Grant of Individual Exemptions; EBPLife Insurance Company

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 97-61; Exemption Application No. D-

09685, et al.]

Grant of Individual Exemptions; EBPLife Insurance Company

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, D.C. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

[[Page 62620]]

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

the Treasury to issue exemptions of the type proposed to the Secretary

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

EBPLife Insurance Company, Located in Minneapolis, Minnesota

[Prohibited Transaction Exemption 97-61, Application No. D-9685]

Exemption

Section I--Transaction

The restrictions of section 406(a) of the Act shall not apply,

effective from April 15, 1994, to July 1, 1997, to the reinsurance of

risks and the receipt of premiums therefrom by EBPLife Insurance

Company (EBPLife) in connection with certain stop-loss policies (the

Stop-Loss Policy or Stop-Loss Policies) issued by unrelated third party

insurance carriers (the Carriers or Carrier) to employers (the

Employers or Employer) any of whose employees were covered by various

employee welfare benefit plans (the Plans or Plan),1 when at

the time EBPLife reinsured risks and received premiums, Affiliates of

EBPLife, as defined in paragraph (a) of section III below or the

predecessors of such Affiliates also provided non-discretionary

administrative services to such Plans for a fee, provided that the

conditions set forth in section II below were satisfied.

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\1\ The Department, herein, is not providing relief for

transactions involving any plans sponsored by EBPLife or its

affiliates (the Affiliates), as defined in paragraph (a) of section

III below, or any predecessors of such Affiliates. In this regard,

EBPLife represents that it may have issued stop-loss or other

insurance contracts in connection with welfare benefit plans that

covered employees of EBPLife, its Affiliates or predecessors of such

Affiliates. However, in all cases, EBPLife represents that it either

satisfies the requirements of the statutory exemption provided by

section 408(b)(5) of the Act, or it ensures that the insurance

contracts are not ``plan assets'' within the meaning of the Act.

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Section II--Conditions

This exemption is conditioned upon the adherence to the material

facts and representations described herein and upon the satisfaction of

the following requirements, as of the effective dates of this

exemption:

(a) Each transaction was effected by EBPLife in the ordinary course

of its business as an insurance company;

(b) The terms of each transaction were at least as favorable to the

Plans as those negotiated at arm's-length with unrelated third parties

under similar circumstances;

(c) The combined total of all fees and other consideration received

by EBPLife, its Affiliates, and predecessors of such Affiliates for the

provision of services to Employers and their Plans and in connection

with the purchase of insurance contracts was not in excess of

``reasonable compensation'' within the meaning of sections 408(b)(2)

and 408(c)(2) of the Act.

(d) EBPLife, its agents or Affiliates, or the predecessors to such

Affiliates have not served as: (1) trustees to any of the Plans (other

than as non-discretionary trustees, as defined in paragraph (f) in

section III below, who do not render investment advice with respect to

any of the assets of such Plans); (2) plan administrators, within the

meaning of section 3(16)(A) of the Act; (3) fiduciaries who are

expressly authorized in writing to manage, acquire, or dispose of the

assets of any of the Plans; or (4) employers any of whose employees are

covered by any of the Plans.

(e) EBPLife, its Affiliates, or the predecessors of such Affiliates

have not acted as fiduciaries in connection with the decision by the

Employer to purchase Stop-Loss Policies reinsured by EBPLife;

