, obtained a 
$10,170,452.00 final judgment. On April 19, 2018, an involuntary 
Chapter 7 bankruptcy petition was filed against Vantage. The Plan and 
Midlands have filed a creditor claim against the Vantage bankruptcy 
estate. The Plan has also received a $1,000,000 insurance settlement 
payment in connection with the unauthorized transfers.\35\
---------------------------------------------------------------------------

    \35\ This settlement payment came via the Plan's crime policy 
with Federal Insurance Company and was subsequently allocated to 
participant accounts and reported as ``other contributions'' in the 
Plan's statement of changes in net assets available for benefits for 
the year ended December 31, 2018.
---------------------------------------------------------------------------

    In addition to the Claims against Vantage and the Richies, the Plan 
and Midlands filed Claims against Matrix Trust Company, the Plan's 
custodian, and RSM and Cole & Reed, P.C., the Plan's former auditors. 
Collectively, the claims against these parties, as well as against 
Vantage and the Richies are hereinafter referred to as the 
``Lawsuits.'' The Applicant estimates that it anticipates recovering up 
to $4 million total, or approximately 49 percent of the Restorative 
Payment amount.
    On December 18, 2018, Midlands was acquired by Safety National 
Casualty Corporation. In connection with the acquisition, Safety 
National made an $8,292,189 restorative payment to the Plan to restore 
losses caused by the unauthorized withdrawals (the Restorative 
Payment). The Applicant represents that the Restorative Payment 
addresses the $9,292,189 in aggregate losses incurred by the Plan, 
minus the $1,000,000 settlement payment that the

[[Page 11697]]

Plan received from Federal Insurance Company.
    In exchange for the Restorative Payment, the Plan transferred the 
Assigned Interests to Midlands pursuant to a Recovery Rights Agreement. 
As discussed throughout the proposed exemption, the Assigned Interests 
represent the Plan's rights to receive proceeds from the Lawsuits.
    On March 9, 2022, the Department proposed an exemption that would 
permit the Restorative Payment of $8,292,189 to the Plan in exchange 
for the Plan's assignment to Midlands of the Plan's right to proceeds 
from the Lawsuits and the potential additional cash payment(s) by 
Midlands to the Plan if the amount(s) Midlands recovers from the 
Assigned Interests exceeds $8,292,189 (the Transactions). Absent an 
exemption, the Transactions would violate ERISA Sections 406(a)(1)(A) 
and (D).\36\
---------------------------------------------------------------------------

    \36\ 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 the plan and a 
party-in-interest. 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 an indirect transfer to, or use by or for the benefit of, 
a party-in-interest, of the income or assets of the plan.
---------------------------------------------------------------------------

    This exemption requires a prudently appointed and qualified 
independent fiduciary, Prudent Fiduciary Services, LLC (PFS), to 
protect and promote the interests of Plan participants and 
beneficiaries for all purposes with respect to the Transactions. This 
exemption also requires that, in entering into the Recovery Rights 
Agreement, the Plan did not release any claims, demands, and/or causes 
of action against any fiduciary of the Plan or Midlands, and that the 
Plan has not and will not incur any expenses or bear any costs in 
connection with the assignment of its rights under the Recovery Rights 
Agreement, the Lawsuits, or this exemption.
    As required under this exemption, if Midlands recovers more than 
the $8,292,189 Restorative Payment amount from the Assigned Interests, 
Midlands would be required to immediately transfer any such excess 
directly to the Plan. Conversely, if Midlands recovers less than 
$8,292,189 from the Assigned Interests, the Plan would not be required 
to repay any amount of the Restorative Payment back to Midlands, and 
Midlands would be solely responsible for all costs and expenses 
associated with pursuing the Assigned Interests.
    With regard to this exemption, the Department finds that the 
favorable terms of the Transactions together with the protective 
conditions included therein are appropriately protective of, and in the 
interest of the Plan and its participants and beneficiaries. In this 
regard, the Department notes that the Restorative Payment immediately 
provided the Plan with $8,292,189 in cash. If the Plan did not receive 
the immediate Restorative Payment, the individual account balances of 
Plan participants would have remained underfunded in the aggregate by 
$8,292,189 until the Lawsuits were resolved.

