[Federal Register Volume 88, Number 114 (Wednesday, June 14, 2023)]
[Notices]
[Pages 38896-38904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12687]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Number L-11989]
Proposed Exemption for Certain Prohibited Transactions Involving
the Association of Washington Business (AWB) HealthChoice Employee
Benefits Trust Located in Olympia, Washington
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
-----------------------------------------------------------------------
SUMMARY: This document gives notice of a proposed individual exemption
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA). The exemption would
permit the trustee of a plan funded by the AWB HealthChoice Employee
Benefits Trust to hire entities affiliated with AWB to provide services
to the plan for a fee, subject to conditions designed to safeguard the
interests of the plan and its participants and beneficiaries.
DATES: Comments due: Written comments and requests for a public hearing
on the proposed exemption must be received by the Department by July
31, 2023. Exemption date: If granted, the exemption will be in effect
as of the date of publication of the final exemption in the Federal
Register.
ADDRESSES: All written comments and requests for a hearing should be
sent to the Employee Benefits Security Administration (EBSA), Office of
Exemption Determinations, Attention: Application No. L-11989 via email
to [email protected] or online through https://www.regulations.gov. Any
such comments or requests should be sent by the end of the scheduled
comment period. The application for the exemption and the comments
received will be available for public inspection in the Public
Disclosure Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1515, 200 Constitution Avenue NW,
Washington, DC 20210. Comments and hearing requests will also be
available online at https://www.regulations.gov at no charge. See
SUPPLEMENTARY INFORMATION below for additional information regarding
comments.
FOR FURTHER INFORMATION CONTACT: Susan Wilker, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8557 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION:
Comments
Persons are encouraged to submit all comments electronically and
not to follow with paper copies. Comments should state the nature of
the person's interest in the proposed exemption and how the person
would be adversely affected by the exemption, if granted. Any person
who may be adversely affected by an exemption can request a hearing on
the exemption. A request for a hearing must state: (1) The name,
address, telephone number, and email address of the person making the
request; (2) the nature of the person's interest in the exemption and
the manner in which the person would be adversely affected by the
exemption; and (3) a statement of the issues to be addressed and a
general description of the evidence to be presented at the hearing. The
Department will grant a request for a hearing made in accordance with
the requirements above where a hearing is necessary to fully explore
material factual issues identified by the person requesting the
hearing. A notice of such hearing shall
[[Page 38897]]
be published by the Department in the Federal Register. The Department
may decline to hold a hearing if: (1) the request for the hearing does
not meet the requirements above; (2) the only issues identified for
exploration at the hearing are matters of law; or (3) the factual
issues identified can be fully explored through the submission of
evidence in written (including electronic) form.
Warning: All comments received will be included in the public
record without change and may be made available online at http://www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as a Social Security number or an unlisted phone
number) or confidential business information that you do not want
publicly disclosed. However, if EBSA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EBSA
might not be able to consider your comment.
Additionally, the http://www.regulations.gov website is an
``anonymous access'' system, which means EBSA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an email directly to EBSA without going
through http://www.regulations.gov, your email address will be
automatically captured and included as part of the comment that is
placed in the public record and made available on the internet.
Background
AWB HealthChoice Employee Benefits Trust
According to its website, the Association of Washington Business
(AWB) is Washington State's largest statewide business association.\1\
As described in the exemption application, AWB members can offer
medical, dental, vision, and life insurance benefits to their eligible
employees by participating in a fully-insured ERISA-covered employee
welfare benefit plan (the Plans). The Plans are funded through multiple
industry trusts (Industry Trusts) that comprise the AWB HealthChoice
Employee Benefits Trust. The trustee for each Industry Trust (the
Trustee) is a representative (e.g., employee, officer, or director) of
an employer participating in the Plan (Participating Employer) that is
in a specific industry classification.\2\ The Trustees are Plan
fiduciaries under ERISA, responsible for performing a wide range of
activities in administering the Plans, including selecting service
providers.
---------------------------------------------------------------------------
\1\ https://www.awb.org/about-us/who-we-are/ (``Formed in 1904,
the Association of Washington Business is Washington's oldest and
largest statewide business association, and includes nearly 7,000
members representing 700,000 employees.'')
\2\ The industry classifications are: manufacturing,
professional services, retail/wholesale, hospitality, construction,
agriculture, communications, technology, and transportation.
---------------------------------------------------------------------------
Two wholly-owned subsidiaries of AWB, Forterra and ProPoint, have
provided services to the Plans since the Plans' inception in 2013.
Forterra provides administrative services to the Plans, such as
preparing the Form 5500 and other notices and disclosures and
negotiating contracts with insurance carriers. ProPoint is an insurance
producer that provides quotes for insurance products and assists in
annual renewal of insurance coverage for the Plans. In a limited number
of cases, ProPoint also acts as the insurance broker of record for
individual employers and receives an additional fee for these services
that is paid by the Plan.\3\ In addition to Forterra's and ProPoint's
fees, the Plans pay fees for billing and recordkeeping services to
Vimly Benefits Solutions, Inc. (Vimly), a service provider that is
unaffiliated with AWB.
---------------------------------------------------------------------------
\3\ When ProPoint acts as a broker of record for an employer, it
provides services such as presenting quotes to the employer, helping
the employer select plans, employee/employer enrollment meetings and
individualized support to employees with questions regarding their
coverage. When ProPoint is not the broker of record, these same
services are provided by brokers that are not affiliated with AWB.
---------------------------------------------------------------------------
Fees to Forterra and ProPoint and other service provider fees are
paid out of trust assets, which are composed of employer and employee
contributions. At the time of initial and annual enrollment,
Participating Employers receive a quote for the ``total premium,''
covering insurance premiums and services, and a ``Related Party Fee
Disclosure and Services Agreement'' disclosing the services provided by
AWB affiliates to the Plans and the fees paid to them. For purposes of
the exemption, the Department assumes that the fees are for legitimate
Plan purposes and payment for actual services provided to the Plans and
not for services provided to the Participating Employers and insurance
companies.
