[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56409-56416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14959]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2024-03; Application Number L-11989]
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 exemption.
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SUMMARY: This document gives notice of an individual exemption from
certain prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (ERISA). The exemption permits the trustee
of a plan funded by the AWB HealthChoice Employee Benefits Trust (the
Arrangement), to hire entities affiliated with AWB to provide services
to the Arrangement for a fee subject to conditions designed to
safeguard the interests of the plan and its participants and
beneficiaries.
DATES: Exemption date: This final exemption will be in effect as of
July 9, 2024.
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: AWB, Forterra and ProPoint (the Applicants)
requested an exemption pursuant to ERISA section 408(a) and
supplemented the request with certain additional information
(collectively, this information is referred to as ``the
Application'').\1\ On June 14, 2023, the Department published a notice
of proposed exemption in the Federal Register at 88 FR 38896 (Proposed
Exemption).
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\1\ The procedures for requesting an exemption are set forth in
29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
Effective December 31, 1978, section 102 of the Reorganization Plan
No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of
the Secretary of the Treasury to issue administrative exemptions
under the Code Section 4975(c)(2) to the Secretary of Labor.
Accordingly, the Department grants this exemption under its sole
authority.
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Based on the record and representations of the Applicants, the
Department has determined to grant the Proposed Exemption with the
modifications discussed below. This exemption provides only the relief
specified herein and does not provide relief from violations of any law
other
[[Page 56410]]
than the prohibited transaction provisions of ERISA.
As discussed below, the Department makes the requisite findings
under ERISA Section 408(a) based on the Applicants' adherence to all
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 Applicants. Absent these conditions, the
Department would not have granted this exemption.
Background
AWB HealthChoice Employee Benefits Trust
As described in the proposal, Association of Washington Business
(AWB) members can choose to 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.
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\2\ The industry classifications are: manufacturing,
professional services, retail/wholesale, hospitality, construction,
agriculture, communications, technology, and transportation.
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Bona Fide Groups or Associations Under the Department's Sub-Regulatory
Guidance
Under ERISA section 3(1), an employee welfare benefit plan must be
established or maintained by an ``employer,'' an ``employee
organization,'' or both.\3\ 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.'' The Department's guidance in this area is provided
primarily in several advisory opinions it has issued over more than
three decades (the sub-regulatory guidance).\4\ In the sub-regulatory
guidance, the Department expressed its position regarding whether a
particular group or association is a ``bona fide group or association''
that is permitted to sponsor a multiple employer welfare plan on behalf
of its employer members.\5\ In making this determination, the
Department has consistently focused on three criteria: (1) whether the
group or association has business or organizational purposes and
functions unrelated to the provision of benefits (the ``business
purpose'' standard); (2) whether the employers share some commonality
of interest and genuine organizational relationship unrelated to the
provision of benefits (the ``commonality'' standard); and (3) whether
the employers that participate in a benefit program, either directly or
indirectly, exercise control over the program, both in form and
substance (the ``control'' standard).
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\3\ ERISA section 3(1).
\4\ In 2018, the Department issued a rule (29 CFR 2510.3-5),
which broadened the types of groups and associations that may
sponsor a single ERISA-covered group health plan. The rule was
vacated by court order in 2019 (State of New York v. United States
Department of Labor, 363 F.Supp.3d 109, (March 28, 2019)), and the
Department recently proposed to rescind the rule (88 FR 87968 (Dec.
20, 2023)).
\5\ See, e.g., Advisory Opinions Nos. 94-07A (Mar. 14, 1994),
95-01A (Feb. 13, 1995), 96-25 (Oct. 31, 1996), 2001-04A (Mar. 22,
2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A
(Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8.
2019). See also Department of Labor Publication, ``Multiple Employer
Welfare Arrangements Under ERISA, A Guide to Federal and State
Regulation,'' at www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf.
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The Applicants represent that each Industry Trust association 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 associations'' as defined in the Department's sub-regulatory
guidance.'' \6\ The Department has relied on these representations to
grant this exemption, and this background discussion does not reflect
factual findings or opinions of the Department regarding whether the
Arrangement is sponsored by ``one or more bona fide associations'' or
any other representations made by the Applicants.
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\6\ The Applicant made these representations in a draft trust
agreement provided to the Department.