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption. All comments and 
requests for a hearing were due to the Department by April 22, 2022. 
The Department received no written comments and did not receive any 
requests for a public hearing.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption described below.
    The complete application file (D-12031) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on March 9, 2022, at 87 FR 13315.

Exemption

Section I. Definitions

    (a) The term ``Assigned Interests'' means the Plan's right to 
proceeds from the Lawsuits, which were transferred to Midlands in 
return for the Restorative Payment.
    (b) The term ``Independent Fiduciary'' means Prudent Fiduciary 
Services, LLC (PFS), or a successor Independent Fiduciary, to the 
extent PFS or the successor Independent Fiduciary continues to serve in 
such capacity, and who:
    (1) Is not an affiliate of Midlands and does not hold an ownership 
interest in Midlands or affiliates of Midlands;
    (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 at 
29 CFR 2509.75-4;
    (5) Has not received gross income from Midlands or affiliates of 
Midlands for that 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 Midlands or from affiliates of 
Midlands while serving as an Independent Fiduciary. This prohibition 
will continue for a period of six months after the party ceases to be 
an Independent Fiduciary and/or the Independent Fiduciary negotiates 
any transaction on behalf of the Plan during the period that the 
organization or individual serves as Independent Fiduciary.
    (c) The term ``Lawsuits'' means the lawsuit filed by the Plan and 
Midlands against Vantage and its principals, Jeffrey and Wendy Richie 
in Case No.: 3:17-cv-03459, the bankruptcy claims filed against the 
Chapter 7 Estate of Vantage, and the claims filed against Matrix Trust, 
RSM, and Cole & Reed, for misrepresentation, breach of contract, breach 
of fiduciary duties, violations of state law, aiding and abetting, 
failure to supervise, and common law fraud.
    (d) The term ``Midlands'' includes the following entities: (i) 
Midlands

[[Page 11698]]

Management Corporation, (ii) the CAP Shareholders, and (iii) Cap 
Managers, LLC.
    (e) The term ``Recovery Rights Agreement'' means the written 
agreement under which the Plan agreed to transfer its rights to the 
Assigned Interests in exchange for the Restorative Payment.
    (f) The term ``Restorative Payment'' means the $8,292,189 payment 
that was remitted to the Plan by Safety National as part of Safety 
National's acquisition of Midlands.

Section II. Covered Transactions

    The restrictions of ERISA Sections 406(a)(1)(A) and (D) shall not 
apply to: (1) the December 18, 2018 Restorative payment of $8,292,189 
to the Plan by Safety National in exchange for the Plan's assignment to 
Midlands of the Assigned Interests; and (2) the potential additional 
cash payment(s) by Midlands to the Plan if the amount(s) Midlands 
receives from the Assigned Interests exceeds $8,292,189. In order to 
receive such relief, the conditions in Section III must be met in 
conformance with the definitions set forth in Section I.

