[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56422-56432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14961]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-12073]


Proposed Exemption From Certain Prohibited Transaction 
Restrictions Involving Memorial Sloan Kettering Cancer Center (MSKCC or 
the Applicant) Located in New York, New York

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document provides notice of the pendency before the 
Department of Labor (the Department) of a proposed individual exemption 
from certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code) for the reinsurance of risks 
and the receipt of a premium by MSK Insurance US, Inc. (the Captive), a 
captive insurance and reinsurance subsidiary that is wholly-owned by 
MSKCC, in connection with a single premium group insurance contract 
sold by an unrelated fronting insurer (the Fronting Insurer) to provide 
pension annuities to Plan participants and beneficiaries if the 
conditions in Section III are met in conformance with the definitions 
in Section I.

DATES: If granted, this proposed exemption will be in effect on the 
date specified by the Department in a grant notice published in the 
Federal Register.
    Comments due: Written comments and requests for a public hearing on 
the proposed exemption must be submitted to the Department by August 
23, 2024.

ADDRESSES: All written comments and requests for a hearing should be

[[Page 56423]]

submitted to the Employee Benefits Security Administration (EBSA), 
Office of Exemption Determinations, Attention: Application No. D-12073, 
via email to [email protected] or online through http://www.regulations.gov. Any such comments or requests should be sent 
before the end of the scheduled comment period. The application for 
exemption and the comments received will be available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, U.S. Department of Labor, Room N-1515, 200 
Constitution Avenue, NW, Washington, DC 20210. See SUPPLEMENTARY 
INFORMATION below for additional information regarding comments.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department 
at (202) 693-8456. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION:

Comments

    Persons are encouraged to submit all comments electronically and 
not to follow their submissions with paper copies. Comments should 
state the nature of the person's interest in the proposed exemption and 
how the person would be affected by the exemption, if granted. Any 
person who may be adversely affected by an exemption can request a 
hearing on the exemption. A hearing request 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 
how 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 would be published by the Department in the Federal Register. 
The Department may decline to hold a hearing if: (1) the hearing 
request 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. 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 such information 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

    Under the proposed exemption, the Memorial Sloan Kettering Cancer 
Center Pension Plan (the Plan) would enter into a single premium group 
annuity insurance contract (the GAC) with an unrelated insurance 
company (the Fronting Insurer) who would be selected by an independent 
fiduciary in compliance with the requirements of the Department's 
Interpretive Bulletin 95-1.\1\ The Fronting Insurer would, in turn, 
enter into a reinsurance contract (the Reinsurance Arrangement) with 
MSK Insurance US, Inc. (MSK US or the Captive), a captive reinsurer 
that is wholly owned by MSKCC, the Plan sponsor. Under the Reinsurance 
Arrangement, MSK US would reinsure 100 percent of the Plan's risks. 
Importantly, the Fronting Insurer would remain fully responsible for 
the benefits of participants and beneficiaries for the entire duration 
of the GAC and Reinsurance Arrangement if MSK US does not fulfill its 
contractual obligations to the Fronting Insurer, without any caveats, 
contingencies, or conditions that would relieve or limit the Fronting 
Insurer's contractual obligation to pay benefits to the Plan's 
participants and beneficiaries.
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    \1\ 29 CFR 2509.95-1.
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    In connection with the Reinsurance Arrangement, all Plan 
participants and beneficiaries would receive an increase to their 
monthly pension benefit that is currently expected to be 5.37 
percent.\2\ The Department expects that this benefit increase would add 
a total of $64,440,000 in additional benefits to the Plan's 
participants and beneficiaries in the form of a 5.37 percent increase 
to their monthly annuity payment for the rest of their lives. 
Importantly, this increase will remain in place for the entirety of 
Plan participants' and beneficiaries' lives and, as a condition of this 
exemption, MSKCC would not reduce any benefits that employees receive 
from MSKCC, including the benefits Plan participants receive from the 
Plan, as a result of the Reinsurance Arrangement described in this 
proposed exemption. Absent this exemption, participants and 
beneficiaries would not receive this benefit increase.
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    \2\ As discussed in more detail below, the exemption requires 
that Plan participants and beneficiaries receive the majority of the 
benefits derived from the Reinsurance Arrangement. While, as noted 
above, it is ``currently expected'' that a 5.37% increase in Plan's 
participants' and beneficiaries' monthly pension benefits will 
achieve this objective, the exact percentage increase needed to 
ensure that Plan participants and beneficiaries receive the majority 
of the benefits derived from the proposed arrangement will not be 
known until the Plan actually enters into the GAC, which will occur 
after the Fronting Insurer is selected by Fiduciary Counselors, the 
independent fiduciary appointed to solicit bids and select the 
Fronting Insurer in accord with the requirements of IB 95-1. As 
described in further detail below, once the Plan enters into the 
GAC, Milliman, a second independent fiduciary acting solely on 
behalf of the Plan, must determine, based on objective data, that 
the Plan participants' and beneficiaries' monthly pension benefits 
have been increased by a percentage that ensures they will receive 
the majority of the benefits derived from the Reinsurance 
Arrangement. The methodology for making this calculation is 
discussed below. Milliman as independent fiduciary must, among other 
things, calculate and demonstrate to the Department in a written 
report that Plan participants and beneficiaries received the 
appropriate percentage increase in their monthly pension benefits. 
The written report of the independent fiduciary would be available 
to the publicly contacting EBSA's Public Disclosure Office and 
referencing Exemption Application D-12073.
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Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA section 408(a) and Code section 4975(c)(2) and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(75 FR 66637, 66644, October 27, 2011).\3\ If

[[Page 56424]]

the proposed exemption is granted, the Plan will purchase the GAC from 
an unrelated Fronting Insurer, and the Fronting Insurer will, in turn, 
enter into a reinsurance contract with MSK US.
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    \3\ For purposes of this proposed exemption: (1) references to 
specific provisions of ERISA Title I, unless otherwise specified, 
should be read to refer as well to the corresponding provisions of 
Code section 4975; and (2) if granted, this proposed exemption does 
not provide relief from the requirements of any law not noted above. 
Accordingly, the Applicant is responsible for ensuring compliance 
with any other laws applicable to the transactions described herein.
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    As described below, MSKCC is expected to receive a financial 
benefit from this exemption that will equal approximately $126,444,000. 
This exemption would require MSKCC to ensure that Plan participants and 
beneficiaries will receive the majority of that derived benefit in the 
form of a uniform percentage increase to the monthly retirement benefit 
of all participants and beneficiaries. Currently, the Department 
expects that MSKCC would implement a 5.37% increase in each 
participant's and beneficiary's monthly annuity payment. This benefit 
increase will continue, without reduction, for the lifetime of each 
participant and beneficiary until the final annuitant is paid their 
final monthly annuity payment under the GAC.
    This proposed exemption also would require MSKCC to delegate 
fiduciary oversight of the Plan and Reinsurance Arrangement to a 
qualified fiduciary who is independent of MSKCC and MSKCC's affiliates 
(the Independent Fiduciary). Among other things, the Independent 
Fiduciary must approve the Reinsurance Arrangement in advance, ensure 
that the Reinsurance Arrangement is in the interest of and protective 
of the Plan's participants and beneficiaries, and submit written annual 
reports to the Department confirming that MSKCC has met all of the 
exemption's conditions.\4\
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    \4\ The Department notes that the Independent Fiduciary's annual 
written reports are essential to the Department's tentative finding 
that this proposed exemption is, and will continue to be, in the 
interest of and protective of the Plan and its participants and 
beneficiaries. The Independent Fiduciary must clearly, prudently, 
and loyally determine whether MSKCC and its affiliates have complied 
with each term and condition of the exemption and include its 
findings in its reports.
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    This exemption would provide relief from certain restrictions 
described in ERISA section 406 and Code section 4975(c)(1). These 
restrictions are discussed below. No relief or waiver of a violation of 
any other law is provided by the exemption. When interpreting and 
implementing this exemption, MSKCC, the Captive, the Independent 
Fiduciary, and the Fronting Insurer would resolve any ambiguities by 
considering the exemption's protective purposes. To the extent 
additional clarification is necessary, these persons or entities should 
immediately contact EBSA's Office of Exemption Determinations at 202-
693-8540.