Pathway I Associations
Under ERISA, an employee welfare benefit plan must be established
or maintained by an ``employer'' or an ``employee organization'' or
both.\4\ ERISA section 3(5) defines an ``employer'' as ``. . . any
person acting directly as an employer, or indirectly in the interest of
an employer, in relation to an employee benefit plan; and includes a
group or association of employers acting for an employer in such
capacity.'' As stated in sub-regulatory guidance on this definition,
the Department will evaluate all of the relevant facts and
circumstances to determine whether a group or association is a ``bona
fide group or association of employers, acting in the interest of its
employer members to provide benefits for their employees.'' \5\ The
Department's sub-regulatory guidance on bona fide employer groups and
associations is sometimes referred to as ``Pathway 1,'' to distinguish
it from a group or association described in the Department's regulation
at 29 CFR 2510.3-5, which was vacated by court order.\6\
---------------------------------------------------------------------------
\4\ ERISA section 3(1).
\5\ Advisory Opinion 2019-01A (July 8, 2019).
\6\ State of New York v. United States Department of Labor, 363
F.Supp.3d 109, (March 28, 2019).
---------------------------------------------------------------------------
AWB, Forterra and ProPoint (the Applicants) represent that each
Industry Trust is an ``employer'' within the meaning of ERISA section
3(5). The Applicants further represent that the Arrangement is
sponsored by ``one or more bona fide `Pathway 1' associations as
defined by applicable legal authority in accordance with ERISA and
applicable guidance issued by the United States Department of Labor.''
\7\ The Department has relied on these representations to propose this
exemption, and this background discussion does not reflect factual
findings or opinions of the Department.
---------------------------------------------------------------------------
\7\ The Applicant made these representations in a draft trust
agreement provided to the Department.
---------------------------------------------------------------------------
Prohibited Transactions
ERISA prohibits fiduciaries with respect to employee welfare
benefit plans from engaging in certain transactions, including
transactions that involve self-dealing, unless an exemption applies.\8\
In this case, the Applicants represent that the Trustees are vested
with fiduciary authority to select service providers for the Plans.
Because of the Plans' close relationship with AWB (e.g., the Plans are
available only to AWB member employers, and AWB affiliates Forterra and
ProPoint have provided services to the Plans
[[Page 38898]]
since their inception), there is cause for concern that, in the absence
of appropriate safeguards, Forterra's and ProPoint's relationship with
AWB could affect the Trustees' exercise of their best judgment as
fiduciaries with respect to the selection of plan service providers.
---------------------------------------------------------------------------
\8\ See ERISA section 406.
---------------------------------------------------------------------------
The Department has authority under ERISA section 408(a) to grant an
exemption from the prohibited transaction rules only if the Department
finds that the exemption is administratively feasible, in the interests
of affected plans and of their participants and beneficiaries, and
protective of the rights of such participants and beneficiaries. This
proposed exemption includes conditions designed to ensure that each
Trustee is fully informed of their fiduciary obligations with respect
to the Plan, possesses sole fiduciary authority over Plan service
provider selection and monitoring, and exercises their authority in
accordance with ERISA's fiduciary standards. Although this exemption
was requested by AWB, Forterra and ProPoint, the prohibited transaction
relief would extend only to the Plan Trustees and provide no relief for
AWB or its affiliates. AWB, Forterra and ProPoint represent that (i)
the Plans are established or maintained by the Industry Trusts, as
associations acting indirectly in the interests of the Participating
Employers, and (ii) the Trustees of the Industry Trusts have sole
fiduciary authority over the selection of service providers for the
Plans.
The proposed exemption would provide relief from ERISA section
406(b)(1), which prohibits fiduciary self-dealing. Each Trustee is a
fiduciary, subject to the provisions of ERISA sections 403 and 404.
This means that each Plan's assets must be used for the exclusive
purpose of providing benefits to participants and beneficiaries covered
by that Plan and defraying reasonable expenses of administering the
Plan. The Trustees that are part of the Arrangement are permitted to
confer with each other and collectively enter into service provider
agreements or otherwise act collectively on behalf of all the Plans.
However, each Trustee is a fiduciary with respect to the Plan for which
it is a trustee. Each Plan must always have a Trustee in order to
satisfy the conditions of the exemption, and that Trustee may not
permit the assets, management, or operation of any Plan to be used to
benefit participants and beneficiaries of another Plan. The proposed
exemption would not provide relief from ERISA section 406(b)(2), which
prohibits fiduciaries from acting on behalf of a party whose interests
are adverse to the interests of the plan. This ensures that Trustees
may not act on behalf of anyone with interests adverse to a Plan and
its participants and beneficiaries.
The proposed exemption also would not provide relief from ERISA
section 406(a)(1)(C), which prohibits fiduciaries from engaging parties
in interest as service providers; that relief is available under the
statutory exemption provided in ERISA section 408(b)(2). To the extent
the Trustees fail to comply with ERISA section 408(b)(2) in connection
with hiring AWB or any of its affiliates as service providers to the
Plans, for example, by paying fees that exceed reasonable compensation,
AWB or its affiliates may be subject to liability for knowing
participation in a prohibited transaction.\9\
---------------------------------------------------------------------------
\9\ See Harris Trust & Savings Bank v. Salomon Smith Barney,
Inc., 530 U.S. 238 (2000). The Department notes its longstanding
position that the proposal or grant of a prohibited transaction
exemption is not dispositive of whether a prohibited transaction has
occurred or will occur.
---------------------------------------------------------------------------
Description of the Proposed Exemption
Covered Transactions
If the proposed exemption is granted, it would provide relief from
the restrictions of ERISA section 406(b)(1) only for the Trustee of
each Plan to select AWB or any Affiliate,\10\ including Forterra and
ProPoint (each an AWB-Affiliated Service Provider), to provide services
to the Plan, provided that the applicable conditions of Sections III
and IV are satisfied, subject to the definitions of terms in Section
I.\11\
---------------------------------------------------------------------------
\10\ The term ``Affiliate'' is defined in section I(c) of the
proposal as a person that is: (1) controlling, controlled by, or
under common control with AWB; (2) an officer, director, partner, or
employee of AWB; or (3) a corporation or partnership of which AWB is
an officer, director, partner, or employee. For purposes of this
definition, ``control'' means the power, direct or indirect, to
exercise a controlling influence over the management or policies of
a person other than an individual.
