---

Editor's Note: This notice was finalized at https://benefitslink.com/DOL/ADM_pte_final030505.html (click)

---

Proposed Exemption on Funding Employee Benefits Through Captive Insurance Company

---

[Federal Register: March 3, 2003 (Volume 68, Number 41)]
[Notices]

-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-10840, et al.]


Proposed Exemptions; Deutsche Bank AG

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions 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).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.

ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5649,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ------, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to: moffittb@pwba.dol.gov,
or by FAX to (202) 219-0204 by the end of the

scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
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 to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
    The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.

   Deutsche Bank AG
   Located in New York, New York
   Exemption Application Number D-10840

   Proposed Exemption

   [Deleted by BenefitsLink]

   Metropolitan Life Insurance Company (MetLife)
   Located in New York, NY
   [Application No. D-11042]

   Proposed Exemption

   [Deleted by BenefitsLink]

Archer Daniels Midland Company (Archer) Located in Decatur, Illinois
[Application No. D-11068]

Proposed Exemption

    The Department is considering granting an exemption under the
authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990). If the exemption is granted, the restrictions
of section 406(a) and (b) of the Act shall not apply to the reinsurance
of risks and the receipt of premiums therefrom by Agrinational
Insurance Company (Agrinational) in connection with insurance contracts
sold by Minnesota Life Insurance Company (Minnesota Life), or any
successor insurance company to Minnesota Life which is unrelated to
Archer, to provide basic and supplemental life insurance benefits to
participants in Archer's programs to provide such benefits to its
employees (the Plans),\26\ provided the following conditions are met:
---------------------------------------------------------------------------

    \26\ Each Plan will be considered an ``employee welfare benefit
plan'' as defined in section 3(1) of the Act.
---------------------------------------------------------------------------

    (a) Agrinational--
    (1) Is a party in interest with respect to the Plans by reason of a
stock or partnership affiliation with Archer that is described in
section 3(14) (E) or (G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations
in at least one State as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Insurance
Commissioner of its domiciliary state which has neither been revoked
nor suspended;
    (4)(A) Has undergone an examination by an independent certified
public accountant for its last completed taxable year immediately prior
to the taxable year of the reinsurance transaction; or
    (B) Has undergone a financial examination (within the meaning of
the law of its domiciliary State, Vermont) by the Insurance
Commissioner of the State of Vermont within 5 years prior to the end of
the year preceding the year in which the reinsurance transaction
occurred; and
    (5) Is licensed to conduct reinsurance transactions by a State
whose law requires that an actuarial review of reserves be conducted
annually by an independent firm of actuaries and reported to the
appropriate regulatory authority;
    (b) The Plans pay no more than adequate consideration for the
insurance contracts;
    (c) No commissions are paid by the Plans with respect to the direct
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving Agrinational,
there will be immediate and objectively determined benefit to the
Plans' participants and beneficiaries in the form of increased
benefits;
    (e) In subsequent years, the formula used to calculate premiums by
Minnesota Life or any successor insurer will be similar to formulae
used by other insurers providing comparable coverage under similar
programs. Furthermore, the premium charge calculated in accordance with
the formula will be reasonable and will be comparable to the premium
charged by the insurer and its competitors with the same or a better
rating providing the same coverage under comparable programs;
    (f) The Plans only contract with insurers with a rating of A or
better from A. M. Best Company (Best's). The reinsurance arrangement
between the insurers and Agrinational will be indemnity insurance only,
i,e., the insurer will not be relieved of liability to the Plans should
Agrinational be unable or unwilling to cover any liability arising from
the reinsurance arrangement;
    (g) Agrinational retains an independent fiduciary (the Independent
Fiduciary), at Archer's expense, to analyze the transaction and render
an opinion that the requirements of sections (a) through (f) have been
complied with. For purposes of the proposed exemption, the Independent
Fiduciary is a person who:
    (1) Is not directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with Archer or Agrinational (this relationship hereinafter referred to
as an ``Affiliate'');
    (2) Is not an officer, director, employee of, or partner in, Archer
or Agrinational (or any Affiliate of either);
    (3) Is not a corporation or partnership; in which Archer or
Agrinational has an ownership interest or is a partner;
    (4) Does not have an ownership interest in Archer or Agrinational,
or any of either's Affiliates;
    (5) Is not a fiduciary with respect to the Plans Prior to the
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary
responsibility and has agreed not to participate in any decision with
respect to any transaction in which the Independent Fiduciary has an
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``Independent Fiduciary,'' no
organization or individual may serve as an Independent Fiduciary for
any fiscal year if the gross income received by such organization or
individual (or partnership or corporation of which such individual is
an officer, director, or 10 percent or more partner or shareholder)
from Archer, Agrinational, or their Affiliates (including amounts
received for services as Independent Fiduciary under any prohibited
transaction exception granted by the Department) for that fiscal year
exceeds 5 percent of that organization or individual's annual gross
income from all sources for such fiscal year.
    In addition, no organization or individual who is an Independent
Fiduciary, and no partnership or corporation of which such organization
or individual is an officer, director, or 10 percent or more partner or
shareholder, may acquire any property