Summary of Facts and Representations 5
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    \5\ The Summary of Facts and Representations is based on the 
Applicant's representations provided in its exemption application 
and does 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 
D-12073 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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Memorial Sloan Kettering Cancer Center

    1. MSKCC is a cancer center that is committed to patient care, 
research, and educational programs. Headquartered in New York City, 
MSKCC had 29,732 employees as of December 31, 2022. MSKCC's total 
operating revenue in 2022 was approximately $6.63 billion, with net 
assets of $8.74 billion. MSKCC is a non-profit entity designated as a 
501(c)(3) organization.

The Plan

    2. The Plan is a defined benefit pension plan that provides 
retirement and death benefits for eligible participants. Under the 
Plan, the normal form of payment for an unmarried participant is a 
single-life annuity, and the normal form of payment for a married 
participant is a joint and 50% survivor annuity. The Plan administrator 
and named fiduciary is the MSK Executive Benefits Committee and the 
Plan trustee is JPMorgan Chase. In 2012, MSKCC amended the Plan to 
close enrollment to employees hired on or after December 16, 2012. In 
2020, MSKCC amended the Plan to freeze future benefit accruals 
effective December 20, 2020. As of December 31, 2022, the Plan covered 
8,263 participants and held $1,347,320,040 in total assets.

The Captive

    3. MSK US is MSKCC's wholly-owned captive insurance and reinsurance 
subsidiary. MSK US was organized on August 21, 2003, to provide 
coverage to operating subsidiaries of MSKCC, and on August 28, 2003, 
received a Certificate of Authority to transact insurance business in 
the State of Vermont. MSK US insures the property and equipment of 
MSKCC. Today, MSK US writes approximately $75 million in premiums and 
has expanded its business to include other insurance product lines for 
MSKCC, such as warranty coverage for health care equipment and bio-
medical health care equipment, group life insurance, and group long-
term disability insurance. In December 2008, MSKCC received a 
prohibited transaction exemption from the Department that permits MSK 
US to reinsure the risks of MSKCC's Group Term Life and Long Term 
Disability Programs (PTE 08-22E).\6\
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    \6\ The Fronting Insurers under PTE 08-22E are Prudential 
Insurance Company of America and First Unum Life Insurance Company.
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    MSK Employee Benefits IC (MSK EB) is a segregated cell within MSK 
US that will be used to reinsure the risks related to the Reinsurance 
Arrangement and this exemption. While MSK US will contract with the 
Fronting Insurer as part of the Reinsurance Arrangement, MSK EB will 
hold the reserves that will be used to pay benefits to the Plan's 
participants and beneficiaries under the GAC. MSK US and MSK EB are 
collectively referred to herein as ``the Captive.''

The Reinsurance Arrangement

    4. The transaction at issue involves the purchase by the Plan of 
the GAC from an unrelated Fronting Insurer, and the reinsurance of the 
GAC through the Captive. The Plan has engaged Milliman, Inc. (Milliman) 
to serve as its Independent Fiduciary with respect to the Reinsurance 
Arrangement (the Independent Fiduciary).

Fiduciary Counselors Inc. and the Selection of the Fronting Insurer

    5. MSKCC has engaged Fiduciary Counselors Inc. of Washington, DC to 
select a Fronting Insurer with respect to the Reinsurance Arrangement 
based on a competitive bidding process. The Applicant represents that 
Fiduciary Counselors will send requests for proposals to potential 
Fronting Insurers and will then select a Fronting Insurer in compliance 
with the Department's Interpretive Bulletin (IB) 95-1,\7\ which 
provides several factors that fiduciaries must consider to ensure they 
select the safest annuity available for a plan.\8\ The

[[Page 56425]]

Fronting Insurer ultimately selected by Fiduciary Counselors must be 
unrelated to MSKCC. Given the importance of a highly rated Fronting 
Insurer to the security of the pension benefits provided to the Plan's 
participants and beneficiaries, Fiduciary Counselors must provide the 
Department with a written submission that identifies the Fronting 
Insurer selected along with a written representation detailing the 
methodology that it used to select the Fronting Insurer and how that 
methodology, and the Fronting Insurer selected, met the requirements of 
IB 95-1. Fiduciary Counselors also must represent to the Department 
that it would have been consistent with IB 95-1 to select the Fronting 
Insurer as the insurer for a final termination buy-out annuity, had 
MSKCC adopted that approach. This information will be available to the 
public as part of the record attributable to D-12073.
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    \7\ Fiduciary Counselors must submit a written representation in 
writing to the Department's Office of Exemption Determinations that 
the selection of the Fronting Insurer met the requirements of IB 95-
1 and also that it would have been consistent with IB 95-1 to select 
the Fronting Insurer as the insurer for a final termination buy-out 
annuity had MSKCC adopted that approach.
    \8\ 29 CFR 2509-95-1. As stated in IB 95-1, when conducting a 
search, a fiduciary must evaluate a number of factors relating to a 
potential annuity provider's claims-paying ability and 
creditworthiness. Reliance solely on ratings provided by insurance 
rating services would not be sufficient to meet this requirement. In 
this regard, the types of factors a fiduciary should consider would 
include, among other things: (a) the quality and diversification of 
the annuity provider's investment portfolio; (b) the size of the 
insurer relative to the proposed contract; (c) the level of the 
insurer's capital and surplus; (d) the lines of business of the 
annuity provider and other indications of an insurer's exposure to 
liability; (e) the structure of the annuity contract and guarantees 
supporting the annuities, such as the use of separate accounts; and 
(f) the availability of additional protection through state guaranty 
associations and the extent of their guarantees.
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Mechanics of the Reinsurance Arrangement