Section III. Conditions

    (a) The Restorative Payment and any Excess Recovery Amount payment, 
described below, are properly allocated to the Plan participants' 
accounts;
    (b) If Midlands receives more than $8,292,189 from the Assigned 
Interests, Midlands must immediately transfer to the Plan the Excess 
Recovery Amount, which is the difference between the amount of Assigned 
Interest proceeds and $8,292,189. Midlands may reduce the Excess 
Recovery Amount (but not the Restorative Payment amount) paid to the 
Plan only by the amount of reasonable attorney's fees that Midlands 
incurred in pursuing the Assigned Interests if the fees were paid to 
unrelated third parties;
    (c) If Midlands receives less than $8,292,189 from the Assigned 
Interests, then Midlands must automatically forgive any unrecovered 
shortfall amount, with no Plan assets transferred to Midlands;
    (d) In connection with its receipt of the Restorative Payment, the 
Plan has not and will not release any claims, demands and/or causes of 
action it may have against: (1) any fiduciary of the Plan; (2) 
Midlands; and/or (3) any person or entity related to a person or entity 
identified in (1)-(2) of this paragraph;
    (e) A qualified independent fiduciary (the Independent Fiduciary) 
that is unrelated to Midlands and/or its affiliates and is 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):
    (1) Reviewed the terms and conditions of the Restorative Payment 
and the Recovery Rights Agreement and the proposed and final 
exemptions;
    (2) Determined that the Covered Transactions were prudent, in the 
interest of, and protective of the Plan and its participants and 
beneficiaries;
    (3) Confirmed that the Restorative Payment amount was properly made 
to the Plan and appropriately allocated;
    (4) Monitors the Plan's Assigned Interests on an ongoing basis to 
ensure that all recovery amounts due the Plan are immediately and 
properly remitted to the Plan, and appropriately allocated to 
participant accounts;
    (5) Monitors and ensures that legal fees paid in connection with 
the Assigned Interests and the Lawsuits are limited to reasonable 
attorney's fees paid to unrelated third parties that Midlands incurred 
in pursuing recoveries from the Assigned Interests and the Lawsuits;
    (6) Has not entered into any agreement or instrument that violates 
ERISA Section 410 or Department's Regulations codified at 29 CFR 
2509.75-4;
    (f) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party associated with this exemption, 
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;
    (g) Not later than 90 days after the resolution of Midlands' 
collection efforts with respect to the Assigned Interests, the 
Independent Fiduciary must submit a written statement to the Department 
confirming and demonstrating that all of the requirements of the 
exemption have been met;
    (h) If an Independent Fiduciary resigns, is removed, or is unable 
to serve as an Independent Fiduciary for any reason, the Independent 
Fiduciary must be replaced by a successor entity that: (1) meets the 
definition of Independent Fiduciary detailed above in Section I(b); 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 before the 
appointment of a successor Independent Fiduciary, the Applicant must 
notify the Department's Office of Exemption Determinations of the 
change in Independent Fiduciary and such notification must contain all 
material information including the qualifications of the successor 
Independent Fiduciary;
    (i) Neither the Independent Fiduciary, nor any parties related to 
the Independent Fiduciary, have performed any prior work on behalf of 
Midlands or any party related to Midlands;
    (j) Neither the Independent Fiduciary, nor any parties related to 
the Independent Fiduciary, have any financial interest with respect to 
the Independent Fiduciary's work as Independent Fiduciary, apart from 
the express fees and reimbursement for reasonable expenses paid to the 
Independent Fiduciary to represent the Plan with respect to the Covered 
Transactions that are the subject of this exemption;
    (k) Neither the Independent Fiduciary, nor any parties related to 
the Independent Fiduciary, have received any compensation or entered 
into any financial or compensation arrangements with Midlands or any 
parties related to Midlands;
    (l) The Plan pays no interest in connection with the Restorative 
Payment;
    (m) No Plan assets are pledged to secure the Restorative Payment;
    (n) The Covered Transactions do not involve any risk of loss to 
either the Plan or its participants and beneficiaries;
    (o) The Plan has no liability for the Restorative Payment, even in 
the event that the amount recovered by Midlands with respect to the 
Assigned Interests is less than $8,292,189;
    (p) The Plan does not incur any expenses, commissions or 
transaction costs in connection with the Covered Transactions and this 
exemption;
    (q) Midlands may not receive or retain any proceeds from the 
Lawsuits other than from the Assigned Interests;
    (r) All terms of the Covered Transactions are and will remain at 
least as favorable to the Plan as the terms and conditions the Plan 
could obtain in a similar transaction negotiated at arm's-length with 
unrelated third parties; and
    (s) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate, at all 
times.
    Effective Date: This exemption is effective as of December 18, 
2018.