[[Page 10044]]

from, sell any property to, or borrow funds from Archer, Agrinational,
or their Affiliates during the period that such organization or
individual serves as Independent Fiduciary, and continuing for a period
of six months after such organization or individual ceases to be an
Independent Fiduciary, or negotiates any such transaction during the
period that such organization or individual serves as Independent
Fiduciary.

Preamble

    On August 7, 1979, the Department published a class exemption
(Prohibited Transaction Exemption 79-41 (PTE 79-41), 44, FR 46365)
which permits insurance companies that have substantial stock or
partnership affiliations with employers establishing or maintaining
employee benefit plans to make direct sales or life insurance, health
insurance or annuity contracts with fund such plans if certain
conditions are satisfied.
    In PTE 79-41, the Department states its views that if a plan
purchases an insurance contract from a company that is unrelated to the
employer pursuant to an arrangement or understanding, written or oral,
under which it is expected that the unrelated company will subsequently
reinsure all or part of the risk related to such insurance with an
insurance company which is a party in interest with respect to the
plan, the purchase of the insurance contract would be a prohibited
transaction under the Act.
    The Department further stated that as of the date of publication of
PTE 79-41, it had received several applications for exemption under
which a plan or its employer would contract with an unrelated company
for insurance, and the unrelated company would, pursuant to an
arrangement or understanding, reinsure part or all of the risk with
(and cede part or all of the premiums to) an insurance company
affiliated with the employer maintaining the plan. The Department felt
that it would not be appropriate to cover the various types of
reinsurance transactions for which it had received applications within
the scope of the class exemption, but would instead consider such
applications on the merits of each individual case.