    6. The Plan would purchase the GAC from the Fronting Insurer by 
using current Plan assets (including an in-kind transfer) to pay a one-
time premium amount to the Fronting Insurer. The Fronting Insurer would 
simultaneously enter into an indemnity reinsurance contract with the 
Captive, which would cede the Plan's risk from the Fronting Insurer to 
the Captive. Subsequently, the Fronting Insurer would transfer the 
premium amount paid by the Plan to the Captive where it would be held 
in reserve within the captive cell (MSK EB) throughout the duration of 
the Reinsurance Arrangement. The GAC would cover all of the Plan's 
liabilities and have two phases: (1) a Buy-In Phase and (2) a Buy-Out 
Phase that are explained below.
    Buy-In Phase: During the Buy-in Phase, the Plan would hold the GAC 
as a plan asset. This means that the Fronting Insurer and Captive would 
guarantee the payment of Plan benefits and the Plan would remain in 
place. During the Buy-In Phase, the payment of the participants' and 
beneficiaries' benefits would be secured by the Plan, the Plan Sponsor, 
ERISA, and the PBGC, while the Plan's funding of benefit payments would 
be secured by the Fronting Insurer and Captive.
    During the Buy-In Phase, the Fronting Insurer would send funds to 
the Plan Trustee (JPMorgan Chase) to make benefit distribution payments 
to the Plan's participants and beneficiaries and, every three months, 
the Fronting Insurer would submit payment requests to the Captive 
requesting reimbursement to cover participant and beneficiary 
distributions paid during the preceding three months and the Fronting 
Insurer's ongoing fees.\9\ If the Fronting Insurer and Captive fail to 
pay benefits during the Buy-In Phase, the Plan Sponsor would still be 
required to fund the Plan, and the Plan would still be required to pay 
all benefits due to participants and beneficiaries.
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    \9\ See Representation 7 below for more information on the 
Fronting Insurer's fees.
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    Following the purchase of the GAC, and while the Plan is still 
active, the Plan's fiduciaries would be obligated to manage all Plan 
assets, including those assets not used to purchase the GAC, solely in 
the interest of participants and beneficiaries and exclusively for 
their benefits. Any payments for Plan expenses that do not clearly and 
exclusively benefit participants and beneficiaries would be subject to 
additional scrutiny.
    Buy-Out Phase: The GAC would contain a ``conversion option'' (the 
Conversion Option) that the Plan Sponsor could exercise (at any time) 
if and when it decides to terminate the Plan.\10\ If exercised, the 
Conversion Option would transition the GAC from the Buy-in Phase to the 
Buy-Out Phase,\11\ and the following events would occur: (a) the GAC 
would no longer be held by the Plan as a Plan asset; (b) the Plan 
Sponsor would replace the Plan as the holder of the GAC; (c) the 
Fronting Insurer would issue annuity certificates to all Plan 
participants and beneficiaries; and (d) the Fronting Insurer would take 
complete control of the administration of the GAC and make benefit 
payments directly to the former Plan participants and beneficiaries 
that have become annuitants.\12\ During the Buy-Out Phase, the Captive 
would continue to hold the reserves and the Fronting Insurer would 
continue to provide quarterly reimbursement payment requests to the 
Captive to cover: (1) participant and beneficiary distributions paid by 
the Fronting Insurer over the preceding three months, plus (2) the 
Fronting Insurer's ongoing fees.
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    \10\ This exemption would not relieve the Plan's fiduciaries 
from their express ERISA duties to manage the assets of the plan 
solely in the interest of the plan and its participants and 
beneficiaries, including when the fiduciaries are contemplating 
terminating the plan.
    \11\ The effective date of the conversion would be aligned with 
the Plan's termination (i.e., the Conversion Option will be 
exercised only if and when the Plan terminates).
    \12\ As a condition of this exemption, after the Buy-In phase 
for the Reinsurance Arrangement is completed and MSKCC exercises the 
Conversion Option, MSKCC will terminate the Plan in compliance with 
all applicable Code and ERISA requirements.
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    The relationship between the Fronting Insurer and Captive would 
remain the same during both the Buy-In and Buy-Out Phases; therefore, 
the Fronting Insurer would assume full responsibility for benefit 
obligations to participants and beneficiaries, without conditions or 
caveats, and the Captive would assume the reinsurance risk. 
Accordingly, both the Fronting Insurer and the Captive would assume 
full responsibility for making pension benefit payments to participants 
and beneficiaries throughout the duration of the Reinsurance 
Arrangement (during both the Buy-In and Buy-Out Phases). Thus, even 
after conversion to the Buy-Out phase, the Fronting Insurer and the 
Captive would remain 100 percent liable for making benefit payments to 
participants and beneficiaries.
    As a condition of this exemption, the Fronting Insurer would be 
required to have a direct contractual relationship with the Plan during 
the Buy-In phase of the GAC and with the Plan's participants and 
beneficiaries after MSKCC exercises the Conversion Option under the GAC 
during the Buy-Out phase, without any caveats, contingencies, or 
conditions that would relieve or limit the Fronting Insurer's 
contractual obligation to pay benefits to the Plan's participants and 
beneficiaries in accordance with the terms of this exemption and the 
Plan.

Fees and Other Costs

    7. Throughout the duration of the Reinsurance Arrangement, the 
Captive would pay fees to the Fronting Insurer that are based on a 
percentage of the reserve held by the Captive. The Applicant represents 
that the Fronting Insurer's fee would be less than one percent of the 
total reserve amount held by the Captive and would remain the same 
throughout the duration of the Reinsurance Arrangement. The Fronting 
Insurer's fees cover both the risk assumed by the Fronting Insurer to 
make benefit payments to participants and beneficiaries and the 
services the Fronting Insurer provides (including administering benefit 
payments during the Buy-Out Phase). All costs associated with the 
operation of the Captive would be paid by the Captive (or MSKCC) and 
not by the Plan. Further, no

[[Page 56426]]

commissions would be associated with the Reinsurance Arrangement and no 
fees would be shared by the Fronting Insurer with MSKCC, the Captive, 
or any affiliates thereof.

Collateral Under the Reinsurance Agreement

    8. As part of the Reinsurance Arrangement, the Captive would be 
collateralized by MSKCC, and all collateral will be separate and apart 
from the Plan assets used to purchase the GAC. The Applicant represents 
that the collateral would be distinct from the reserves and that 
pursuant to the GAC, MSKCC would establish a collateral account that 
the Fronting Insurer can access: (1) in the event the Captive fails to 
make a required quarterly payment to the Fronting Insurer; or (2) to 
reduce the financial risk that would arise if, for example, the Captive 
is holding too large a portion of the reserves in illiquid investments. 
The assets held in the collateral account would be legally owned by 
MSKCC, but the Fronting Insurer would have a statutory reserve credit 
on the assets.\13\ The collateral requirements will be determined by 
the Fronting Insurer and will be based on the reserve requirements 
mandated by the State of Vermont.
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    \13\ The Department understands that a statutory reserve is the 
amount of money, securities, or assets that must be set aside as a 
legal requirement by the Fronting Insurer to cover claims or 
obligations due. This pool of funds is called a statutory reserve 
because state laws and regulations require the Fronting Insurer to 
hold these funds in reserve on their balance sheet. A reserve credit 
is a financial statement credit to the Fronting Insurer for the 
reinsurance ceded by the Fronting Insurer to the Captive. The 
Fronting Insurer would receive a credit because the reserves and 
collateral would be held by the Captive. Thus, the Fronting Insurer 
will not have to carry the equivalent statutory reserve on its 
balance sheet.
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    MSKCC would also provide a Parental Guarantee to the Captive and 
would provide cash as needed if the Captive's general and separate 
account asset balances were extinguished. In its Feasibility Report 
submitted to the Vermont Department of Financial Regulation (Vermont 
DFR), MSKCC noted that it has a substantial endowment of approximately 
$6.4B that would provide the Parental Guarantee.