(f) As of the effective dates of this exemption, if an Employer

executed an agreement (the Administration Agreement) with the

Affiliates of EBPLife or with the predecessors of such Affiliates to

provide services to an Employer or Plan; and such Employer also

purchased or renewed a Stop-Loss Policy reinsured by EBPLife for the

purpose of funding a Plan, then the fiduciaries of such Plan (the Plan

Fiduciaries or Plan Fiduciary), as defined in paragraph (g) of section

III below, must have received prior to the decision which resulted in

the retention of Affiliates of EBPLife or the predecessors of such

Affiliates to provide services and stop-loss insurance reinsured by

EBPLife, a full and detailed written disclosure, including but not

limited to a copy of the Administration Agreement which, among other

things, disclosed whether EBPLife reinsured risk under a Stop-Loss

Policy issued to the Employer of such Plan and described all of the

services provided by EBPLife, its Affiliates, or the predecessors of

such Affiliates to such Plan or such Employer. Such disclosures have

been provided by EBPLife or its Affiliates or by the predecessors of

such Affiliates, in a form calculated to be understood by such Plan

Fiduciaries who have no special expertise in insurance.

(g)(1) As of the effective dates of this exemption, and prior to

the execution of a transaction described in this exemption, following

receipt of the disclosures, described in paragraph (f) of this section

II, the Plan Fiduciary, by signing the Administration Agreement,

acknowledged receipt of such disclosures and acknowledged that the

decision to engage in a transaction which is the subject of this

exemption was a decision made in a fiduciary capacity, and that such

Plan Fiduciary approved of the subject transaction.

(2) With respect to the renewal by Employers during the effective

period of this exemption of expired Stop-Loss Policies reinsured by

EBPLife where Affiliates of EBPLife or the predecessors of such

Affiliates were parties in interest with respect to a Plan by reason of

the provision of services to such Plan, the written disclosures

required under paragraph (f) of this section II need not have been

repeated, unless--

(A) More than three years had passed since such disclosures were

made with respect to the same kind of services provided by the

Affiliates of EBPLife or by predecessors of such Affiliates or the same

kind of reinsurance of the risk on the Stop-Loss Policies, or

(B) The reinsurance of the risk on such Stop-Loss Policies by

EBPLife or the receipt of compensation for services by Affiliates of

EBPLife or by predecessors of such Affiliates thereto was materially

different from that for which approval described in paragraph (g) of

this section II was obtained.

(h) The Plans have paid no commission with respect to the

reinsurance by EBPLife of the Stop-Loss Policies.

(i) Each of the Plan Fiduciaries have not received, directly or

indirectly (i.e. through any Affiliates), any compensation or other

consideration for his or her own personal account from EBPLife, any of

its Affiliates, any predecessors of such Affiliates, or other party

dealing with any of the Plans in

[[Page 62621]]

connection with a transaction described in this exemption.

(j) EBPLife and its Affiliates and any predecessors of such

Affiliates followed the standard claims processing practices regarding

any claims submitted with respect to benefits under any of the Plans

covered by any of the Stop-Loss Policies reinsured by EBPLife;

(k) The Employer had final authority regarding the payment or

nonpayment of any and all claims submitted with respect to benefits

under any of the Plans covered by the Stop-Loss Policies reinsured by

EBPLife;

(l) EBPLife or its Affiliates or the predecessors of such

Affiliates have made available upon request by the Employers of each of

the Plans at no additional charge full and detailed written reports

which detail any and all of the following information:

(1) The average turn-around time from the date that a claim was

initially received to the date that the claim was processed for

payment;

(2) The percentage of claims processed within the target period, as

set forth in the Administration Agreement;

(3) The average turn-around time from the date that a claim was

received to the date that a claim was actually paid; and

(4) A summary of pending claims that were received but not paid

accompanied by a code indicating the reason why each claim had not yet

been paid.

(m) Regarding its operations and reserves, EBPLife complied with

all applicable requirements of law and insurance regulations of the

State of Oklahoma, where it is domiciled and licensed to do business;

(n) EBPLife has been subject to a financial audit by the Department

of Insurance of the State of Oklahoma, where it is domiciled and

licensed to do business no less frequently than once every three years;

(o) The issuing Carriers of the Stop-Loss Policies are fully liable

for all claims covered by the Stop-Loss Policies in excess of the

applicable stop-loss limits under such Stop-Loss Policies;

