DOL Inquiries re: Demutualization Proceeds?

[Christine Roberts]

The DOL appears to be making pre-field audit inquiries into whether health plan sponsors properly allocated proceeds of the Principal's demutualization. The inquiry is only relevant if plan participants were required to pay all or part of health plan premiums for themselves or their dependents. The inquiries are not triggered by Form 5500 filings. I am seeking comments from other practitioners who have had to deal with such inquiries. Thanks.

[QDROphile]

So what do you want us to say? The DOL wants people to understand that demutualization proceeds are not necessarily found money for the plan sponsors, and the DOL is using audit authority as a means to get the idea across. I have found that the facts and issues can be difficult and the DOL does not have any good bright line guidance or even necessarily a consistent position. But I have been impressed with the practical and flexible approach that the auditors have taken once their teeth were in.

One technique is for the DOL to get all the policy holder information from the insurance company and then to audit or threaten to audit all the former policy holders. I had good time advising the DOL that one of their audit targets was a government, so they had no jurisdicton. I don't know if they cast such a broad net in the Principal demutualization.

[Christine Roberts]

Thanks for two helpful points: (1) the DOL is being flexible in resolving plan asset errors resulting from demutualization (depends upon facts, of course) and (2) it appears they are getting lists of who to audit from the insurance companies.

Sort of what I expected - thanks for the input.

[Kirk Maldonado]

The fiduciaries will be in much better shape vis-a-vis the DOL if the consulted with legal counsel regarding the proper disposition of the demutualization proceeds. In one case that I was involved in, the DOL said that was the deciding factor.

[401 Chaos]

We have also found the DOL to be flexible and reasonable in accepting solutions to demutualization issues in earlier demutualization cases. The murky nature of the issues involved, the lack of clear guidance and the inability to ever craft perfect solutions for all involved seem to work in the plan sponsors' favor provided they use the proceeds to benefit plan participants / employees rather than simply taking the refunds into general assets.