Oversight by the Vermont DFR

    9. Before submitting this exemption request, the Captive requested 
and received formal approval from the Vermont DFR to enter into the 
Reinsurance Arrangement and operate the Captive to reinsure the Plan's 
pension benefits. The Vermont DFR issued its formal approval after 
reviewing the Captive's Feasibility Report, which included, among other 
things, actuarial projections, an investment policy statement, and a 
business plan. If this exemption is granted and the Reinsurance 
Arrangement takes effect, the Captive would be required to submit an 
independent audit report and actuarial report to the Vermont DFR on an 
annual basis. Further, at least every five years, the Vermont DFR would 
conduct a thorough review of the Captive and issue an Exam Report.
    This proposed exemption requires the Independent Fiduciary to 
obtain and review all independent audit reports and actuarial reports 
submitted by the Captive to the Vermont DFR as well as all Exam Reports 
issued to the Captive by the Vermont DFR. The Independent Fiduciary 
would be required to provide the Department with a detailed summary of 
each Exam Report in its annual Independent Fiduciary Reports, as 
described below. This proposed exemption also would require the Captive 
to request a Certificate of Good Standing from the Vermont DFR on an 
annual basis. Also, as part of this proposed exemption, MSKCC must 
provide the Department with any Exam Reports it receives no later than 
30 days after MSKCC receives such report.

Investing the Reserves

    10. The Captive would be required to invest the reserves in 
accordance with the regulations, and under the supervision, of the 
State of Vermont. Under Vermont state law all captives must file an 
annual audit report with the state insurance commissioner and such 
audit report must include the auditor's opinion as to the adequacy of 
the captive's reserves. In addition, the Fronting Insurer would have 
oversight of the reserves throughout the duration of the Reinsurance 
Arrangement.

Prohibition on Distributions From the Captive to MSKCC

    11. The Applicant represents that the amount of the premium is 
expected to match the value of the Plan's liabilities and that no 
excess amounts will be transferred to the Fronting Insurer when the GAC 
is purchased. When the Fronting Insurer pays the premium to the 
Captive, the assets held by the Captive will be set aside to fund the 
liabilities under the GAC until all benefits are paid to participants 
and beneficiaries, which MSKCC expects will occur after more than 20 
years.

Financial Benefit to MSKCC

    12. The Applicant represents that purchasing the GAC in conjunction 
with the Reinsurance Arrangement is estimated to result in a ten 
percent savings on the overall cost of purchasing the GAC without the 
Captive. For instance, if the single premium cost to acquire the GAC 
from the Fronting Insurer without the Captive was $1.2 billion, the 
cost to acquire it with the Captive in place would be $1.08 billion. 
Since the financial benefit of the cost reduction would ultimately flow 
to MSKCC, this exemption requires a majority of the cost reduction to 
purchase the GAC to be provided to the Plan's participants and 
beneficiaries in the form of a benefit enhancement to their monthly 
annuity payment, as described below.
    The Applicant represents that because MSKCC is a non-profit entity, 
there will be no associated tax advantages flowing to MSKCC from the 
Reinsurance Arrangement.

The Primary Benefits Test

    13. The proposed exemption requires the Plan to receive the 
majority of the financial benefits flowing from the Reinsurance 
Arrangement (the Primary Benefits Test). For the purposes of the 
Primary Benefits Test, the Independent Fiduciary must quantify all of 
the benefits derived from the Reinsurance Arrangement, including all 
benefits directly and indirectly received by MSKCC and any entity 
affiliated with MSKCC. The Primary Benefits Test requires MSKCC to 
provide Plan participants and beneficiaries with a meaningful benefit 
enhancement that must exceed 50 percent of the total financial benefit 
MSKCC derives from the Reinsurance Arrangement. So, for example, if the 
Independent Fiduciary determines that MSKCC will receive a total 
financial benefit of $126,444,000 over the term of the Reinsurance 
Arrangement, the Independent Fiduciary would be required to ensure that 
MSKCC enhances the Plan's benefits that would be paid to participants 
and beneficiaries by more than 50 percent of that amount. Throughout 
the Reinsurance Arrangement, the Independent Fiduciary must 
continuously review and confirm that the majority of the financial 
benefits flowing from the Reinsurance Arrangement inure to the Plan's 
participants and beneficiaries.

MSKCC-Provided Benefit Enhancement

    14. MSKCC represents that it would implement a one-time benefit 
increase sufficient to pass the Primary Benefits Test (the Benefit 
Enhancement). MSKCC represents that if the savings generated from the 
Captive Arrangement equals 10 percent, it will implement a Benefit 
Enhancement in the form of a 5.37

[[Page 56427]]

percent \14\ increase to the monthly benefits of all Plan participants 
and beneficiaries that will continue without reduction for the 
remainder of their lives. Collectively, Plan participants and 
beneficiaries would receive $64,440,000 in increased pension benefit 
payments, and Plan participants and beneficiaries would therefore 
receive the majority of the financial benefit derived from the 
Reinsurance Arrangement. So, for example, a participant with a monthly 
benefit of $4,000 under the original plan terms would receive a 5.37 
percent increase that would increase their monthly benefit payment to 
$4,214.80 as a result of the Reinsurance Arrangement. This Benefit 
Enhancement will be applied uniformly to the monthly benefit of all of 
the Plan's participants and beneficiaries and will continue to be 
applied for the remainder of all of their lives.
---------------------------------------------------------------------------

    \14\ The formula underlying the 5.37 percent calculation is 
based on the actual percentage of savings in the annuity purchase, 
including the value of the pension benefit enhancement. All details 
regarding the formula used to calculate the Benefit Enhancement are 
included in the exemption application file and available to the 
public upon request.
---------------------------------------------------------------------------

    MSKCC represents that: (1) apart from the conditions of this 
exemption, if granted, MSKCC otherwise had no preexisting obligation to 
provide a benefit increase to the Plan participants and beneficiaries; 
and (2) before its submission of the exemption application for this 
exemption, MSKCC had not considered or offered any increase to the 
current value of the benefits of the Plan's participants and 
beneficiaries.
    The amount of the Benefit Enhancement must be adjusted to the 
extent that the Independent Fiduciary determines such an adjustment is 
necessary to pass the Primary Benefits Test. Ultimately, the 
Independent Fiduciary would determine the actual benefit to MSKCC from 
the proposed Reinsurance Arrangement and would ensure that the Plan's 
participants and beneficiaries receive the majority of that amount. The 
Applicant submits that the value of the Benefit Enhancement is 
transparent, easily determined, and simplifies compliance and oversight 
with respect to the terms of the exemption, if granted.