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Although this exemption was requested by AWB, Forterra and
ProPoint, the prohibited transaction relief it grants only extends to
the Plan Trustees; the exemption provides no relief for AWB or its
affiliates. AWB, Forterra and ProPoint represent that (i) the Plans are
established or maintained by the Industry Trusts associations that act
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.
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.\7\
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 since their inception),
the Department is concerned that 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 in
the absence of appropriate safeguards.
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\7\ See ERISA section 406.
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The Department has authority under ERISA section 408(a) to grant an
administrative exemption from the prohibited transaction rules
requested by the Applicant only if the Department finds that the
exemption is (i) administratively feasible, (ii) in the interests of
affected plans and of their participants and beneficiaries, and (iii)
protective of the rights of such participants and beneficiaries. As
discussed below, this exemption includes conditions that are 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.
The exemption provides 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
[[Page 56411]]
permit the assets, management, or operation of any Plan to be used to
benefit participants and beneficiaries of another Plan. The exemption
does 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 exemption does 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), and the
Department is not determining whether the conditions of ERISA section
408(b)(2), including reasonable compensation, have been met. 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.\8\
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\8\ 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.
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Written Comments Received
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. All comments and requests for a
hearing were due to the Department by August 14, 2023.\9\ The
Department received three written comments that raised several issues.
One of these comments was from the Applicants who raised four technical
issues involving (1) direct fees, (2) related fee increases, (3) AWB
membership and (4) the disclosure required in the Proposed Exemption.
The Department responds to the material issues and the material
information provided in the comments below.\10\
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\9\ The Proposed Exemption established a July 31, 2023, deadline
for the public to submit comments and requests for a hearing.
However, the Department was informed that AWB had to redistribute
the proposed exemption package, including the notice to interested
parties, due to an incomplete first distribution. Therefore, in a
Federal Register notice published on July 17, 2023 (88 FR 45448),
the Department extended the proposed exemption's comment period
until August 14, 2023, to provide additional time for interested
parties to prepare and submit their comments.
\10\ All information submitted by the Applicant to the
Department in connection with this exemption is available through
the Department's Public Disclosure Room, by referencing L-11989.
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In granting this exemption, the Department has relied on the
representations of the Applicants. If any material statement in the
Application, final exemption or the Applicant's comment is not, or may
no longer be, completely and factually accurate, the Applicants and
recipients of the exemptive relief provided herein must immediately
alert the Department.\11\
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\11\ The Representations stated herein are based on AWB's
representations provided in its exemption application and do not
reflect factual findings or opinions of the Department unless
indicated otherwise. The Department notes that the availability of
this exemption is subject to the express condition that the material
facts and representations contained in application L-11989 are true
and complete at all times, and accurately describe all material
terms of the transactions covered by the exemption. If there is any
material change in a transaction covered by the exemption, or in a
material fact or representation described in the application, the
exemption will cease to apply as of the date of the change.
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Comment From the Applicant
Comment 1: Direct Fees
Section III(c)(1) of the proposed exemption would have required the
Trustee to approve, 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 direct payments
from the Plan. Similarly, Section IV(b)(1) would have required a
Trustee to contractually prohibit the AWB-Affiliated Service Provider
from receiving any fees other than those paid directly by the Plan as
of the first day of the first plan year after the Grant Date.
According to the Applicant, fees paid to Forterra and ProPoint no
longer are paid out of trust assets. The Applicants explained in their
comment that, effective April 1, 2021, Vimly, a service provider that
is unaffiliated with AWB, collects contributions remitted by
Participating Employers, retains a portion of the collected amount as
its fee, remits fees payable to Forterra and ProPoint directly to those
entities, and remits the balance to the trust.
After considering this comment, the Department is revising Sections
III(c)(1) and IV(b)(1) to provide that fees and other compensation must
be direct payments from, or on behalf of, the Plan. Adding ``on behalf
of'' confirms that the exemption is available for funds paid by Vimly
directly to Forterra and ProPoint from contributions remitted by
Participating Employers, even if they are not contributed to the trust.
Comment 2: Related Fee Increases
The Applicants expressed concern with Section IV(b)(2) of the
Proposed Exemption. This provision requires fees provided to service
providers, other than any insurance broker of record that is not
affiliated with AWB, to be established independently of other service
provider fees, so that an increase in one fee does not directly or
indirectly, cause an increased fee payment to another service provider.
