Exemption for Certain Prohibited Transactions Involving the Association of Washington Business (AWB) HealthChoice Employee Benefits Trust Located in Olympia, Washington, 56409-56416 [2024-14959]
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Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices
Enbridge will undertake a newly-created
program to excavate and examine a
minimum of ten pipe joints that are
likely to contain the most severe
circumferential crack features. Based
upon the results of this investigation,
Enbridge will attempt to pass an agreedupon statistical test for determining
whether unexcavated portions of the
pipeline are likely to contain any
Circumferential Cracks that require
repair.
Second, the proposed Eighth
Modification would revise the methods
used by Enbridge for assessing whether
a circumferential crack must be
excavated and repaired. The new
methods are tailored to address the
unique threats posed by circumferential
crack features, taking into account all
stresses and loading conditions that may
cause a circumferential crack to grow
and ultimately fail. The proposed Eighth
Modification would require Enbridge to
apply these new assessment methods
not only to circumferential crack
features in Lines 1, 2, 4, and 62 that
Enbridge would be required to
investigate under the proposed Eighth
Modification, but also those
circumferential crack features in Lines
5, 6A, and 10 that Enbridge previously
discovered through past ILIs but that
Enbridge has not yet excavated and
repaired.
Third, the proposed Eighth
Modification adjusts certain
requirements relating to the repair and
mitigation of Circumferential Crack
features. The proposed Eighth
Modification allows more time for the
excavation and repair of Circumferential
Cracks than is generally afforded for the
excavation and repair of axially-aligned
cracks (i.e., a crack oriented in parallel
to the flow of oil through the pipeline).
Further, Enbridge will not be required,
in all instances, to limit operating
pressure in a pipeline until such repairs
are completed. Rather, Enbridge will be
required to establish an interim pressure
restriction only if a Circumferential
Crack is growing at a rate that poses a
threat to the integrity of the pipeline.
Fouth, the proposed Eighth
Modification would eliminate two
requirements in the Consent Decree
relating to Circumferential Cracks. In
contrast to axially-aligned cracks,
circumferential crack features that do
not require excavation and repair would
not be evaluated to determine their
remaining life (i.e., the estimated time
remaining before a feature may fail
either by leaking or rupturing). In
addition, the proposed Eighth
Modification would not impose any
requirements on Enbridge with respect
to the future deployment of ILI tools to
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re-inspect circumferential crack features
in Lines 1, 2, 4, 5, 6A, 10, and 62.
Finally, the proposed Eighth
Modification would revise the
Termination Section of the Consent
Decree, enabling Enbridge to seek early
termination of certain requirements
relating to circumferential crack
features. The proposed Eighth
Modification would require Enbridge to
incorporate the circumferential crack
remedial program into its operating
manual, which is enforceable by the
Pipeline and Hazardous Materials Safety
Administration (‘‘PHMSA’’). Once the
manual is revised, Enbridge may request
‘‘Phase 1’’ Final Termination, which,
upon approval by EPA, will terminate
all aspects of the Consent Decree other
than two discrete programs relating to
circumferential cracks. Phase 2 Final
Termination will occur once the United
States files notice with the Court
confirming that Enbridge has fully
implemented these two remaining
programs.
The publication of this notice opens
a period for public comment on the
proposed Eighth Modification of
Consent Decree. Comments should be
addressed to the Assistant Attorney
General, Environment and Natural
Resources Division, and should refer to
United States v. Enbridge Energy,
Limited Partnership, et al., D.J. Ref. No.
90–5–1–1–10099. All comments must be
submitted no later than thirty (30) days
after the publication date of this notice.
Comments may be submitted either by
email or by mail:
To submit
comments:
Send them to:
By email .......
pubcomment-ees.enrd@
usdoj.gov.
Assistant Attorney General,
U.S. DOJ—ENRD, P.O.
Box 7611, Washington, DC
20044–7611.
By mail .........
During the public comment period,
the proposed Eighth Modification may
be examined and downloaded at this
Justice Department website: https://
www.justice.gov/enrd/consent-decrees.
If you require assistance accessing the
proposed Eighth Modification, you may
request assistance by email or by mail
to the address provided above for
submitting comments.
Laura A. Thoms,
Assistant Section Chief, Environmental
Enforcement Section, Environment and
Natural Resources Division.
[FR Doc. 2024–14965 Filed 7–8–24; 8:45 am]
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56409
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Prohibited Transaction Exemption 2024–
03; Application Number L–11989]
Exemption for Certain Prohibited
Transactions Involving the Association
of Washington Business (AWB)
HealthChoice Employee Benefits Trust
Located in Olympia, Washington
Employee Benefits Security
Administration, Labor.