Independent Fiduciary

    15. Milliman would serve as the Plan's Independent Fiduciary with 
respect to the Reinsurance Arrangement. Kathleen E. Ely of Milliman 
would perform the functions required of the independent fiduciary on 
behalf of Milliman with respect to the requirements of this exemption, 
and Milliman's consultants, actuaries, and analysts would support this 
work. Ms. Ely and Milliman represent that they are independent of all 
parties associated with the Reinsurance Arrangement, including the 
Plan, MSKCC, and the Captive. Ms. Ely and Milliman do not have: (a) an 
interest in any party involved in the Reinsurance Arrangement; (b) any 
economic stake or financial interest that is contingent upon the 
implementation of the Reinsurance Arrangement; or (c) an ownership 
interest in MSKCC, the Captive, or the Fronting Insurer, nor are they 
directly or indirectly, controlled by, or under common control with 
them.
    Milliman and Ms. Ely have acknowledged to the Department in writing 
that they accept the fiduciary obligations associated with the duties 
of the Independent Fiduciary and have agreed not to participate in any 
decisions with respect to any transaction in which they may have an 
interest that may affect their best judgment. Milliman represents that 
its gross income received from parties in interest to the Plan in 
connection with the Reinsurance Arrangement represents less than 0.1 
percent of Milliman's gross annual income from all sources.
    This proposed exemption requires the Applicant to represent that no 
party involved in this exemption transaction has or will indemnify 
Milliman or Ms. Ely in whole or in part for negligence and/or for any 
violation of state or federal law that may be attributable to the 
Independent Fiduciary in performing its duties under the Reinsurance 
Arrangement. In addition, no contract or instrument may purport to 
waive any liability under state or federal law for any such violation. 
Further, as a condition of this proposed exemption, neither Milliman 
nor Ms. Ely will enter into any agreement or instrument that violates 
ERISA section 410 or 29 CFR 2509.75-4.\15\
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    \15\ ERISA section 410 provides, in part, that ``except as 
provided in ERISA sections 405(b)(1) and 405(d), any provision in an 
agreement or instrument which purports to relieve a fiduciary from 
responsibility or liability for any responsibility, obligation, or 
duty under this part [meaning Part 4 of Title I of ERISA] shall be 
void as against public policy.''
---------------------------------------------------------------------------

Independent Fiduciary Duties

    16. As the Plan's Independent Fiduciary, Milliman must represent 
the Plan in accordance with the obligations of prudence and loyalty 
under ERISA sections 404(a)(1)(A) and (B) and determine whether the 
Reinsurance Arrangement is in the interests of the Plan's participants 
and beneficiaries. In this regard, before the GAC purchase and 
consummation of the Reinsurance Arrangement, Milliman must confirm that 
the Benefit Enhancement is sufficient to meet the Primary Benefits Test 
under this exemption.
    Further, not later than 30 days after the purchase of the GAC and 
consummation of the Reinsurance Arrangement, Milliman must confirm to 
the Department in writing that all terms and conditions of the 
exemption have been met (or, due to timing requirements, can reasonably 
be expected to be met consistent with the terms of this proposed 
exemption). This confirmation must include copies of each document 
relied on and the steps taken to make this determination. In this 
written determination, the Independent Fiduciary must confirm the 
actual cost savings associated with the Reinsurance Arrangement by 
obtaining documentation from the Fronting Insurer that compares the 
cost to purchase the GAC without the Captive in place to the cost to 
purchase the GAC with the Captive in place. The Independent Fiduciary 
must include this documentation from the Fronting Insurer with its 
written determination to the Department.
    Milliman would be required to continue monitoring, enforcing, and 
ensuring compliance with all conditions of this exemption throughout 
the duration of the Reinsurance Arrangement, including all conditions 
and obligations imposed on any party dealing with the Plan, and report 
any instance of non-compliance immediately to the Department's Office 
of Exemption Determinations. Milliman must also take all appropriate 
actions to safeguard the interests of the Plan and its participants and 
beneficiaries, and review all contracts pertaining to the Reinsurance 
Arrangement, and any renewals of such contracts, to determine whether 
the requirements of this proposed exemption and the terms of Benefit 
Enhancement continue to be satisfied.
    Throughout the duration of the Reinsurance Arrangement, Milliman 
would be required to submit written annual Independent Fiduciary 
Reports to the Department certifying under penalty of perjury whether 
each term and condition of the exemption has been met over the 
applicable period. Each report would be: (a) completed within six 
months after the end of the twelve-month period to which it relates 
(the first twelve-month period would begin on the effective date of the 
exemption grant); and (b) submitted to the Department within 60 days

[[Page 56428]]

thereafter. In preparing the Independent Fiduciary Report, Milliman 
must review: (a) the Captive's annual audit and actuarial reports as 
submitted to the Vermont DFR; (b) any Certificate of Good Standing 
received by the Captive; and (c) any Exam Report completed by the 
Vermont DFR.
    Finally, the Independent Fiduciary must monitor and ensure that any 
assets that remain in the Plan during the Buy-In phase of the 
Reinsurance Arrangement are managed and used exclusively to provide 
benefits to Plan participants and beneficiaries and to defray 
reasonable expenses of administering the Plan in compliance with ERISA 
sections 403(c)(1) and 404(a)(1)(A).

The Independent Fiduciary Report

    17. On June 27, 2023, Ms. Ely completed an Independent Fiduciary 
Report in which she confirms that the Benefit Enhancement would provide 
the Plan's participants and beneficiaries with the majority of the 
benefits derived from the Reinsurance Arrangement. Ms. Ely confirms 
that the Benefit Enhancement will be provided to all Plan participants 
and beneficiaries at no cost to them, and that MSKCC will not offset 
the cost of the Benefit Enhancement by making any corresponding 
reductions to other benefits already received by participants and 
beneficiaries. Ms. Ely also affirms that the Plan will pay no more than 
adequate consideration for the GAC and that no commissions will be 
payable with respect to the GAC or the Reinsurance Arrangement.
    In the Independent Fiduciary Report, Ms. Ely states the purchase of 
the GAC to fund the Plan's participant and beneficiary pension benefit 
payments will protect the participants and beneficiaries from 
investment risk that may impact the reserves used to fund future 
distributions. With the GAC and Reinsurance Arrangement in place, 
participant and beneficiary pension benefit payments will be guaranteed 
by the Fronting Insurer, with an additional layer of security provided 
by the Captive.
    Also in her Report, Ms. Ely confirms that the Captive was organized 
as a captive insurer in the State of Vermont on August 28, 2003, and 
that under Vermont captive insurance law captives may conduct 
reinsurance operations. Ms. Ely confirms further that on June 22, 2023, 
she received written confirmation from the Vermont DFR that the Captive 
has an active license, is in good standing, and underwent an 
examination by an independent certified public accounting firm for the 
fiscal year ending December 31, 2022.

ERISA Analysis

    18. MSKCC is a party in interest with respect to the Plan pursuant 
to ERISA section 3(14)(C) because it is an employer whose employees are 
covered by the Plan. In addition, the Captive is a party in interest 
with respect to the Plan pursuant to ERISA section 3(14)(G) \16\ 
because it is wholly owned by MSKCC.
---------------------------------------------------------------------------

    \16\ Under ERISA section 3(14)(G), a corporation is a ``party in 
interest'' with respect to an employee benefit plan if 50 percent or 
more of the combined voting power of all classes of the 
corporation's stock entitled to vote, or the total value of shares 
of all classes of stock of the corporation, is owned by an employer 
any of whose employees are covered by the employee benefit plan.
---------------------------------------------------------------------------

    ERISA section 406(a) prohibits a wide variety of transactions 
between plans and parties in interest. For example, ERISA section 
406(a)(1)(D) prohibits a plan fiduciary from causing a plan to engage 
in a transaction that results in the transfer of plan assets to a party 
in interest. The Reinsurance Arrangement would violate ERISA section 
406(a)(1)(D) because it would result in the premium payment used to 
purchase the GAC (which consists of plan assets) being transferred 
indirectly from the Plan, via the Fronting Insurer, to the Captive, a 
party in interest to the Plan.
    ERISA section 406(b)(1) prohibits a fiduciary from dealing with 
plan assets for its own interest or own account, ERISA section 
406(b)(2) prohibits a fiduciary from acting in any transaction 
involving the plan on behalf of a party whose interests are adverse to 
the interests of the plan, and ERISA section 406(b)(3) prohibits a 
fiduciary from receiving any consideration for the fiduciary's personal 
account from any party dealing with the plan in connection with a 
transaction involving the plan's assets. The MSK Executive Benefits 
Committee is comprised of individuals who also serve as officers of 
MSKCC. The Reinsurance Arrangement would thus raise issues under ERISA 
sections 406(b)(1), (b)(2), and (b)(3) because the plan fiduciaries on 
the Committee would cause the Plan premium to be paid to the Fronting 
Insurer with the understanding that Fronting Insurer will enter into a 
reinsurance arrangement with, and the Plan premium will ultimately be 
paid to, the Captive.