\11\ The Applicants requested relief from Internal Revenue Code
(Code) section 4975, which imposes an excise tax on certain
prohibited transactions involving plans described in Code section
4975(e)(1). Although the Department has authority under
Reorganization Plan No. 4 of 1978 to provide exemptions from Code
section 4975, the Department is not proposing this relief based on
its understanding that the Plan is not a plan described in Code
section 4975(e)(1).
---------------------------------------------------------------------------
Conditions
The proposal sets forth conditions regarding the following aspects
of each Plan's structure: each Trustee's role and fiduciary duties in
selecting AWB or any Affiliate as a service provider for the Plan; the
Trustee's authorization to pay fees to AWB or any Affiliate; the
content of required disclosures the Trustees must provide to
Participating Employers; and the Trustees' recordkeeping requirements.
Several of the conditions in the proposal are based on sections of
ERISA other than the prohibited transaction provisions. For example,
ERISA section 404 requires plan fiduciaries to act with prudence and
loyalty, and ERISA section 408(b)(2)(B) requires specific disclosures
from service providers.\12\
---------------------------------------------------------------------------
\12\ This applies to service providers to pension plans and
service providers providing brokerage services or consulting to a
group health plan.
---------------------------------------------------------------------------
The Department is proposing the following phased implementation of
the exemption. The conditions in Section III are based on current
practices of the Arrangement that the Applicant has represented in its
exemption application and that the Department intends to formalize to
protect Plan participants and beneficiaries. These conditions would
apply as of the date a final exemption is published in the Federal
Register (the Grant Date). The conditions in Section IV would apply
beginning on the first day of the first plan year that starts after the
Grant Date, because those conditions may require changes to existing
practices or contractual provisions.
Plan Structure and Role of A Trustee
Section III(a) of the proposed exemption addresses the structure
for each Plan. Section III(a)(1) would require each Plan to be a fully-
insured employee welfare benefit plan, and Section III(a)(2) would
require each Plan to be established or maintained by an employer within
the meaning of ERISA section 3(5). These conditions are consistent with
the Applicants' representations regarding the structure of the
Arrangement.
Section III(a)(3) would impose several requirements regarding each
Trustee, intended to ensure that each Trustee is independent of the AWB
and its Affiliates. First, the Trustee would be required to be an
employee, officer, director, or owner of a current Participating
Employer in the industry classification associated with the Plan.
Second, the Trustee must be nominated by a Participating Employer in
the industry classification associated with the Plan and elected by a
majority vote of Participating Employers in the industry
classification. Third, the Trustee must be independent of AWB and its
Affiliates. A Trustee will be considered independent if it: (1) is not
an Affiliate of AWB or a trustee, employee, officer, director, member
or agent of any Affiliate of AWB, and (2) does not have a relationship
with or an interest in AWB or any of its Affiliates that might affect
the exercise of the
[[Page 38899]]
person's best judgment in connection with transactions described in
Section II of this exemption. Thus, no Trustee can serve on AWB's
governing board while that Trustee is a fiduciary to the Plan. The
Trustee also may not receive, directly or indirectly, any compensation
or other consideration for their personal account from AWB or any
Affiliate in connection with any transaction involving the Plan.
Finally, the Trustee may not be an employee, officer, director, member
or agent of a Participating Employer that is a service provider to any
Plan.
Section III(a)(4) would require the Participating Employers in each
industry classification to have the sole authority to: (A) remove the
Trustee with respect to the Plan associated with that industry
classification, with or without cause, by majority vote; and (B)
dissolve or amend the Plan associated with that industry classification
by majority vote. These conditions are intended to ensure that the
Participating Employers have appropriate control over the Plan.
Section III(a)(5) would require each Trustee to receive fiduciary
training so that they are able to understand and appropriately exercise
their authority in accordance with ERISA's standards as required by the
exemption. The fiduciary training would be required to be conducted by
a professional who has appropriate technical training and proficiency
with ERISA and who has been prudently selected by the existing
Trustees. At a minimum, the training should cover ERISA compliance,
fiduciary duties, the exemption conditions and the consequences for
failing to comply with the conditions, including any loss of exemptive
relief provided by the exemption. The training should explain, in
detail, the Trustee's responsibilities under each condition of this
exemption. The Trustee must understand their obligation to act
independently of AWB, and the specific standards they must meet. The
Trustee must also be informed that its failure to comply with any of
the exemption conditions could result in prohibited transactions in
violation of ERISA.
For existing Trustees, the exemption would require fiduciary
training within three months after the exemption's Grant Date, and
annually thereafter. After the Grant Date, the training would be
required to be provided broadly to all persons who are nominated as
Trustees, before their agreement to serve as a Trustee begins, as well
as on an annual basis for any person who is elected as a Trustee.
Section III(a)(6) would prohibit the Plans and Participating
Employers from indemnifying AWB, Forterra and ProPoint, for any reason.
Section III(a)(7) would prohibit the legal counsel for any Plan from
also representing AWB or any Affiliate. This is to further ensure the
independence of the Trustees as they oversee the operation of the
Plans.
Fiduciary Selection of Service Providers
Section III(b) of the proposed exemption would focus on the
selection of Plan service providers, including AWB, Forterra, ProPoint,
or any other Affiliate. Section III(b)(1) would require each Trustee to
have and exercise sole fiduciary authority to select service providers
for its Plan. Prudent selection of service providers is a core
fiduciary requirement in ERISA. The Department's website provides
resources on prudent selection and monitoring of services
providers.\13\ As noted above, the exemption would require the
interests of each Plan to be represented by a Trustee with respect to
the transactions covered by the exemption and the conditions.