The Applicants requested that the Department eliminate this requirement
in its entirety. Alternatively, Applicants requested that the
Department revise the requirement to provide that when one service
provider's fees increase, the fees paid to other service providers,
other than insurance brokers of record that are not affiliated with
AWB, would be contractually adjusted unless the Trustees determine, in
accordance with the other conditions of the Proposed Exemption that (a)
the resulting increase to the other service providers' fees does not
cause those fees to exceed reasonable compensation within the meaning
of ERISA Section 408(b)(2) and (b) such resulting fee increase is
prudent and in the best interests of Plan participants. However, if the
Department retains Section IV(b)(2) as proposed, the Applicants
requested that the Department delay the effective date of the
requirement until the second plan year after the Grant Date.\12\
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\12\ The Applicants requested this delay because the cost of
coverage has already been determined for the first plan year after
the Grant Date and is in the process of being communicated to
Participating Employers.
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After considering the Applicants' comment, the Department has
decided to finalize Section IV(b)(2) as proposed. The exemption as a
whole requires the Trustees to closely monitor all fees paid to AWB-
affiliated service providers. For example, Section III(c) requires the
Trustees to closely monitor all fees paid to AWB-Affiliated Service
Providers by ensuring that that fees and other compensation paid to
them does not exceed reasonable compensation for services that are
necessary and actually rendered to the Plan, and Section IV(b)(1)(A)
prohibited rates from increasing during the contract period. The
Department's position is that allowing automatic increases to all
service providers' fees is contrary to Trustee's responsibility.
The Department notes there are multiple ways that Applicants may
satisfy Section IV(b)(2). For example, the Applicants' current method
of
[[Page 56412]]
calculating service provider compensation based on rates that are
determined by Premera using a generally-recognized industry method
would not necessarily violate this condition.
As requested by the Applicants, the Department is extending the
effective date of the condition. Therefore, while most of Section IV
becomes applicable as of the first day of the first plan year after the
Grant Date, Section IV(b)(2) will not become effective until the first
day of the second plan year after the Grant Date. This will ensure that
all parties have sufficient time to negotiate fees paid to service
providers.
Comment 3: AWB Membership
As proposed, the definition of ``AWB-Affiliated Service Provider''
was AWB, Forterra, Inc., ProPoint, LLC, or any other entity providing
services to the Plan that is an Affiliate. Section IV(b)(1)(B) of the
proposal would have required the Trustees to contractually prohibit the
AWB-Affiliated Service Providers from receiving any fees other than
those paid directly by the Plan. Applicants expressed concern that,
because membership in AWB is a prerequisite for participating in the
Plan and requires the Participating Employers to pay a membership fee,
proposed Section IV(b)(1)(B) could have been interpreted as prohibiting
AWB from receiving its routine membership fees. To address this
ambiguity, the Applicants requested that the Department clarify that
the definition of AWB-Affiliated Service Provider only includes AWB
only to the extent AWB provides services to the Plan. Rather than
change the definition of AWB-Affiliated Service Provider, which could
affect other exemption conditions, the Department is revising Section
IV(b)(1)(B) to add ``Notwithstanding the foregoing, AWB may receive a
membership fee from Participating Employers.''
Comment 4: Disclosure
Section III(d)(2)(B) of the Proposed Exemption would have required
the AWB-Affiliated Service Providers to disclose to the Trustee 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.\13\
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\13\ In the proposal, the Department noted ``[t]his 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.' '' However, the requirements of this
condition are specific to this Arrangement and this exemption. The
Department is not providing guidance on the statutory language.
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The Applicants request that the Department provide further
clarification and guidance regarding the requirement to describe
compensation ``by service,'' and regarding whether any specific
services listed in the disclosure would require a separate allocation
of fees. Alternatively, the Applicants request that the Department
provide guidance that allows specific services to be broken down into
categories for which separate fees would be expressed by category.