[[Page 11699]]

    For Further Information: Contact Mr. Joseph Brennan of the 
Department, telephone (202) 693-8456. (This is not a toll-free number.)

DISH Network Corporation 401(k) Plan and the EchoStar 401(k) Plan 
(Collectively, the Plans) Located in Englewood, CO

[Prohibited Transaction Exemption 2023-12; Exemption Application No. D-
12012]

Exemption

    On March 9, 2022, the Department published a notice of proposed 
exemption in the Federal Register at 87 FR 13320, regarding the 
acquisition and holding by the DISH Network Corporation 401(k) Plan 
(the DISH Plan) and the EchoStar 401(k) Plan (the EchoStar Plan) of 
subscription rights (the Rights) that were issued during the period 
November 26-29, 2019, by the DISH Network Corporation (DISH or the 
Applicant), a party in interest with respect to the Plans.\37\
---------------------------------------------------------------------------

    \37\ For purposes of this exemption, references to the 
provisions of Title I of ERISA, unless otherwise specified, should 
be read to refer as well to the corresponding provisions of Code 
Section 4975.
---------------------------------------------------------------------------

    Based on the record, the Department has determined to grant the 
proposed exemption. This exemption provides only the relief specified 
herein. It provides no relief from violations of any law other than the 
prohibited transaction provisions of ERISA, as expressly stated herein.
    The Department makes the requisite findings under ERISA Section 
408(a) based on the Applicant's adherence to all of the conditions of 
the exemption. Accordingly, affected parties should be aware that the 
conditions incorporated in this exemption are, taken individually and 
as a whole, necessary for the Department to grant the relief requested 
by the Applicant. Absent these or similar conditions, the Department 
would not have granted this exemption.

Background

    As discussed in greater detail in the proposed exemption, on 
November 7, 2019, DISH announced its intent to conduct a rights 
offering (the Offering) for general corporate purposes, including 
investments in DISH's wireless business. The DISH Chairman and 
controlling shareholder is Charles W. Ergen.
    Mr. Ergen also beneficially owns more than 50% of the total 
combined voting power of EchoStar Corporation (EchoStar), a global 
provider of satellite communications solutions.
    Under the Offering, all holders of record of DISH's Class A (the 
Class A Stock) and DISH's Class B common stock (the Class B Stock), or 
collectively, the ``DISH Stock''), and outstanding convertible notes 
automatically received certain rights (the Rights), at no charge. Among 
the holders of the DISH Stock were the DISH Plan and the EchoStar Plan, 
which are sponsored by DISH and EchoStar, respectively.
    Under the terms of the Offering, each holder received one Right for 
every 18.475 shares of DISH Class A or B Common Stock, or a Class A 
Common Stock equivalent (as applicable). Fractional Rights were not 
issued. A total of 29,834,992 Rights to purchase 29,834,992 DISH Class 
A Common Stock were issued in the Offering. Each Right entitled the 
holder to purchase one share of DISH Class A Common Stock for $33.52 
per whole share of Class A Common Stock.
    The DISH Plan received 180,084 Rights and the EchoStar Plan 
received 9,073 rights in connection with the Offering. The Applicant 
represents that Newport Trust Company (Newport), a qualified 
independent fiduciary acting solely in the interest of the Plans' 
participants, made all decisions regarding the holding and disposition 
of the Rights by each Plan in accordance with the Plans' provisions.
    The Applicant requested an exemption to permit the acquisition and 
holding by the Plans of the Rights that were issued by DISH, a party in 
interest with respect to the Plans, from November 26 through November 
29, 2019. An exemption is necessary because the acquisition and holding 
of the Rights by the Plans is prohibited under ERISA and the Code.
    On March 9, 2022, the Department published a notice of proposed 
exemption in the Federal Register at 87 FR 13320 that would permit the 
Plans' acquisition and holding of the Rights. The exemption requires 
Newport to protect and promote the interests of the Plans' participants 
in the transactions. The exemption's protective conditions include a 
requirement that Newport represent the Plans' interests for all 
purposes with respect to the acquisition and holding of the Rights, and 
that no brokerage fees, commissions, subscription fees, or other 
charges were paid by the Plans with respect to the acquisition and 
holding of the Rights. In addition, Newport's responsibilities included 
determining whether and when to exercise or sell each Right held by the 
Plans.
    As discussed below, with regard to this exemption, the Department 
finds that the favorable terms of the acquisition and holding of the 
Rights by the Plans, combined with the protective conditions included 
therein, are appropriately protective and in the interest of the Plans 
and their participants to support the granting of this exemption.