---------------------------------------------------------------------------
\13\ See ``Tips for Selecting and Monitoring Service Providers
for Your Employee Benefit Plan'' available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/tips-for-selecting-and-monitoring-service-providers.pdf.
---------------------------------------------------------------------------
Before entering into or renewing service contracts with an AWB-
Affiliated Service Provider on behalf of a Plan, Section III(b)(2)
would require each Trustee to determine that the services are necessary
to the operation of the Plan and to document the specific reasons for
that determination. The Trustee would consider factors such as whether
an AWB-Affiliated Service Provider and its personnel have the
qualifications and capability to perform the services, whether the fees
reflect arm's-length terms, and whether the arrangements are
reasonable, compared with similarly qualified service providers. The
documentation of the Trustee's determinations must provide sufficient
context and detail and be written in a manner to ensure that any party
authorized to review the records under Section III(e) can understand
the reasoning for the determination for the selection.
Section III(b)(3) would require the Plans' contracts (including
renewals) with AWB-Affiliated Service Providers to be limited to no
more than three-years duration and allow the Trustee to terminate the
contract any time without penalty to the Plan by providing thirty (30)
days' written notice. This does not mean that the Plans must regularly
switch service providers. The exemption would permit the Trustee to
renew service provider contracts for a new three-year term if the
Trustee determines that the renewal is prudent. Any renewal would be
required to comply with the conditions for selecting service providers
set forth in Section III(b), including the Trustee's regular review of
all of the Plan's service providers and their fees.
Section III(b)(4) would impose additional conditions when the AWB-
Affiliated Service Provider is also the insurance broker of record for
a Participating Employer. The Trustee must comply with Section
III(b)(2) and determine and document that the services are necessary
for the operation of the Plan and that the selection of the AWB-
Affiliated service provider is prudent and loyal. Additionally, the
Trustee would be required to obtain the Participating Employer's
written certification that it has received a disclosure from the
Trustee that includes descriptions of the following: (i) the nature of
the affiliation between the AWB-Affiliated Service Provider and AWB;
(ii) the services that the AWB-Affiliated Service Provider will
provide; and (iii) the amount of fees that the AWB-Affiliated Service
Provider will receive.\14\ If the fee is disclosed as a percentage of
another amount, it must be accompanied by an example of the calculation
expressed in dollars. The Department envisions that this disclosure
will assist Participating Employers in understanding the potential for
conflicts of interest if they elect to hire that AWB-Affiliated Service
Provider as their insurance broker of record. Finally, the Trustee must
review all compensation paid from the Plan to brokers of record and
ensure that commissions paid to the AWB-Affiliated Service Provider are
no greater than the lowest commission received by an insurance broker
of record that is not an Affiliate of AWB.
---------------------------------------------------------------------------
\14\ The Department notes that, pursuant to Section IV(b)(1)(B),
discussed below, the AWB-Affiliated Service Provider would not be
permitted to receive any fees from third parties. Thus, the fees
that the AWB-Affiliated Service Provider will receive from the Plan
will be the only compensation that such provider receives.
---------------------------------------------------------------------------
Section III(b)(5) of the exemption would require the Trustee to
monitor all AWB-Affiliated Service Providers prudently and loyally in
accordance with ERISA section 404. In addition to prudently selecting
service providers under Section III(b)(1), the Trustee has an
obligation to continuously ensure that AWB-Affiliated Service Providers
are acting in accordance with the conditions of the exemption at all
times.
[[Page 38900]]
Fees
Section III(c) would govern the Trustee's payment of fees and other
compensation to AWB-Affiliated Service Providers. Trustees must approve
all fees and other compensation, in writing, and only after determining
that the fees and compensation are: (1) direct payments from the Plan;
(2) for services that are both necessary and actually rendered; and (3)
do not exceed reasonable compensation within the meaning of ERISA
section 408(b)(2). The Plan is not permitted to pay any of AWB's
expenses associated with the Plan or any non-Plan expenses.\15\
---------------------------------------------------------------------------
\15\ The Department notes that settlor expense incurred by AWB
on behalf of Participating Employers are not permissibly charged to
a Plan, regardless of the existence of a prohibited transaction
exemption.
---------------------------------------------------------------------------
Disclosure
Section III(d) of the proposed exemption is intended to ensure that
Participating Employers choosing health insurance for their employees
have the information they need to make an informed decision regarding
the Plans' use of AWB-Affiliated Service Providers as Plan service
providers.
Section III(d)(1) would require the Trustee to distribute certain
disclosures to a Participating Employer at initial enrollment and at
each annual renewal thereafter. These disclosures focus on the
relationships between the Trustees, AWB, and the service providers.
Section III(d)(1)(A) requires a description of the relationship between
AWB and any other AWB-Affiliated Service Provider that the Trustee has
selected. Section III(d)(1)(B) requires a statement that the Trustee is
a fiduciary with respect to the Plan and that before entering into or
renewing any services contracts with an AWB-Affiliated Service Provider
on behalf of the Plan, the Trustee exercised their fiduciary authority
in accordance with ERISA section 404 to prudently and loyally select
service providers. Lastly, Section III(d)(1)(C) requires a statement
that the Participating Employers, directly or indirectly through the
Trustees, have control over the Plan, including the authority and
control to select alternative service providers to AWB or AWB-
Affiliated Service Providers.
Section III(d)(2) is based on the statutory disclosure requirements
in ERISA section 408(b)(2)(B)(v). ERISA section 408(b)(2)(B) requires
service providers that enter into a contract or arrangement with a
group health plan for brokerage services or consulting to provide
important disclosures regarding its services and compensation. The
Department has determined that AWB-Affiliated Service Providers should
provide similar disclosures regarding their services and compensation.
This section requires that the Trustee receive the disclosure from the
AWB-Affiliated Service Providers and review, approve, and distribute
those disclosures to Participating Employers at initial enrollment and
at each annual renewal date thereafter.