The disclosure of all services and fees by the AWB-Affiliated
Service Providers to the Trustees and the Participating Employers is
paramount to the Department making its statutory findings under ERISA
section 408(a) that are required for it to provide the exemptive relief
provided in this final exemption. The Department's position is that
providing aggregate and detailed fee information disclosing the
services provided is crucial for the Trustees and the Participating
Employers to meet their obligations under the Exemption, including the
determination that the fees and other compensation do not exceed
reasonable compensation within the meaning of ERISA section
408(b)(2).\14\ The Department, however, acknowledges the exact fees for
certain specific services may not be known at the time of the
disclosure and the condition requires disclosure of fees that ``AWB-
Affiliated Service Providers and any subcontractor reasonably expect to
receive from the Plan.'' The Department expects that when the AWB-
Affiliated Service Provider or any subcontractor reasonably expects
specific fees for specific services, those fees must be disclosed. At
the same time, AWB-Affiliated Service Providers must disclose all
specific services associated with the aggregate fees.
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\14\ In granting this exemption, the Department is taking no
position on whether the fees described in Applicant's comment are
reasonable. That determination must be made by the Trustee based on
all facts and circumstances.
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Comments From the General Public
Comment on ERISA Section 514
The Department received one comment that expressed the commenter's
opinion that it was ``legally impermissible'' for the Department ``to
grant an exemption from the prohibited transaction restrictions to the
Association of Washington Business HealthChoice Employee Benefits
Trust'' because ERISA Sections 514(b)(6)(A) and (B) preclude the
Department from granting any exemption to a fully insured Multiple
Employer Employee Welfare Arrangement (MEWA).
The Department disagrees with the commenter's interpretation of
ERISA section 514(b)(6). In general, ERISA's broad preemption of state
laws contained in ERISA section 514(a) provides that ERISA's Titles I
and IV supersede any state laws that relate to any ERISA-covered
employee benefit plan except as provided in ERISA section 514(b). In
1983, Congress amended ERISA to add section 514(b)(6). One of the main
purposes for this amendment was to protect employee benefit plan
participants and beneficiaries by facilitating state regulation of
MEWAs.\15\ To that end, ERISA section 514(b)(6) modified the scope of
ERISA's preemption of state insurance laws as they apply to employee
welfare benefit plans that also are MEWAs.
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\15\ DOL Advisory Opinion 2011-01A.
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Specifically, if an employee welfare benefit plan that is also a
MEWA is not fully insured, then ERISA section 514(b)(6)(A)(ii) provides
that any state law that regulates insurance may apply to the MEWA to
the extent state law is not inconsistent with ERISA. If, on the other
hand, an employee welfare benefit plan that also is a MEWA is fully
insured, ERISA section 514(b)(6)(A)(i) provides that only those state
laws that regulate the maintenance of specified contribution and
reserve levels may apply to the MEWA.\16\
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\16\ ERISA section 514(b)(6)(D) provides, in turn, that a MEWA
will be considered fully insured for purposes of ERISA section
514(b)(6) only if the terms of the arrangement provide for benefits
the amount of all of which the Secretary determines are guaranteed
under a contract, or policy of insurance, issued by an insurance
company, insurance service, or insurance organization, ``qualified
to conduct business in a State.''
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The commenter seems to misunderstand several aspects of ERISA
section 514(b)(6). Contrary to the commenter's assertion that ``ERISA
Section 514(b)(6) provides specific criteria that must be met before
ERISA title I provisions can be applied'' to a MEWA, section 514(b)(6)
prescribes circumstances when state laws that otherwise would be
preempted by ERISA section 514(a) can be applied to MEWAs that are
employee welfare benefit plans in addition to ERISA Title I, which
governs the operation of these plans. In other words, section 514(b)(6)
permits state insurance laws to apply rather than automatically being
preempted by ERISA, but it does not eliminate the applicability of
Title I enforcement provisions to MEWAs. In fact, section 514(b)(6)
only is relevant
[[Page 56413]]
for plans that are covered by title I of ERISA, because it provides an
exception to ERISA's preemption of all State laws that apply to
``employee benefit plans'' described in ERISA section 4(a) that are not
exempt by ERISA section 4(b).
Furthermore, the commenter asserts that ``the Department is barred
from issuing any exemptions that mandate that Title I of ERISA is
applicable to a fully insured MEWA.'' To support its assertion, the
commenter relies on the language in ERISA section 514(b)(6)(B) which
states: ``The Secretary may, under regulations which may be prescribed
by the Secretary, exempt from subparagraph (A)(ii), individually or by
class, multiple employer welfare arrangements which are not fully
insured.'' (emphasis in the comment). However, the commenter fails to
realize that this provision is completely irrelevant to this exemption
because this exemption provides relief from ERISA section 406, not
ERISA section 514(b)(6)(A)(ii).