Summary of Facts and Representations

    1. Archer is engaged in the business of procuring, transporting,
storing, processing and merchandising agricultural commodities and
products. It is one of the world's largest producers of oilseeds, corn
and wheat. Archer also processes cocoa beans, milo, oats, barley and
peanuts. Other operations include transporting, merchandising and
storing agricultural commodities and products. These operations and
processes produce products which have primarily two end uses: Food or
feed ingredients. Each commodity processed is itself a feed ingredient
as are the by-products produced during the processing of each
commodity. Archer complements its own resources with a world-wide
network of affiliates engaged in processing, transportation, storage
and sales. Archer was incorporated under the laws of the State of
Delaware in 1923 as successor to the Daniels Linseed Co., which was
founded in 1902.
    2. Agrinational is a wholly-owned subsidiary of Archer.
Agrinational was incorporated in Vermont on September 10, 1987, and on
September 21, 1987, the Commissioner of Banking and Insurance for the
State of Vermont granted it a Certificate of Authority to transact the
business of a captive insurance company in the State of Vermont. The
only restrictions placed by the State of Vermont on the type of
insurance that Agrinational may write pertain to personal motor vehicle
or homeowner's insurance and to excess workers' compensation insurance
under certain circumstances, and thus are not relevant to the exemption
proposed herein.
    3. At year end 2000, Agrinational had capital in the amount of
$10,000,000, retained earnings in the amount of $22,731,920 and earned
premium in the amount of $17,176,878. Agrinational presently provides
insurance and reinsurance coverage for property, casualty and marine
risks of Archer and its subsidiaries world-wide. In addition,
Agrinational participates as a quota share reinsurer of various
insurance company treaties that contain risks unrelated to Archer and
its subsidiaries. The independent certified public accounting firm of
Ernst & Young, LLP (EY), which prepared Agrinational's most recent
audited financial statement, has served as Agrinational's auditor since
its incorporation. EY will examine Agrinational's reserves on an annual
basis in connection with the employee benefit business to be reinsured
by Agrinational to ensure that appropriate reserve levels are
maintained.
    4. Archer maintains the ADM Omnibus Health and Welfare Plan for
Salaried Employees and the ADM Omnibus Health and Welfare Plan for
Hourly Employees (i.e., the Plans) for substantially all of its
salaried and hourly employees. The Plans provide both basic (the Basic
Program) and supplemental (the Supplemental Program) life insurance
programs. The Plans have been historically insured with Connecticut
General Life Insurance Company, and, most recently, with Minnesota
Life. However, Archer recently formulated a plan to utilize
Agrinational for the reinsurance of benefits and has made or will make
substantial improvements to the Plans in anticipation of that
transaction.
    5. Specifically, the new benefits are as follows:
    (i) With respect to the life insurance program for salaried
employees, the maximum benefit under the Basic Program has been
increased from one-times base salary up to $100,000 to one-times base
salary up to $1,000,000. In addition, the Basic Program will add an
accelerated death benefit feature (which would provide benefits to the
terminally ill) to the policy covering all participants. Finally, a
non-contributory Accidental Death and Dismemberment benefit will be
added to the Basic Program covering up to three times the basic life
insurance benefit, subject to a schedule of amounts. All premiums under
the Basic Program are fully paid by Archer. In addition, the maximum
benefit under the Supplemental Program, which is employee paid, has
been increased from up to four times salary with a cap of $1,000,000 to
up to five times salary with a cap of $2,000,000. Dependent life
insurance for the employee's spouse and children has been added on a
voluntary basis. Portability of coverage has been added to all
policies, so that coverage may continue at the group rates if a covered
employee leaves employment. Finally, a waiver of premium provision has
been added to the Supplemental and dependent coverage so in the event
of the disability of the employee, coverage will continue without the
payment of the premium. The new and/or enhanced benefits in the
Supplemental Program are voluntary and the premiums are fully paid by
the participants who elect them.
    (ii) With respect to the life insurance program for hourly
employees who are not covered by a collective bargaining agreement, the
new non-contributory Accidental Death and Dismemberment benefit will be
added to the Basic Program covering up to three times the basic life
insurance benefit, subject to a schedule of amounts. All premiums under
the Basic Program are fully paid by Archer. In addition, the Basic
Program will add the accelerated death benefit feature (which would
provide benefits to the terminally ill) to the policy covering all
hourly employees who are not covered by a collective bargaining
agreement. With respect to these employees, the Supplemental Program,
which is employee paid, has

[[Page 10045]]