Comments Received Regarding Proposed Exemption

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the proposed exemption by April 25, 2022. During the 
comment period, the Department received one written comment from the 
Applicant, which requested several clarifications to the proposed 
exemption in the areas discussed below. The Department also received 12 
comments from Plan participants (eight in writing and four by phone) 
regarding whether the exemption would affect their benefits, and in 
response, the Department explained the proposed exemption to each 
commenter.

Applicant's Comments

1. No ERISA Section 406(b) Exemptive Relief
    The Applicant notes that the proposed exemption does not include 
the same scope of exemptive relief as prior rights offering exemptions. 
While some prior exemptions involving rights offerings provide relief 
from ERISA Sections 406(b)(1) and 406(b)(2),\38\ this exemption does 
not. The Applicant requests clarification that exemptive relief from 
Section 406(b)(1) and (2) is not necessary. Alternatively, the 
Applicant requests that this exemption provide relief from ERISA 
Sections 406(b)(1) and (2).
---------------------------------------------------------------------------

    \38\ ERISA Section 406(b)(1) prohibits a plan fiduciary from 
dealing with the assets of a plan in his own interest or own 
account. ERISA Section 406(b)(2) prohibits a plan fiduciary in his 
individual or in any other capacity from acting in any transaction 
involving the plan on behalf of a party, or representing a party 
whose interests are adverse to the interests of the plan or the 
interests its participants or beneficiaries of the plan.
---------------------------------------------------------------------------

    Department's Response: The Department understands the following 
based on the Applicant's representations:
     DISH conducted the Rights Offering for its own general 
corporate purposes;
     All holders of record of DISH's Class A and B Common Stock 
received the Rights automatically at no charge;
     As required by this exemption, all decisions regarding the 
holding and disposition of the Rights by each Plan were made in 
accordance with the Plan provisions by a qualified independent

[[Page 11700]]

fiduciary acting solely in the interest of Plan participants.
    Based on these representations, the Department has determined that 
ERISA Section 406(b)(1) or (2) is not implicated with respect to the 
transactions covered herein. Accordingly, any act of self-dealing or 
conflict of interest by a Plan fiduciary is not covered by this 
exemption.
2. Rights Described as Issued to Individually-Directed Participant 
Accounts
    Section I of the proposed exemption describes the covered 
transactions as including the issuance of the Rights ``to the 
individually-directed accounts of participants'' in the Plans. The 
Applicant states it would be more accurate to state that the Rights 
were issued to the Plans. The Applicant also notes that for both of the 
DISH Network Corporation 401(k) Plan and the EchoStar Corporation 
401(k) Plan, the proceeds from the sale of rights were allocated pro 
rata to the plan accounts of participants invested in DISH Stock, based 
on their plan account holdings on the November 17, 2019 record date of 
the rights offering.
    Department's Response: The Department has revised Section I of the 
exemption to reflect the Applicant's requested change that the Rights 
were issued to the Plans rather than to the participants' accounts in 
the Plans.
3. Proposed Exemption Preamble States That DISH and EchoStar 
Participants Were Treated the Same
    The Applicant notes that preamble to the proposed exemption states 
that ``[t]he acquisition and holding of the Rights occurred as a result 
of the Rights Offering, which was approved by the DISH Board of 
Directors, in which all shareholders of DISH and EchoStar, including 
their Plans, were treated exactly the same . . .'' [emphasis added]. 
The Applicant also notes that ownership of shares of EchoStar 
Corporation stock did not provide any entitlement to the Rights.
    Department's Response: The Department accepts this clarification to 
the proposed exemption preamble.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the exemption described below. The Department 
has also added clarifying language to certain conditions of the 
exemption.
    The complete application file (D-12012) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, refer to the proposed exemption.\39\
---------------------------------------------------------------------------