Section III(d)(2)(A) requires the AWB-Affiliated Service Provider
to provide the Trustee a description of the services to be provided to
the Plan. Section III(d)(2)(B) requires a description of all direct
compensation, both in the aggregate and by service, the AWB-Affiliated
Service Provider (including any subcontractor) reasonably expects to
receive from the Plan. This is broader than the statutory language in
ERISA section 408(b)(2)(B)(iii)(III), which requires a description of
all direct compensation ``either in the aggregate or by service''
(emphasis added). Because Section III(c)(1) requires all compensation
received by an AWB-Affiliated Service Provider to be direct payments
from the Plan, the exemption does not include language similar to that
in ERISA section 408(b)(2)(B)(iii)(IV) providing for disclosure of
indirect compensation. Under Section III(d)(2)(C), any AWB-Affiliated
Service Provider must provide a description of any compensation that
will be paid among the AWB-Affiliated Service Provider or a
subcontractor, if such compensation is set on a transaction basis (such
as commissions, finder's fees, or other similar incentive compensation
based on business placed or retained). The AWB-Affiliated Service
Provider must identify the services for which such compensation will be
paid and the payers and recipients of such compensation (including the
status of a payer or recipient as an Affiliate or a subcontractor)
regardless of whether such compensation also is disclosed under Section
III(d)(2)(A) and/or (B).
Section III(d)(2)(D) requires a description of any compensation
that the AWB-Affiliated Service Provider, an Affiliate, or a
subcontractor reasonably expects to receive in connection with
termination of the contract or arrangement and how any prepaid amounts
will be calculated and refunded upon such termination. Section
III(d)(2)(F) requires a description of the manner in which the
compensation described in clause (B) through (D), as applicable, will
be received.
Recordkeeping
Section III(e) of the proposed exemption would require each Trustee
to maintain records necessary to demonstrate that they have satisfied
the conditions of the exemption. These records must be kept in a manner
that is reasonably accessible for examination for six years following
the date of any transaction that relies on the exemption.
The records must be reasonably available at their customary
location for examination during normal business hours by any authorized
employee or representative of the Department; any Participating
Employer or fiduciary of a Plan, or any authorized employee or
representative of these entities; any individual participant or
beneficiary of a Plan or any authorized representative of the
participant or beneficiary.
Participants and beneficiaries of a plan, plan fiduciaries, and
contributing employers/employee organizations would be able to request
only information applicable to their own transactions, and would not be
permitted to examine records that are confidential, privileged trade
secrets or privileged commercial or financial information. If a Trustee
refuses to disclose information to a party other than the Department on
the basis that the information is exempt from disclosure, the Trustee
must provide the requestor a written notice, within 30 days, advising
the requestor of the reasons for the refusal and that the Department
may request such information. The requestor would then be able to
contact the Department if it believes it would be useful for the
Department to request the information.
Section III(e)(3) requires the Trustee to generate the information
that is necessary and sufficient for the Trustee to demonstrate that
the conditions of the exemption have been met over the prior six-year
period within 30 days of a request by the Department. This requires
such records to be properly maintained on an ongoing basis and
reinforces the Department's position that it is necessary for a Trustee
to be regularly aware and mindful of the conditions of the exemption.
Material Facts and Representations
Section III(f) would condition the exemption's relief on the
material facts and representations provided by the Applicants being
true and accurate at all times. In the event that a material fact or
representation is untrue or inaccurate, the exemptive relief provided
under this exemption would cease immediately.
[[Page 38901]]
Phase-In Conditions
The following additional conditions would apply as of the first day
of the first plan year after the Grant Date. Many of these conditions
are focused on documentation, which require some time for the Trustees
to prepare, review, and update. Therefore, the Department is providing
additional time before these conditions become applicable.
Section IV(a) would impose additional conditions on Plan documents.
Section IV(a)(1) requires all Plan documents and disclosures to
accurately describe the role and fiduciary status of the Trustee and
not include any disclaimers of fiduciary status for any party. Plan
documents and disclosures may not indicate, in any way, including on a
website, that AWB or its Affiliates are the sponsor of the Plan.
Similarly, Section IV(a)(2) requires that the insurance contract(s)
used to fund benefits must be held in the name of the Plan or the Plans
collectively. Thus, while the exemption would not require AWB or any
Affiliate to be a fiduciary to the Plan, AWB and its Affiliates are not
permitted to publicly state that they are not fiduciaries. ERISA's
definition of fiduciary is a functional one. If AWB takes part in the
Trustees' fiduciary duties and decision-making, AWB will also be a
fiduciary under ERISA. Furthermore, the exemption would not provide
relief for any prohibited transactions caused by AWB or an Affiliate
that is acting as fiduciary.
Section IV(a)(3) would require contracts entered into between the
Trustee and an AWB-Affiliated Service Provider to specify that any
information the AWB-Affiliated Service Provider provides to the
Trustee, Participating Employers, and prospective Participating
Employers regarding their services to the Plan and related fees is
materially accurate at the time it is provided. This is not limited to
the disclosure set forth in Section III(d) or IV(c) or (d); rather, it
applies to all information AWB and its Affiliates provide to the
Trustee or directly to Participating Employers, which they may use in
deciding whether to enroll or re-enroll in the Plan.
Section IV(b) would impose additional conditions on fees. Section
IV(b)(1) provides that, before entering into any contract for services
with an AWB-Affiliated Service Provider, the Trustee must negotiate the
rate of fees to be paid for services to the Plan. The exemption would
require the contract to specify that the rate may not be increased
during the contract period and that the AWB-Affiliated Service Provider
may not receive any indirect or other compensation related to services
provided under the contract.