(p) Where the Stop-Loss Policies are reinsured by EBPLife, EBPLife,

as reinsurer, is fully liable for the payments of claims under such

Stop-Loss Policies;

(q) Independent insurance consultants, who were unrelated to

EBPLife, its Affiliates, or to the predecessors of such Affiliates,

solicited bids for administrative services and/or Stop-Loss Policies on

behalf of Employers and served as brokers or agents to Employers with

respect to the purchase by Employers of Stop-Loss Policies reinsured by

EBPLife;

(r)(1) EBPLife or its Affiliates retain or the predecessors of such

Affiliates have retained for a period of six (6) years from the date of

any transaction covered by this exemption, the records necessary to

enable the persons, as described in paragraph (s) of this section II,

to determine whether the conditions of this exemption have been met.

Such records shall include, but not be limited to, the following

information:

(A) A copy of the information disclosed by EBPLife, its Affiliates,

or by the predecessors of such Affiliates to the Plan Fiduciaries,

pursuant to paragraph (f) of section II above;

(B) A copy of the Administration Agreement which discloses, among

other things, whether EBPLife reinsures risk under a Stop-Loss Policy

issued to an Employer;

(C) Any additional information or documents provided to any Plan

Fiduciary with respect to a transaction covered by this exemption;

(D) Evidence of the written acknowledgment of receipt of

disclosures by the Plan Fiduciary as described in paragraph (g) of this

section II.

(2) A prohibited transaction will not be deemed to have occurred

if, due to circumstances beyond the control of EBPLife, its Affiliates,

or the predecessors of such Affiliates, such records were or are lost

or destroyed prior to the end of the six (6) year period.

(3) No party in interest, other than EBPLife, its Affiliates, and

the predecessors of such Affiliates, shall be subject to the civil

penalty that may be assessed under section 502(i) of the Act, if the

records are not maintained, or are not available for examination as

required by paragraph (s) of this section II; and

(S)(1) Except as provided in paragraph (s)(2) of this section II

and notwithstanding any provisions of subsection (a)(2) and (b) of

section 504 of the Act, the records referred to in paragraph (r) of

section II above are unconditionally available for examination during

normal business hours by--

(A) Any duly authorized employee or representative of the

Department of Labor;

(B) Any fiduciary of each of the Plans or any duly authorized

employee or representative of such fiduciary; and

(C) Any Employer of Plan participants and beneficiaries, any

participant or beneficiary of the Plans or duly authorized employee or

representative of such participant or beneficiary; any employee

organization any of whose members are covered by a Plan.

(2) None of the persons described in paragraph (s)(1) (B) and (C)

of section II shall be authorized to examine trade secrets of EBPLife,

its Affiliates, or the predecessors of such Affiliates or commercial or

financial information which is privileged or confidential.

Section III--Definitions

For purposes of this exemption:

(a) An ``Affiliate'' or ``Affiliates'' of a person includes:

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with the person;

(2) Any officer, director, employee, relative, or partner in any

such person; and

(3) Any corporation or partnership of which such person is an

officer, director, partner, or employee.

(b) The term ``control'' means the power to exercise a controlling

influence over the management or policies of a person other than an

individual;

(c) The term, ``relative,'' means a ``relative'' as that term is

defined in section 3(15) of the Act, or a brother, a sister, or a

spouse of a brother or a sister.

(e) The term ``non-discretionary services'' means custodial

services and services ancillary to custodial services, none of which

services are discretionary.

(f) The term ``non-discretionary trustee'' of a Plan means a

trustee whose powers and duties with respect to any assets of the Plan

are limited to (1) the provision of non-discretionary trust services,

as defined in paragraph (e) of this section III, to the Plan, and (2)

duties imposed on the trustee by any provision or provisions of the

Act.