    \39\ 87 FR 13320 (3/9/2022).
---------------------------------------------------------------------------

Exemption

Section I. Covered Transactions

    The restrictions of ERISA Sections 406(a)(1)(A), 406(a)(1)(E), 
406(a)(2), and 407(a)(1)(A), and Code Sections 4975(c)(l)(A) and (E), 
by reason of Code Section 4975(c)(1), will not apply to the past 
acquisition and holding by the DISH Network Corporation 401(k) Plan 
(the DISH Plan) and the EchoStar 401(k) Plan (the EchoStar Plan; 
collectively, the Plans) of certain subscription rights (the Rights) 
that were issued by the DISH Network Corporation (DISH or the 
Applicant) to Plans during a rights offering (the Rights Offering) that 
occurred from November 26 through November 29, 2019, if the conditions 
described in Section II below have been met.

Section II. Conditions

    (a) The Plans acquired the Rights as a result of an independent act 
of DISH as a corporate entity without any action by the Plans;
    (b) The acquisition and holding of the Rights occurred as a result 
of a rights offering approved by the DISH board of directors that 
treated all DISH shareholders the same, including the Plans;
    (c) The acquisition of the Rights by the Plans occurred on the same 
terms made available to other eligible holders of DISH Stock and 
convertible notes, and the Plans received the same proportionate number 
of Rights as such other eligible holders;
    (d) The Plans did not pay any fees or commission in connection with 
the acquisition or holding of the Rights. The Plans paid commissions 
and SEC fees to third parties solely in connection with the sale of the 
Rights;
    (e) All decisions regarding the holding and disposition of the 
Rights by the Plans were made by Newport Trust Company (Newport), 
acting prudently and solely in the interest of the participants of the 
Plans, in accordance with the provisions of the Plans as the qualified 
independent fiduciary (the Independent Fiduciary);
    (f) As the Independent Fiduciary, Newport:
    (1) Has not been indemnified, in whole or in part, for negligence 
of any kind or for any violation of state or federal law in performing 
its duties and responsibilities to the Plans under the terms of this 
exemption, and there is no cap or limitation on its liability for 
negligence of any kind arising from the performance of its duties as 
the Plans' Independent Fiduciary;
    (2) Has not entered into any agreement or instrument that violates 
ERISA Section 410 or the Department's regulations at 29 CFR 2509.75-4 
by purporting to relieve Newport from responsibility or liability for 
any responsibility, obligation or duty imposed on it under Part 1 of 
Title I of ERISA; and
    (3) Has acknowledged that there is no instrument or contractual 
arrangement that purports to waive or release it from liability for any 
violation of state or federal law.
    Effective Date: This exemption is effective from November 26, 2019, 
the date the Plans received the Rights, until November 29, 2019, the 
last date the Rights were sold by the Plans on the NASDAQ Global Select 
Market.
    For Further Information: Contact Mrs. Blessed Chuksorji-Keefe of 
the Department at (202) 693-8567. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions 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;

[[Page 11701]]

    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-03632 Filed 2-22-23; 8:45 am]
BILLING CODE 4510-29-P