been increased from various levels to up to five times base pay with a
cap of $2,000,000, and dependent life insurance for the employee's
spouse and children has been added on a voluntary basis; and
    (iii) With respect to the life insurance program for hourly
employees who are covered by a collective bargaining agreement, Archer
cannot unilaterally implement similar improvements to those which will
be made to the Programs for salaried employees and hourly employees not
covered by a collective bargaining agreement. However, Archer will
implement such improvements if agreed to by the unions representing the
hourly employees.
    In addition, Archer recently has enhanced benefits for employees by
making two new benefit programs available for its salaried employees
and for its hourly employees who are not covered by a collective
bargaining agreement. Archer will also implement these programs for
hourly employees covered by a collective bargaining agreement if agreed
to by the unions representing such employees in collective bargaining.
The first of the new benefits is a legal services program, which
provides certain legal services through Hyatt Legal Plans, Inc., for a
set premium each month. The premiums are paid by the employees through
amounts deducted from their paychecks. The second new program is an
auto and home insurance program, which offers eligible employees group
rates for automobile, home and other personal property through Hanover
Insurance Company. The premiums for this program are also paid by the
employees.
    6. The life insurance Plans are now insured by Minnesota Life,
which currently has a rating of A++ from Best's. The applicant
represents that if the Plans choose another insurer in the future, that
insurer will have a rating of A or better from Best's. The applicant
anticipates that upon the granting of the exemption proposed herein,
Minnesota Life will enter into reinsurance agreements with
Agrinational. Minnesota Life was recently acquired by Liberty Mutual
Insurance Company (Liberty), an A+ rated (by Best's) carrier located in
Boston, Massachusetts. Liberty is rated by Moody's as Aa3 (Excellent)
and by Standard & Poor's as AA- (Very Strong).
    Minnesota Life will continue to insure the Plan, with the enhanced
new benefits. However, Minnesota Life will reinsure up to 100% of the
risk with Agrinational. The percentage of the risk to be insured will
be specified in the reinsurance agreements between Minnesota Life and
Agrinational. The reinsurance agreements between Minnesota Life and
Agrinational will be indemnity reinsurance only, so that Minnesota Life
will not be relieved of its liability to the Plans should Agrinational
be unwilling or unable to cover any liability arising from the
reinsurance arrangement.
    The Plans will pay no more than adequate consideration for the
insurance contracts with Minnesota Life or any successor insurer. The
formula used to calculate premiums by Minnesota Life or any successor
insurer \27\ will be similar to formulae used by other insurers
providing life insurance coverage under similar programs. Furthermore,
the premium charge calculated in accordance with the formula will be
reasonable and will be comparable to the premium charged by the insurer
providing coverage under the Plans and its competitors with the same or
a better rating providing the same coverage under comparable programs.
---------------------------------------------------------------------------

    \27\ The applicant states that any successor insurer would be a
legal reserve life insurance company with assets of such a size as
to afford similar protection and responsibility.
---------------------------------------------------------------------------

    7. In connection with this exemption request, Agrinational has
engaged the services of Milliman USA (Milliman), (formerly Milliman and
Robertson, Inc.) as the Independent Fiduciary for the Plans. Milliman
is an international firm of consultants and actuaries with expertise in
all facets of employee benefits, including insurance. Charles M.
Waldron, FSA (Mr. Waldron), a Principal and Consulting Actuary employed
by Milliman, has signed the Independent Fiduciary representations on
behalf of Milliman. Milliman's consultants are frequently retained to
advise corporations on the insurance arrangements underlying their
benefit programs and have considerable expertise in the area of
reinsurance and captive insurers.
    8. For purposes of demonstrating independence, Mr. Waldron has
represented that:
    (a) Neither he nor Milliman is an Affiliate of Archer, Minnesota
Life or Agrinational;
    (b) He is not an officer, director, employee of, or partner in
Archer, Agrinational or Minnesota Life;
    (c) Milliman is not a corporation in which Archer, Agrinational or
any of the other insurers involved in the proposed transaction has an
ownership interest or is a partner;
    (d) Neither he nor Milliman has an ownership interest in Archer,
Agrinational, or Minnesota Life, or in any Affiliate of those firms;
    (e) He was not a fiduciary with respect to the Plans prior to his
appointment for this transaction;
    (f) He has acknowledged in writing on behalf of Milliman its
acceptance of fiduciary obligations and has agreed not to participate
in any decision with respect to any transaction in which either he or
Milliman has an interest that might affect their fiduciary duty;
    (g) The gross income received by Mr. Waldron and Milliman
separately and combined from Archer, Agrinational, Minnesota Life, or
their Affiliates (including amounts received for services as
Independent Fiduciary under any prohibited transaction exemption
granted by the Department), does not exceed 5 percent of Mr. Waldron's
or Milliman's gross annual income from all sources for any fiscal year;
and
    (h) Neither Milliman nor Mr. Waldron has acquired any property
from, sold property to, or borrowed funds from Archer, Agrinational, or
Minnesota Life or their Affiliates.
    9. Mr. Waldron represents that Agrinational is licensed to do
business in the State of Vermont and has been conducting business since
1987 insuring and reinsuring property, casualty and marine business.
Agrinational's reserves for the past two (2) years have been reviewed
by the actuarial services group of EY, which is a firm independent of
Agrinational and Archer. Mr. Waldron has reviewed the report on the
reserves and is satisfied that there are no issues to be resolved. In
addition, Mr. Waldron represents that future reserves will be reviewed
by a qualified actuary approved by the State of Vermont. Mr. Waldron
has confirmed that Agrinational has undergone an examination by EY, an
independent certified public accountant, for its last completed taxable
year.
    10. Mr. Waldon has concluded that, as a result of the reinsurance
agreement described in representation 6, above, the Plans' risks will
be 100% covered by Minnesota Life, a carrier rated A++ by Best's, even
if Agrinational were unable or unwilling to cover the Plans'
liabilities it is assuming as a result of the reinsurance agreement.
Mr. Waldon represents that he has reviewed the terms of the proposed
reinsurance agreement between Minnesota Life and Agrinational. Mr.
Waldron states that the agreement provides for the risk retained by
Agrinational to revert back to Minnesota Life at no further cost to the
Plans should Agrinational be unable or unwilling to pay the benefits.
    11. Mr. Waldron has represented that he reviewed the Plans'
benefits before the reinsurance transaction and the benefits
implemented in anticipation of