(g) The term ``Plan Fiduciary'' or ``Plan Fiduciaries'' means a

person(s) who are independent of EBPLife, its Affiliates, and any

predecessors of such Affiliates, are sufficiently knowledgeable with

respect to administration, benefits, funding, and any matters related

thereto concerning such Plan, are capable of making an informed and

independent decision, and are responsible for executing the

Administration Agreement and for deciding to purchase or renew the

Stop-Loss Policies reinsured by EBPLife.

EFFECTIVE DATE: The exemption is effective, from April 15, 1994, to

July 1, 1997.

Written Comments

In the Notice, the Department invited all interested persons to

submit written comments and requests for a hearing on the proposed

exemption within 45 days

[[Page 62622]]

of the date of the publication of the Notice in the Federal Register on

July 11, 1997. All comments and requests for hearing were due by August

25, 1997. Subsequently, on two occasions the applicant requested

additional time within which to notify interested persons. Accordingly,

the Department agreed to extend the comment period to October 29, 1997.

As of the close of the extended comment period, the Department had

received no requests for hearing. However, the Department did receive a

comment letter from the applicant, EBPLife, dated September 3, 1997, in

which the applicant confirmed the July 1, 1997, sale by First Data

Corporation of its administrative service affiliate, First Health, to

an unrelated company. As a result of that sale, EBPLife no longer has

current plan sponsor clients with respect to which it, or its

Affiliates, provides both reinsurance and non-discretionary

administrative services. Accordingly, the Department has determined to

amend the effective date of the exemption to cover the period from

April 15, 1994, the date the application was filed, to July 1, 1997,

the date when the First Health was sold.

After full consideration and review of the entire record, including

the written comment filed by the applicant, the Department has

determined to grant the exemption, as modified and clarified above. The

comment submitted by the applicant to the Department has been included

as part of the public record of the exemption application. The complete

application file, including all supplemental submissions received by

the Department, is available for public inspection in the Public

Documents Room of the Pension Welfare Benefits Administration, Room N-

5638, U.S. Department of Labor, 200 Constitution Avenue NW.,

Washington, DC 20210.

For a complete statement of the facts and representations

supporting the Department's decision to grant this exemption refer to

the Notice published on July 11, 1997, 62 FR 37299.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the

Department, telephone (202) 219-8883. (This is not a toll-free number.)

Franklin & Davis, P.C. Profit Sharing Plan (the Plan), Located in Troy,

Michigan

[Prohibited Transaction No. 97-62; Exemption Application No. D-10450]

Exemption

The sanctions resulting from the application of section 4975 of the

Code, by reason of section 4975(c)(1) (A) through (E) of the Code,

shall not apply to two loans (the Loans) totaling $229,000 to Franklin

& Davis, P.C. (F&D), the Plan's sponsor and a disqualified person with

respect to the Plan, by the individual account (the Account) of Bruce

W. Franklin (Mr. Franklin), provided the following conditions are

satisfied: (a) The terms of the Loans are at least as favorable to the

Plan as those obtainable in arm's-length transactions with an unrelated

party; (b) the Loans do not exceed 25% of the assets of the Account;

(c) the first Loan (Loan 1) is secured by a second mortgage on certain

real property which has been appraised by a qualified independent

appraiser to have a fair market value not less than 150% of the amount

of Loan 1 plus the balance of the first mortgage which it secures; (d)

the second Loan (Loan 2) is secured by certain securities which have a

fair market value not less than 200% of Loan 2; and (e) the fair market

value of the collateral remains at least equal to the percentages

described in conditions (c) and (d), above, throughout the duration of

the Loans.2

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\2\ Since Mr. Franklin is the sole owner of F&D and the only

participant in the Plan, there is no jurisdiction under Title I of

the Act pursuant to 29 CFR 2510.3-3(b). However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

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For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on October 2, 1997 at 62 FR

51692.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(B) of the Act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

exemption is not dispositive of whether the transaction is in fact a

prohibited transaction; and

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

Signed at Washington, D.C., this 19th day of November, 1997.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 97-30827 Filed 11-21-97; 8:45 am]

BILLING CODE 4510-29-P