Statutory Findings

    19. Based on the conditions included in this proposed exemption, 
the Department has tentatively determined that the relief sought by the 
Applicant would satisfy the statutory requirements for an exemption 
under ERISA section 408(a).
    20. The Proposed Exemption is ``Administratively Feasible.'' The 
Department has tentatively determined that this proposed exemption is 
administratively feasible for the Department. This determination is 
based on the Department's understanding that the Independent Fiduciary 
will provide important oversight with respect to the Reinsurance 
Arrangement and will represent the Plan throughout the duration of the 
Reinsurance Arrangement by monitoring, enforcing, and ensuring 
compliance with all conditions of this exemption. This proposed 
exemption also requires the Independent Fiduciary to submit annual 
written reports to the Department confirming that all conditions of 
this exemption have been met. This determination is also based upon the 
Department's understanding that the Vermont DFR will provide meaningful 
ongoing oversight of the Captive's operations.
    21. The Proposed Exemption is ``In the Interest of the Plan and its 
Participants and Beneficiaries.'' The Department has tentatively 
determined that the proposed exemption is in the interest of the Plan 
and its participants and beneficiaries. The Department notes that the 
Benefit Enhancement represents significant value that will apply 
equally across the Plan and help MSKCC's more than 8,000 participants 
and beneficiaries enjoy a more secure retirement. Importantly, the 
Department notes that the Plan is not conceding anything in exchange 
for the Benefit Enhancement because, as confirmed by the Independent 
Fiduciary, MSKCC will not make any corresponding reductions to other 
benefits the Plan currently provides to the Plan's participants and 
beneficiaries.
    22. The Proposed Exemption is ``Protective of the Rights of the 
Plan's Participants and Beneficiaries.'' The Department has tentatively 
determined that the proposed exemption is protective of the rights of 
the Plan's participants and beneficiaries. The selection of the 
Fronting Insurer by Fiduciary Counselors is critical to the 
Department's finding that the proposed exemption is protective of the 
rights of participants and beneficiaries. The Department would not have 
proposed this exemption without a requirement that Fiduciary Counselors 
provides the Department with a written submission that identifies the 
Fronting Insurer selected along with a written representation detailing 
the

[[Page 56429]]

methodology that it used to select the Fronting Insurer and how that 
methodology, and the Fronting Insurer selected, meets the requirements 
of IB 95-1.
    In addition, the Department notes that the Captive would guarantee 
to pay the annuitized Plan benefits, which would provide a second layer 
of protection for the Plan's participants and beneficiaries that would 
not exist if only the Fronting Insurer were insuring the benefits. 
Finally, the Department notes that the Independent Fiduciary will 
represent the Plan's interests for all purposes with respect to the 
Reinsurance Arrangement and will: (1) monitor, enforce, and ensure 
compliance with the exemption conditions, in accordance with its 
obligations of prudence and loyalty under ERISA; (2) report any 
instance of non-compliance immediately to the Department; and (3) 
submit written annual reports to the Department throughout the 
Reinsurance Arrangement.

Summary

    23. Based on compliance with the conditions that are included in 
this proposed exemption, the Department has tentatively determined that 
the relief sought by the Applicant would satisfy the statutory 
requirements for an individual exemption under ERISA section 408(a) and 
Code section 4975(c)(2).

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 
this proposed exemption in the Federal Register. The notice will be 
provided to all interested persons in the manner approved by the 
Department and will contain the documents described therein 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 (45) days of the 
date of 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 a Social Security number or an unlisted 
phone number), or confidential business information that you do not 
want publicly disclosed. All comments may be posted on the internet and 
can be retrieved by most internet search engines.

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 or disqualified person 
from certain other provisions of ERISA and/or the Code, 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 its participants and beneficiaries, and protective of the rights of 
participants and beneficiaries of the plan;
    (3) The proposed exemption would be supplemental to, and not in 
derogation of, any other provisions of ERISA and/or the Code, including 
statutory or administrative exemptions and transitional rules. 
Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is, in fact, a prohibited transaction; and
    (4) The Department notes that all of the material facts and 
representations set forth in the Summary of Facts and Representations 
must be true and accurate at all times and that the relief provided 
herein is conditioned upon the veracity of all material representations 
made by the Applicant.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA section 408(a) and Internal Revenue Code (or Code) 
section 4975(c)(2) in accordance with the Department's exemption 
procedures regulation.\17\ Effective December 31, 1978, section 102 of 
Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred 
the authority of the Secretary of the Treasury to issue exemptions of 
the type requested by the Applicant to the Secretary of Labor. 
Therefore, this notice of proposed exemption is issued solely by the 
Department.
---------------------------------------------------------------------------

    \17\ 29 CFR part 2570, subpart B (75 FR 66637 October 27, 2011). 
For purposes of this proposed exemption, references to ERISA section 
406, unless otherwise specified, should be read to refer as well to 
the corresponding provisions of Code section 4975.
---------------------------------------------------------------------------

Section I. Definitions

    (a) An ``affiliate'' of MSKCC or MSK US includes: (1) any person or 
entity who controls MSKCC or MSK US or is controlled by or under common 
control with MSKCC or MSK US; (2) any officer, director, employee, 
relative, or partner with respect to MSKCC or MSK US; and (3) any 
corporation or partnership of which a person described in (2) above in 
this paragraph is an officer, director, partner, or employee;
    (b) The term ``Benefit Enhancement'' means the benefit increase, as 
determined by the Independent Fiduciary based upon the Primary Benefits 
Test, that will be applied equally to all participants and 
beneficiaries across the Plan and last throughout the duration of the 
group annuity contract (the GAC) and Reinsurance Arrangement.
    (c) The term ``Captive'' means MSK Insurance US, Inc. a captive 
insurance and reinsurance subsidiary that is wholly-owned by MSKCC, and 
MSK Employee Benefits IC, a segregated cell within MSK Insurance US, 
Inc., that will be used to reinsure the risks related to the 
Reinsurance Arrangement and are domiciled in the state of Vermont.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual; and
    (e) The term ``Independent Fiduciary'' means a person who:
    (1) Is not MSKCC or an affiliate of MSKCC, or the Captive and does 
not hold an ownership interest in MSKCC, the Captive, or their 
affiliates;
    (2) Was not a fiduciary with respect to the Plan before its 
appointment to serve as the Independent Fiduciary;
    (3) Has acknowledged in writing that:
    (i) It is a fiduciary and has agreed not to participate in any 
decision with respect to any transaction in which it has an interest 
that might affect its best judgment as a fiduciary; and
    (ii) Has appropriate technical training or experience to perform 
the services