[[Page 10046]]

the reinsurance transaction. He has concluded that there is an
immediate benefit to the Plans' participants from the reinsurance
transaction. Generally all participants in the Supplemental Program
receive increased benefits and options. For the Basic Program,
generally all participants have received an accelerated death benefit
coverage and will receive Accidental Death and Dismemberment Insurance
up to three times the basic life insurance benefit. Finally, there are
increased basic life insurance benefits for salaried employees with
annual salaries exceeding specified amounts (e.g., $100,000).
    12. Mr. Waldron makes the following representations concerning the
determination of the initial premium to the Plans under the proposed
arrangement. The Plans contacted Minnesota Life and were quoted a rate
based on Minnesota Life's evaluation of the risk. Archer received
quotes from three different companies to provide insurance coverage for
the group life, supplemental life and dependent life insurance
programs. From these three companies, Archer selected Minnesota Life,
which was the middle one in terms of premium. Minnesota Life was 3%
above the lowest cost and 7.5% below the highest cost provider. The
premium paid to Agrinational is based on a reinsurance agreement where
Agrinational receives a portion of the premium charged equal to the
proportion of the risk that Agrinational covers. This is a typical
reinsurance arrangement for life insurance products. Mr. Waldron
further represents that, based upon his review, the premiums charged by
Minnesota Life are similar to premiums charged by other insurers
providing group life, supplemental life, and dependent life insurance
under similar plans. The applicant represents that the Independent
Fiduciary (i.e., either Milliman or another qualified fiduciary acting
as a successor, as noted below) will confirm on an annual basis that
each Plan is paying a rate comparable to that which would be charged by
a comparably-rated insurer for a program of the approximate size of the
Plan with comparable claims experience.
    13. Milliman will represent the interests of the Plans as the
Independent Fiduciary at all times.\28\ Milliman will monitor
compliance by the parties with the terms and conditions of the proposed
reinsurance transaction, and will take whatever action is necessary and
appropriate to safeguard the interests of the Plans and of their
participants and beneficiaries.
---------------------------------------------------------------------------

    \28\ In this regard, the applicant makes a representation
regarding a successor independent fiduciary. Specifically, if it
becomes necessary in the future to appoint a successor independent
fiduciary (the Successor) to replace Milliman and Mr. Waldron, the
applicant will notify the Department sixty (60) days in advance of
the appointment of the Successor. Any Successor will have the
responsibilities, experience and independence similar to those of
Milliman and Mr. Waldron.
---------------------------------------------------------------------------