Under Section IV(b)(2), fees paid by the Plans to a service
provider other than any insurance broker of record that is not an
Affiliate of AWB must be established independently of other service
provider fees. This would ensure that an increase in one fee could not,
directly or indirectly, cause an increased payment to another service
provider. If fees are not established independently, there would be a
question as to whether the resulting fee was reasonable and charged for
necessary services. Notwithstanding this condition, fees may be
calculated as percentages of premiums paid to the insurance company
that is not an Affiliate of AWB. The Applicants have represented that
the Plans are fully-insured and the premiums are set by Premera Blue
Cross, an unrelated party, and the premiums are negotiated at arm's
length. Because the insurance premium is independently established, the
service provider fees can be a percentage of that insurance premium if
the Trustees determine it is prudent to do so. Under Section IV(b)(3),
fees collected from Participating Employers and Plan participants must
be based on actual, rather than estimated, amounts due to service
providers.
Section IV(c) would impose additional disclosure obligations to
ensure that Participating Employers choosing health insurance for their
employees have the information they need to make an informed decision
regarding the Plans' use of an AWB-Affiliated Service Provider.
Therefore, Section IV(c)(1) would require the upfront disclosure to
Participating Employers in Section III(d)(1) to include the following
additional information: (A) a description of any fees that the AWB-
Affiliated Service Provider, or any of their Affiliates or
subcontractors, reasonably expects to receive in connection with
termination of the Plan and how those fees would be calculated; and (B)
a description of the methodology for calculating fees paid to AWB-
Affiliated Service Provider, including examples with dollar amounts.
Percentages and formulas alone will not satisfy this condition. This
expands on the condition in Section III(b)(4)(iii) that would require--
as of the Grant Date--examples of fee calculation only when the fee is
disclosed as a percentage of another amount.
Section IV(c)(2) would add a condition that Plan documents include
a requirement that the AWB-Affiliated Service Provider furnish, upon
written request, any information the Trustee reasonably requests,
within 30 days after the request. If the disclosure cannot be provided
within 30 days due to extraordinary circumstances beyond the control of
the AWB-Affiliated Service Provider, the information must be provided
as soon as reasonably practicable, and the AWB-Affiliated Service
Provider must provide the Trustee with a notice explaining why they
cannot meet the 30-day deadline.
Under Section IV(d), the Trustees must also provide a monthly
billing statement to Participating Employers that includes the
following statement:
The amounts you pay each month for health insurance coverage
include fees for administrative services, including fees paid to
service providers affiliated with the Association of Washington
Business (AWB). A description of the services provided by each AWB
affiliate is provided to you at the time of your initial enrollment
and at each annual renewal. You can also contact [NAME, phone
number, email address] for additional copies.
The monthly billing statement must also include a chart accurately
listing all service providers and fee percentages or other amounts they
receive. The chart, therefore, must identify AWB-Affiliated Service
Providers and non-Affiliated service providers so that Participating
Employers can see the total service provider cost associated with the
Plan. If any administrative fees are expressed as a percentage of the
insurance premium, the disclosure also must include an example showing
how fees would be calculated based on a $1,000 insurance premium. The
monthly billing statement would also provide a point of contact
(including phone number and email address) to request copies of
disclosures or for additional information regarding the fees.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within fifteen (15) days of the publication of the notice of
proposed exemption in the Federal Register. The notice will be provided
to each Participating Employer in the manner approved by the
Department. The mailing will contain a copy of the notice of proposed
exemption as published in the Federal Register and a supplemental
statement, as required pursuant to 29 CFR 2570.43(a)(2). The
supplemental statement will inform interested persons of their right to
comment on and to request a hearing with respect to the pending
exemption. All written comments and/or requests for a hearing must be
received by the Department within forty-five days (45) of the date of
[[Page 38902]]
publication of this proposed exemption in the Federal Register. All
comments will be made available to the public.
Warning: If you submit a comment, EBSA recommends that you include
your name and other contact information in the body of your comment,
but DO NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number) or confidential business information that you do not want
publicly disclosed. All comments may be posted on the internet and can
be retrieved by most internet search engines.
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 ERISA section 408(a) and/or Code Section 4975(c)(2) does not
relieve a fiduciary or other party in interest from certain other
provisions of ERISA, including any prohibited transaction provisions to
which the exemption does not apply and the general fiduciary
responsibility provisions of ERISA section 404, which, among other
things, require a fiduciary to discharge their duties respecting the
plan solely in the interest of the participants and beneficiaries of
the plan and in a prudent fashion in accordance with ERISA section
404(a)(1)(B); nor does it affect the requirement of Code Section 401(a)
that the plan must operate for the exclusive benefit of the employees
of the employer maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under ERISA section 408(a)
and/or Code Section 4975(c)(2), the Department must find that the
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of ERISA, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption would be subject to the express
condition that the material facts and representations contained in the
application are true and complete at all times and that the application
accurately describes all material terms of the transactions which are
the subject of the exemption.
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and in accordance with the procedures
set forth in 29 CFR part 2570, subpart B (76 FR 66637, October 27,
2011).
Section I. Definitions
(a) ``AWB'' means the Association of Washington Business.
(b) ``AWB-Affiliated Service Provider'' means AWB, Forterra, Inc.,
ProPoint, LLC, or any other entity providing services to the Plan that
is an Affiliate.
(c) An ``Affiliate'' is a person that is:
(1) Controlling, controlled by, or under common control with AWB;
(2) An officer, director, partner, or employee of AWB; or
(3) A corporation or partnership of which AWB is an officer,
director, partner, or employee.
For purposes of this definition, ``control'' means the power,
direct or indirect, to exercise a controlling influence over the
management or policies of a person other than an individual;
(d) The ``Grant Date'' is the date the final exemption is published
in the Federal Register.
(e) ``Participating Employer'' means the member employers of AWB
who provide medical, dental, vision, and life insurance benefits to
their employees through the Plan.
(f) ``Plan'' means any plan that is funded by the AWB HealthChoice
Employee Benefits Trust, including through an Industry Trust.
(g) A ``Trustee'' is a person elected in accordance with Section
III(a)(3).
Section II. Covered Transactions
If granted, the exemption would provide relief to the Trustees for
the selection of an AWB-Affiliated Service Provider to provide services
to the Plans for a fee, if the conditions of Sections III and IV are
met, subject to the definitional terms in Section I. The exemption
would provide only relief from the restrictions of ERISA section
406(b)(1).