[[Page 56430]]

contemplated by this proposed exemption;
    (4) For purposes of this definition, no organization or individual 
may serve as Independent Fiduciary for any fiscal year if the gross 
income received by such organization or individual from MSKCC, the 
Captive, or their affiliates for that fiscal year exceeds two percent 
of such organization's or individual's gross income from all sources 
for the prior fiscal year. This provision also applies to a partnership 
or corporation of which such organization or individual is an officer, 
director, or 10 percent or more partner or shareholder and includes as 
gross income amounts received as compensation for services provided as 
an independent fiduciary under any prohibited transaction exemption 
granted by the Department;
    (5) No organization or individual that is an Independent Fiduciary 
and no partnership or corporation of which such organization or 
individual is an officer, director, or ten percent or more partner or 
shareholder may acquire any property from, sell any property to, or 
borrow any funds from MSKCC, the Captive, or their affiliates while the 
individual serves as an Independent Fiduciary. This prohibition would 
continue for a period of six months after the party ceases to be an 
Independent Fiduciary and/or the Independent Fiduciary negotiates any 
transaction on behalf of the Plan during the period that the 
organization or individual serves as an Independent Fiduciary; and
    (6) In the event a successor Independent Fiduciary is appointed to 
represent the interests of the Plan with respect to the subject 
transaction, no time should elapse between the resignation or 
termination of the former Independent Fiduciary and the appointment of 
the successor Independent Fiduciary.

Section II. Covered Transactions

    This exemption would provide relief from the prohibited 
transactions provisions of ERISA sections 406(a)(1)(D), 406(b)(1), 
(b)(2), and (b)(3), and the excise tax imposed by Code section 4975(a) 
and (b) (due to the operation of parallel prohibited transaction 
provisions contained in Code section 4975(c)(1) (D), (E), and (F)) with 
respect to: (1) the reinsurance of risks; and (2) the receipt of a 
premium by the Captive in connection with a single premium group 
insurance contract sold by an unrelated fronting insurer (the Fronting 
Insurer) to provide pension annuities to Plan participants and 
beneficiaries. To receive this relief, the conditions in Section III 
must be met in conformance with the definitions in Section I.

Section III. Conditions

    (a) MSKCC must improve the Plan by amending the Plan document to 
provide a universal, benefit increase to all participants and 
beneficiaries that will apply immediately once the GAC is purchased and 
will continue with no reduction or offsets for the remainder of the 
participants and beneficiaries' lives (the Benefit Enhancement). The 
additional benefit provided by the Benefit Enhancement to participants 
and beneficiaries must be greater than 50 percent of the total benefit, 
including cost savings, derived by MSKCC from the Reinsurance 
Arrangement (the Primary Benefits Test). Stated another way, MSKCC 
cannot derive a greater benefit from the Reinsurance Arrangement than 
the Plan's participants and beneficiaries;
    (b) Following the Plan's purchase of the GAC from the Fronting 
Insurer and the consummation of the Reinsurance Arrangement between the 
Fronting Insurer and the Captive, the Independent Fiduciary must 
determine in writing whether the Primary Benefits Test has been met. 
The Independent Fiduciary must submit this written determination to the 
Department within 30 days after the consummation of the Reinsurance 
Arrangement. In this written determination, the Independent Fiduciary 
must confirm the actual cost savings associated with the Reinsurance 
Arrangement by obtaining documentation from the Fronting Insurer that 
compares the cost to purchase the GAC without the Captive in place to 
the cost to purchase the GAC with the Captive in place. The Independent 
Fiduciary must include this documentation from the Fronting Insurer 
with its written determination to the Department;
    (c) The Captive must:
    (1) Be a party in interest with respect to the Plan based on an 
affiliation with MSKCC that is described in ERISA section 3(14)(G);
    (2) Be licensed to sell insurance or conduct reinsurance operations 
in Vermont;
    (3) Have obtained a Certificate of Authority from the Insurance 
Commissioner of Vermont to transact business as a captive insurance 
company and such certificate must not have been revoked or suspended;
    (4) Have undergone a financial examination (within the meaning of 
the law of its domiciliary State, Vermont) by the Insurance 
Commissioner of Vermont within five years before the end of the year 
preceding the year in which the reinsurance transaction occurred;
    (5) Have undergone, and continue to undergo, an examination by an 
independent certified public accountant for its last completed taxable 
year immediately before the taxable year of the Reinsurance Arrangement 
covered by this proposed exemption; and
    (6) Be licensed to conduct reinsurance transactions by a state 
whose law requires an actuarial review of reserves to be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority;
    (d) The Plan must pay no commissions with respect to the purchase 
of the GAC or the Reinsurance Arrangement;
    (e)(1) The Fronting Insurer must be selected by Fiduciary 
Counselors, an independent fiduciary to the Plan, in compliance with 
the Department's Interpretive Bulletin 95-1 (29 CFR 2509-95-1). Before 
this proposed exemption is granted, Fiduciary Counselors must provide 
the Department with a written submission that identifies the Fronting 
Insurer selected, details the methodology used to select the Fronting 
Insurer, and explains how the methodology used, and the Fronting 
Insurer selected, meets the requirements of IB 95-1. Fiduciary 
Counselors must also represent in writing to the Department that it 
would have been consistent with IB 95-1 to select the Fronting Insurer 
as the insurer for a final termination buy-out annuity had MSKCC 
adopted that approach. To meet its fiduciary responsibility owed to the 
Plan's participants and beneficiaries to select and purchase the 
``safest available annuity,'' before selecting the Fronting Insurer, 
Fiduciary Counselors must evaluate such insurer's claims-paying ability 
and creditworthiness in full compliance with guidance provided in the 
Department's Interpretive Bulletin 95-1 (29 CFR 2509.95-1);
    (f) (1) The Reinsurance Arrangement between MSK US and the Fronting 
Insurer must be indemnity insurance only and must not relieve the 
Fronting Insurer from any responsibility or liability to the Plan's 
participants and beneficiaries, including liability that would result 
if MSK US fails to meet any of its contractual obligations to the 
Fronting Insurer or any successor Fronting Insurer under the 
Reinsurance Arrangement;
    (2) The Fronting Insurer must have a direct contractual 
relationship with the Plan during the Buy-In phase of the GAC and with 
the Plan's participants and beneficiaries after MSKCC exercises the 
Conversion Option under the GAC,

[[Page 56431]]