    14. The applicant represents that the proposed reinsurance
transaction will meet the following conditions of PTE 79-41 covering
direct insurance transactions:
    (a) Agrinational is a party in interest with respect to the Plans
(within the meaning of section 3(14)(G) of the Act) by reason of stock
affiliation with Archer, which maintains the Plans;
    (b) Agrinational is licensed to conduct reinsurance transactions by
the State of Vermont. The law under which Agrinational is licensed
requires that an actuarial review of reserves be conducted annually by
an independent firm of actuaries and reported to the appropriate
regulatory authority;
    (c) Agrinational has undergone an examination by the independent
certified public accountant firm of EY for its last completed taxable
year;
    (d) Agrinational has received a Certificate of Authority from its
domiciliary state, Vermont, which has neither been revoked nor
suspended;
    (e) The Plans will pay no more than adequate consideration for the
insurance. In addition, in the initial year of the proposed reinsurance
transaction, there will be an immediate and objectively determined
benefit to the Plans' participants and beneficiaries in the form of
increased benefits; and
    (f) No commissions will be paid by the Plans with respect to the
reinsurance arrangement with Agrinational, as described herein.
    In addition, the Plans' interests will be represented by a
qualified, independent fiduciary (i.e., Milliman or its Successor), who
has initially determined that the proposed reinsurance transactions
will be in the best interests, and protective, of the Plans and their
participants and beneficiaries. The Independent Fiduciary will also
confirm on an annual basis that the Plans are paying a rate comparable
to that which would be charged by a comparably-rated insurer for a
program of the approximate size of the Plans with comparable claims
experience.
    15. In summary, the applicant represents that the proposed
reinsurance transactions will meet the criteria of section 408(a) of
the Act because: (a) The Plans' participants and beneficiaries are
afforded insurance protection by Minnesota Life, a carrier rated A++ by
Best's, at competitive market rates arrived at through arm's-length
negotiations; (b) Agrinational, which will enter into the reinsurance
agreements with Minnesota Life, is a sound, viable insurance company
which has been in business since 1987; (c) the protections described in
representation 14, above, provided to the Plans and their participants
and beneficiaries under the proposed reinsurance transactions are based
on those required for direct insurance by a ``captive'' insurer, under
the conditions of PTE 79-41 (notwithstanding certain other requirements
related to, among other things, the amount of gross premiums or annuity
considerations received from customers who are not related to, or
affiliated with the insurer); \29\ (d) Mr. Waldron, acting on behalf of
Milliman as the Plans' Independent Fiduciary, has reviewed the proposed
reinsurance transaction and has determined that the transaction is
appropriate for, and in the best interests of, the Plans and that there
will be an immediate benefit to the Plans' participants as a result
thereof by reason of an improvement in benefits under the terms of the
Plans; and (e) Milliman will monitor compliance by the parties with the
terms and conditions of the proposed reinsurance transaction, and will
take whatever action is necessary and appropriate to safeguard the
interests of the Plans and of their participants and beneficiaries.
---------------------------------------------------------------------------

    \29\ The proposal of this exemption should not be interpreted as
an endorsement by the Department of the transactions described
herein. The Department notes that the fiduciary responsibility
provisions of Part 4 of Title I of the Act apply to the fiduciary's
decision to engage in the reinsurance arrangement.
    Specifically, section 404(a)(1) of the Act requires, among other
things, that a plan fiduciary act prudently, solely in the interest
of the plan's participants and beneficiaries, and for the exclusive
purpose of providing benefits to participants and beneficiaries when
making investment decisions on behalf of the plan. In this regard,
the Department is not providing any opinion as to whether a
particular insurance or investment product, strategy or arrangement
would be considered prudent or in the best interests of a plan, as
required by section 404 of the Act. The determination of the
prudence of a particular product or arrangement must be made by a
plan fiduciary after appropriate consideration to those facts and
circumstances that, given the scope of such fiduciary's investment
duties, the fiduciary knows or should know are relevant to the
particular product or arrangement involved, including the plan's
potential exposure to losses and the role a particular insurance or
investment product plays in that portion of the plan's investment
portfolio with respect to which the fiduciary has investment duties
and responsibilities (see 29 CFR 2550.404a-1).
---------------------------------------------------------------------------

    For Further Information Contact: Gary H. Lefkowitz of the
Department,

[[Page 10047]]

telephone (202) 693-8546. (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 of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act 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 proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.

Signed at Washington, DC this 26th day of February, 2003.

Ivan Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security  Administration,
Department of Labor.
[FR Doc. 03-4921 Filed 2-28-03; 8:45 am]

Official version:

• http://a257.g.akamaitech.net/7/257/2422/03mar20030800/edocket.access.gpo.gov/2003/pdf/03-4921.pdf [PDF]