Based upon the Applicants' representation that the Arrangement is a
bona fide association as defined in the Department's sub-regulatory
guidance, and is a Plan MEWA that provides fully-insured welfare
benefits subject to ERISA (including the prohibited transaction
provisions in ERISA section 406), the Department has authority to grant
this exemption.
Comment on ERISA Section 408(a)
Another commenter claimed that the proposed exemption violates
ERISA section 408(a) due to the Department's failure to ``demonstrate
to the public that it properly determined that the specific `rights of
participants' of a plan that is subject to ERISA Title I are being
protected.''
The Department fully understands and takes very seriously its
responsibility to adhere to the mandate in ERISA section 408 that
requires the Department to find that the exemption is (1)
administratively feasible, (2) in the interests of affected plans and
of their participants and beneficiaries, and (3) protective of the
rights of participants and beneficiaries of such plans before granting
this exemption. The Department made its preliminary statutory findings
in the Proposed Exemption and confirms such findings in this Notice of
Granted Exemption based on its review of the entire record and the
requirement that the Applicants fully comply with the exemption
conditions at all times. The record and the Department's findings are
based in part on representations made by the Applicants, one
representation of which is that the Arrangement is a bona fide
association as defined in the Department's sub-regulatory guidance and
a Plan MEWA that provides fully-insured welfare benefits subject to
ERISA. As stated in the Proposed Exemption and this Notice of Granted
Exemption, the availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transaction
that are the subject of the exemption and the fact that a transaction
is subject to an administrative or statutory exemption is not
dispositive of determining whether the transaction is in fact a
prohibited transaction. If any representation made by the Applicants is
not accurate or there are any material changes to those representations
the exemptive relief provided in this exemption would not be valid.
Comment From the Department
This final amendment makes minor ministerial changes, such as
spelling out numbers and moving clauses within a sentence.
The complete application file (L-11989) 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 June 14, 2023, at 88 FR 38896.
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) does not relieve a fiduciary or other party
in interest from certain requirements of other ERISA provisions,
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 plan's participants and beneficiaries and in a prudent fashion in
accordance with ERISA section 404(a)(1)(B).
(2) As required by ERISA section 408(a), the Department hereby
finds that the exemption is (1) administratively feasible, (2) in the
interests of affected plans and of their participants and
beneficiaries, and (3) protective of the rights of participants and
beneficiaries of such plans;
(3) The exemption is supplemental to, and not in derogation of, any
other ERISA provisions, 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 determining whether the transaction is in fact a
prohibited transaction; and
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transaction
that are the subject of the exemption.
Accordingly, the following exemption is granted under the authority
of ERISA Section 408(a) and in accordance with the procedures set forth
in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011):
Exemption
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 any of the member employers of
AWB who provides 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
The exemption provides relief to the Trustees for their selection
of an AWB-Affiliated Service Provider to provide services to the Plans
for a fee, if the
[[Page 56414]]
conditions of Sections III and IV are met, subject to the definitional
terms in Section I. The exemption would provide relief only 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 is:
(A) A trustee, employee, officer, director, or owner of a
Participating Employer in the industry classification associated with
the Plan;
(B) 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) 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) 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 must
receive this training within three (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 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:
(1) are direct payments from, or on behalf of, the Plan;
(2) are 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 Employers 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;
[[Page 56415]]
(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 above 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 provide a written notice advising the requestor of the
reasons for the refusal and that the Department may request such
information by the close of the thirtieth (30th) day following the
request.
(3) The Trustee must provide sufficient information necessary 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
Except as otherwise noted in section IV(b)(2), 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, or on behalf
of, the Plan. Notwithstanding the foregoing, AWB may receive a
membership fee from directly Participating Employers. The membership
fee may be a prerequisite for participation in the Plan, but the
membership fee may not be compensation for any services provided to the
Plan.
(2) As of the first day of the second plan year after the Grant
Date, 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
cause, directly or indirectly, 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.
[[Page 56416]]
(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: The exemption will be in effect as of the date of
publication of the final exemption in the Federal Register.
Signed at Washington, DC, this 2nd day of July 2024.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2024-14959 Filed 7-8-24; 8:45 am]
BILLING CODE 4510-29-P