Section III. General Conditions
The following conditions apply for each Plan as of the Grant Date,
as defined in Section I(d).
(a) Plan Structure
(1) The Plan is a fully-insured employee welfare benefit plan.
(2) The Plan is established or maintained by an employer within the
meaning of ERISA section 3(5).
(3) The Trustee with respect to the Plan:
(A) Is a trustee, employee, officer, director, or owner of a
Participating Employer in the industry classification associated with
the Plan;
(B) Is nominated by a Participating Employer in the industry
classification associated with the Plan and elected by a majority vote
of Participating Employers in the industry classification;
(C) Is independent of AWB and its Affiliate, which means the
Trustee (1) is not an Affiliate of AWB or a trustee, employee, officer,
director, member or agent of any Affiliate of AWB, and (2) does not
have a relationship with or an interest in AWB or any of its Affiliates
that might affect the exercise of the person's best judgment in
connection with transactions described in Section II of this exemption;
and
(D) Is not an employee, officer, director, member or agent of a
Participating Employer that is also a service provider to any Plan.
(4) The Participating Employers in each industry classification
have the sole authority to:
(A) Remove the Trustee with respect to the Plan associated with
that industry classification, with or without cause, by majority vote;
and
(B) Dissolve or amend the Plan associated with that industry
classification by majority vote.
(5) Each person who is nominated to serve as a Trustee to the Plan
undergoes fiduciary training before their decision to serve as a
Trustee, if elected, and annually thereafter. The fiduciary training is
provided by a professional who has appropriate technical training and
proficiency with ERISA and who has been prudently selected by the board
of Trustees and covers, at a minimum, ERISA compliance, fiduciary
duties, the conditions of the exemption, and the consequences of
failing to comply with the conditions (including any loss of exemptive
relief provided herein). Existing Trustees as of the Grant Date receive
this training within 3 months of the Grant Date.
(6) Neither the Plan nor any Participating Employer indemnifies AWB
or its Affiliates for any reason.
(7) Legal counsel for the Plan does not also represent AWB or any
Affiliate.
(b) Selection of Service Providers
(1) The Trustee has and exercises sole fiduciary authority to
select service providers for the Plan. The Trustee exercises their
fiduciary authority in accordance with ERISA section 404 to
[[Page 38903]]
prudently and loyally select service providers and document the
selection process and considerations, including whether an AWB-
Affiliated Service Provider and its personnel have the qualifications
and capability to perform such services; whether the fees to be charged
reflect arm's-length terms; and whether the arrangements are
reasonable, compared with similarly qualified service providers. The
documentation must provide sufficient context and detail and be written
in a manner to ensure that any party authorized to review the records
under Section III(e) can understand the reasoning for the selection.
(2) Before entering into or renewing any services contracts with an
AWB-Affiliated Service Provider on behalf of the Plan, the Trustee
determines that the services are necessary to the operation of the Plan
and documents the reasons for the determination.
(3) Contracts (including renewals) between the Plan and an AWB-
Affiliated Service Provider:
(A) Are limited to no more than three years' duration; and
(B) Allow the Trustee to terminate the contract any time without
penalty to the Plan by providing thirty (30) days' written notice.
(4) The AWB-Affiliated Service Provider may be compensated by the
Plan for its services as an insurance broker of record to a
Participating Employer only if:
(A) The Trustee selects the AWB-Affiliated Service Provider in
accordance with Section III(b)(2);
(B) The Trustee obtains the Participating Employer's written
certification that it has received a disclosure from the Trustee that
includes descriptions of:
(i) the nature of the affiliation (as described in Section I(c))
between the AWB-Affiliated Service Provider and AWB;
(ii) the services that will be provided by the AWB-Affiliated
Service Provider; and
(iii) the amount of fees that the AWB-Affiliated Service Provider
will receive, provided that if the fee is disclosed as a percentage of
another amount, it is accompanied by an example of the calculation
expressed in dollars; and
(C) The Trustee ensures the Plan pays the AWB-Affiliated Service
Provider for its services as broker of record no more than the lowest
commission paid to an unaffiliated broker of record.
(5) The Trustee monitors the AWB-Affiliated Service Provider's
performance of services and compliance with the applicable conditions
of this exemption prudently and loyally in accordance with ERISA
section 404.
(c) Fees
The Trustee approves, in writing, all fees or other compensation
paid to AWB-Affiliated Service Providers for services to the Plan,
after determining that the fees and other compensation are:
(1) direct payments from the Plan;
(2) for services that are necessary and actually rendered to the
Plan; and
(3) do not exceed reasonable compensation within the meaning of
ERISA section 408(b)(2).
(d) Disclosure
(1) The Trustee distributes the following disclosures to
Participating Employers at initial enrollment and at each annual
renewal thereafter:
(A) A description of the relationship between AWB and any other
AWB-Affiliated Service Provider that the Trustee has selected;
(B) A statement that that the Trustee is a fiduciary with respect
to the Plan and that before entering into or renewing any services
contracts with an AWB-Affiliated Service Provider on behalf of the
Plan, the Trustee exercised their fiduciary authority in accordance
with ERISA section 404 to prudently and loyally select service
providers; and
(C) A statement that the Participating Employers, directly or
indirectly through the Trustees, have control over the Plan, including
the authority and control to select alternative service providers to
AWB or AWB-Affiliated Service Providers.