without any caveats, contingencies, or conditions that would relieve or 
limit the Fronting Insurer's contractual obligation to pay benefits to 
the Plan's participants and beneficiaries in accordance with the Plan 
and the terms of this exemption;
    (g) MSKCC must not offset or reduce any benefits provided to Plan 
participants and beneficiaries in relation to its implementation of the 
Benefit Enhancement. In this regard, MSKCC must not implement any 
benefit cuts or offsets of any kind to the benefits the Plan provides 
to any Plan participant or beneficiary;
    (h) The Independent Fiduciary must:
    (1) In compliance with its fiduciary obligations of prudence and 
loyalty under ERISA sections 404(a)(1)(A) and (B): (i) review the 
Reinsurance Arrangement and the terms of the exemption; (ii) obtain and 
review all current objective, reliable, third-party documentation 
necessary to make the determinations required of the Independent 
Fiduciary by the exemption; and (iii) confirm in writing that all of 
the exemption's terms and conditions have been met (or, due to timing 
requirements, can reasonably be expected to be met consistent with the 
terms of the exemption) and send this confirmation to the Department's 
Office of Exemption Determinations not later than 30 days after the 
Captive enters into the Reinsurance Arrangement. In this written 
report, the Independent Fiduciary must also confirm that the Fronting 
Insurer selected and the methodology used by Fiduciary Counselors to 
make the selection meets the requirements of IB 95-1 and that it would 
have been consistent with IB 95-1 to select the Fronting Insurer as the 
insurer for a final termination buy-out annuity had MSKCC adopted that 
approach;
    (2) Approve the Reinsurance Arrangement in advance and ensure that 
the Reinsurance Arrangement is in the interest of the Plan's 
participants and beneficiaries and protective of the Plan's 
participants and beneficiaries;
    (3) Monitor, enforce, and ensure compliance with all conditions of 
this exemption in accordance with its obligations of prudence and 
loyalty under ERISA sections 404(a)(1)(A) and (B), including all 
conditions and obligations imposed on any party dealing with the Plan, 
throughout the period during which the Captive's assets are directly or 
indirectly used in connection with a transaction covered by this 
exemption;
    (4) Represent and protect the interests of the participants and 
beneficiaries of the Plan during both the Buy-In and Buy-Out Phases to 
ensure they receive everything that they are entitled to receive under 
this exemption, the terms of the Plan, and the GAC;
    (5) Monitor and ensure that any assets that remain in the Plan 
during the Buy-In Phase of the Reinsurance Arrangement are managed and 
used exclusively to provide benefits to Plan participants and 
beneficiaries and to defray reasonable expenses of administering the 
Plan in compliance with ERISA sections 403(c)(1) and 404(a)(1)(A);
    (6) Report any instance of non-compliance immediately to the 
Department's Office of Exemption Determinations;
    (7) Take all appropriate actions to safeguard the interests of the 
Plan and its participants and beneficiaries; and
    (8) Review all contracts pertaining to the Reinsurance Arrangement, 
and any renewals of such contracts, to determine whether the 
requirements of this proposed exemption and the terms of Benefit 
Enhancement continue to be satisfied;
    (i)(1) The Independent Fiduciary must submit an annual Independent 
Fiduciary Report to the Department's Office of Exemption Determinations 
certifying under penalty of perjury whether each term and condition of 
the proposed exemption has been met over the applicable period. Each 
report must be completed within six months after the end of the twelve-
month period to which it relates (the first twelve-month period would 
begin on the effective date of the exemption grant); and submitted to 
the Department's Office of Exemption Determinations within 60 days 
thereafter;
    (2) In preparing the Independent Fiduciary Report, the Independent 
Fiduciary must:
    (i) Review the Captive's annual audit and actuarial reports as 
submitted to the Vermont Department of Financial Regulation (Vermont 
DFR);
    (ii) Review any Certificate of Good Standing received by the 
Captive;
    (iii) Review Any Exam Report completed by the Vermont DRF and 
include a detailed summary of the Exam Report;
    (iv) confirm that MSKCC has not reduced or offset any benefits in 
relation to its implementation of the Benefit Enhancement; and
    (v) confirm that MSKCC has not reduced the Benefit Enhancement 
amount at any point during the year covered.
    (3) Finally, the Independent Fiduciary must confirm in each Report 
that the Primary Benefits Test was met for the year covered. In this 
regard, the Independent Fiduciary must determine the value of the 
Benefit Enhancement and the total value of the Reinsurance Arrangement 
to MSKCC, including cost savings, and confirm that MSKCC has not 
received any additional financial benefit that the Independent 
Fiduciary did not account for when it previously used the Primary 
Benefits Test to derive the Benefit Enhancement amount;
    (j) Neither MSKCC nor any related entity may use participant or 
beneficiary-related data or information generated by or derived from 
the Reinsurance Arrangement in a manner that benefits MSKCC or a 
related entity;
    (k) All the facts and representations set forth in the Summary of 
Facts and Representations must be true and accurate at all times;
    (l) No party related to this exemption request has or will 
indemnify the Independent Fiduciary or Fiduciary Counselors, in whole 
or in part, for negligence and/or for any violation of state or federal 
law that may be attributable to the Independent Fiduciary's or 
Fiduciary Counselor's performance of its duties in connection with the 
Reinsurance Arrangement. In addition, no contract or instrument may 
purport to waive any liability under state or federal law for any such 
violations;
    (m) MSKCC must provide the Department's Office of Exemption 
Determinations with all Exam Reports issued by the State of Vermont 
throughout the duration of the Reinsurance Arrangement within 30 days 
after such Exam Report is received;
    (n) The Captive must request a Certificate of Good Standing from 
the State of Vermont on an annual basis;
    (o) MSKCC must notify the Department's Office of Exemption 
Determinations if there is any change in the Captive's business plan, 
auditor, or the composition of its board of directors;
    (p) MSKCC may not receive a dividend or any other form of 
distribution from the Captive at any point during the Reinsurance 
Arrangement;
    (q) Following the discharge of all liabilities under the GAC (the 
Discharge Date), MSK Employee Benefits IC will determine the amount of 
assets, if any, that remain in MSK EB after all payments and 
distributions have been made to the Plan's participants and 
beneficiaries (the Excess Amount), and MSKCC will distribute the Excess 
Amount in conformity with the Primary Benefits Test within twelve 
months after the Discharge Date by remitting the majority of the Excess 
Amount (at least 50.1 percent) as an employer contribution to another 
ERISA-covered

[[Page 56432]]

employee benefit plan sponsored by MSKCC (without any benefit cuts or 
offsets to other benefits MSKCC provides to its employees) in a manner 
that does not discriminate in favor of highly compensated employees 
pursuant to standards set forth in in sections 401(a)(4) and 410(b) of 
the Internal Revenue Code of 1986 (or under similar standards if these 
provisions no longer are in effect on the Discharge Date).
    (r) MSKCC and the Captive must maintain all the records necessary 
to demonstrate that the conditions of this exemption have been met for 
a period of six years from the date of each record. MSKCC must provide 
these records to the Department's Office of Exemption Determinations 
within 30 days from the date of the Department's request;
    (s) MSKCC must provide a Parental Guarantee to the Captive and 
provide cash as needed if the Captive's general and separate account 
asset balances have been extinguished;
    (t) The Captive must invest the reserves in accordance with the 
regulations and under the supervision of the State of Vermont;
    (u) MSKCC must amend the Plan document to memorialize the Benefit 
Enhancement and provide a copy of the amended plan document to the 
Department's Office of Exemption Determinations no later than 30 days 
after the date the Captive enters into the Reinsurance Arrangement;
    (v) After the Buy-In phase for the Reinsurance Arrangement is 
completed and MSKCC exercises the Conversion Option, MSKCC will 
terminate the Plan in compliance with all applicable Code and ERISA 
requirements;
    (w) MSKCC must notify the Department of any change in the 
independent fiduciary no later than 30 days after the engagement of a 
substitute or subsequent independent fiduciary and must provide an 
explanation for the substitution or change including a description of 
any material disputes between the terminated independent fiduciary and 
MSKCC; and
    (x) Once the Benefit Enhancement percentage amount is set (in 
conformity with the Primary Benefits Test), MSKCC may not reduce that 
Benefit Enhancement percentage amount at any point.
    Applicability Date: If granted, the exemption will be in effect on 
the date the Department publishes a grant notice 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. 2024-14961 Filed 7-8-24; 8:45 am]
BILLING CODE 4510-29-P