(2) The Trustee receives the following disclosure from the AWB-
Affiliated Service Providers, and reviews, approves and distributes the
disclosures to Participating Employer at initial enrollment and at each
annual renewal thereafter:
(A) A description of the services that are to be provided by any
AWB-Affiliated Service Provider to the Plan;
(B) A description of all compensation, both in the aggregate and by
service, the AWB-Affiliated Service Providers and any subcontractor
reasonably expect to receive from the Plan;
(C) A description of any compensation that will be paid among the
AWB-Affiliated Service Providers or a subcontractor, if such
compensation is set on a transaction basis (such as commissions,
finder's fees, or other similar incentive compensation based on
business placed or retained). The AWB-Affiliated Service Provider must
identify the services for which such compensation will be paid and
identify the payers and recipients of such compensation (including the
status of a payer or recipient as an Affiliate or a subcontractor)
regardless of whether such compensation also is disclosed pursuant to
paragraph (E) or (F), below;
(D) A description of any compensation that the AWB-Affiliated
Service Provider, an affiliate, or a subcontractor reasonably expects
to receive in connection with termination of the contract or
arrangement, and how any prepaid amounts will be calculated and
refunded upon such termination; and
(E) a description of the manner in which the compensation described
in clause (B) through (D), as applicable, will be received.
(e) Recordkeeping
(1) The Trustee maintains for a period of six (6) years, in a
manner that is reasonably accessible for examination, the records
necessary to enable the persons described in paragraph (2) below to
determine whether the conditions of this exemption have been met,
except that:
(A) If such records are lost or destroyed due to circumstances
beyond the control of the Trustee, then no prohibited transaction will
be considered to have occurred solely on the basis of the
unavailability of those records; and
(B) No party in interest other than the Trustee will be subject to
the civil penalty that may be assessed under ERISA section 502(i) if
the records are not maintained or are not available for examination as
required below:
(2)(A) Except as provided in paragraph (B) below, and
notwithstanding any provisions of ERISA section 504(a)(2) and (b), the
records referred to in Section III(d)(1) are reasonably available at
their customary location for examination during normal business hours
by:
(i) Any authorized employee or representative of the Department;
(ii) Any Participating Employer or fiduciary of a Plan, or any
authorized employee or representative of these entities; or
(iii) Any individual participant or beneficiary of a Plan or any
authorized representative of the participant or, beneficiary; and
(B) None of the persons described in paragraph (e)(2)(A)(ii) or
(iii) of this Section are authorized to examine records that are
confidential, privileged trade secrets, or privileged commercial or
financial information.
(C) If the Trustee refuses to disclose information on the basis
that the information is exempt from disclosure under subsection (B),
the Trustee must,
[[Page 38904]]
by the close of the thirtieth (30th) day following the request, provide
a written notice advising the requestor of the reasons for the refusal
and that the Department may request such information.
(3) The Trustee must provide sufficient information necessary for
it to demonstrate that the exemption conditions have been met over the
prior six-year period. The Trustee must maintain and retain such
records in a manner that ensures it would be able to provide the
information to the Department within 30 calendar days of a request.
(f) Material Facts and Representations
All the material facts and representations provided by the
Applicants are true and accurate at all times.
Section IV. Phase-In Conditions
The following additional conditions apply as of the first day of
the first plan year after the Grant Date.
(a) Plan Documents and Contracts
(1) Plan documents and disclosures:
(A) accurately describe the role and fiduciary status of the
Trustee;
(B) do not include any disclaimers of fiduciary status for any
party, including AWB and any Affiliate; and
(C) do not indicate, in any way, including on a website, that AWB
or its Affiliates are the sponsor of the Plan.
(2) The insurance contract is held in the name of the Plan.
(3) AWB-Affiliated Service Providers contractually agree that all
information they provide to the Trustee, Participating Employers and
prospective Participating Employers regarding their services to the
Plan and related fees is materially accurate at the time it is
provided.
(b) Fees
(1) Before entering into any contract for services with an AWB-
Affiliated Service Provider on behalf of the Plan, the Trustee:
(A) Negotiates the rate of fees to be paid for services to the Plan
and ensures that the rate does not increase during the contract period;
and
(B) Contractually prohibits the AWB-Affiliated Service Provider
from receiving any fees other than those paid directly by the Plan.
(2) Fees for service providers, other than any insurance broker of
record that is not Affiliated with AWB, are established independently
of other service provider fees, so that an increase in one fee does
not, directly or indirectly, cause an increased payment to another
service provider. For purposes of this condition, a service provider
fee does not include an insurance premium (i.e., fees may be calculated
as percentages of premiums paid to the insurance company).
(3) Fees collected from Participating Employers and Plan
participants are based on actual, rather than estimated, amounts due to
service providers.
(c) Disclosure
(1) The disclosure described in Section III(d)(1) includes the
following additional information:
(A) A description of any compensation that the AWB-Affiliated
Service Provider, or any subcontractor, reasonably expects to receive
in connection with termination of a contract or arrangement with the
Plan and how any prepaid amounts will be calculated and refunded upon
such termination; and
(B) A description of the methodology by which AWB-Affiliated
Service Provider fees are calculated, including examples with dollar
amounts.
(2) The Plan documents require the AWB-Affiliated Service Provider
to furnish, upon written request, any information the Trustee
reasonably requests, within 30 days after the request unless the
disclosure cannot be provided due to extraordinary circumstances beyond
the control of the AWB-Affiliated Service Provider, in which case the
information must be provided as soon as reasonably practicable and the
AWB-Affiliated Service Provider must provide the Trustee with a notice
explaining why they cannot meet the 30-day deadline.
(d) Monthly Billing Statements
The Trustees provide to Participating Employers a monthly billing
statement that includes:
(1) The following statement: ``The amounts you pay each month for
health insurance coverage include fees for administrative services,
including fees paid to service providers affiliated with the
Association of Washington Business (AWB). A description of the services
provided by each AWB affiliate is provided to you at the time of your
initial enrollment and at each annual renewal. You can also contact
[NAME, phone number, email address] for additional copies.''
(2) A chart accurately listing all service providers and the fee
percentages or other amounts they receive. If any administrative
services fees are expressed as a percentage of the insurance premium,
the disclosure must also include an example showing how fees would be
calculated based on a $1,000 insurance premium; and
(3) A point of contact, including a phone number and email address,
for copies of disclosures or for additional information.
Exemption date: If granted, the exemption will be in effect as of
the date of publication of the final exemption in the Federal Register.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-12687 Filed 6-13-23; 8:45 am]
BILLING CODE 4510-29-P