ACTION: Notice of exemption.
AGENCY:
This document gives notice of
an individual exemption from certain
prohibited transaction restrictions of the
Employee Retirement Income Security
Act of 1974 (ERISA). The exemption
permits the trustee of a plan funded by
the AWB HealthChoice Employee
Benefits Trust (the Arrangement), to hire
entities affiliated with AWB to provide
services to the Arrangement for a fee
subject to conditions designed to
safeguard the interests of the plan and
its participants and beneficiaries.
DATES: Exemption date: This final
exemption will be in effect as of July 9,
2024.
FOR FURTHER INFORMATION CONTACT:
Susan Wilker, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor, (202) 693–8557
(this is not a toll-free number).
SUPPLEMENTARY INFORMATION: AWB,
Forterra and ProPoint (the Applicants)
requested an exemption pursuant to
ERISA section 408(a) and supplemented
the request with certain additional
information (collectively, this
information is referred to as ‘‘the
Application’’).1 On June 14, 2023, the
Department published a notice of
proposed exemption in the Federal
Register at 88 FR 38896 (Proposed
Exemption).
Based on the record and
representations of the Applicants, the
Department has determined to grant the
Proposed Exemption with the
modifications discussed below. This
exemption provides only the relief
specified herein and does not provide
relief from violations of any law other
SUMMARY:
1 The procedures for requesting an exemption are
set forth in 29 CFR part 2570, subpart B (76 FR
66637, 66644, October 27, 2011). Effective
December 31, 1978, section 102 of the
Reorganization Plan No. 4 of 1978, 5 U.S.C. App.
1 (1996), transferred the authority of the Secretary
of the Treasury to issue administrative exemptions
under the Code Section 4975(c)(2) to the Secretary
of Labor. Accordingly, the Department grants this
exemption under its sole authority.
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than the prohibited transaction
provisions of ERISA.
As discussed below, the Department
makes the requisite findings under
ERISA Section 408(a) based on the
Applicants’ adherence to all the
conditions of the exemption.
Accordingly, affected parties should be
aware that the conditions incorporated
in this exemption are, taken
individually and as a whole, necessary
for the Department to grant the relief
requested by the Applicants. Absent
these conditions, the Department would
not have granted this exemption.
Background
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AWB HealthChoice Employee Benefits
Trust
As described in the proposal,
Association of Washington Business
(AWB) members can choose to offer
medical, dental, vision, and life
insurance benefits to their eligible
employees by participating in a fullyinsured ERISA-covered employee
welfare benefit plan (the Plans). The
Plans are funded through multiple
industry trusts (Industry Trusts) that
comprise the AWB HealthChoice
Employee Benefits Trust. The trustee for
each Industry Trust (the Trustee) is a
representative (e.g., employee, officer, or
director) of an employer participating in
the Plan (Participating Employer) that is
in a specific industry classification.2
The Trustees are Plan fiduciaries under
ERISA, responsible for performing a
wide range of activities in administering
the Plans, including selecting service
providers.
Bona Fide Groups or Associations
Under the Department’s Sub-Regulatory
Guidance
Under ERISA section 3(1), an
employee welfare benefit plan must be
established or maintained by an
‘‘employer,’’ an ‘‘employee
organization,’’ or both.3 ERISA section
3(5) defines an ‘‘employer’’ as ‘‘. . . any
person acting directly as an employer,
or indirectly in the interest of an
employer, in relation to an employee
benefit plan; and includes a group or
association of employers acting for an
employer in such capacity.’’ The
Department’s guidance in this area is
provided primarily in several advisory
opinions it has issued over more than
three decades (the sub-regulatory
guidance).4 In the sub-regulatory
2 The industry classifications are: manufacturing,
professional services, retail/wholesale, hospitality,
construction, agriculture, communications,
technology, and transportation.
3 ERISA section 3(1).
4 In 2018, the Department issued a rule (29 CFR
2510.3–5), which broadened the types of groups
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guidance, the Department expressed its
position regarding whether a particular
group or association is a ‘‘bona fide
group or association’’ that is permitted
to sponsor a multiple employer welfare
plan on behalf of its employer
members.5 In making this
determination, the Department has
consistently focused on three criteria:
(1) whether the group or association has
business or organizational purposes and
functions unrelated to the provision of
benefits (the ‘‘business purpose’’
standard); (2) whether the employers
share some commonality of interest and
genuine organizational relationship
unrelated to the provision of benefits
(the ‘‘commonality’’ standard); and (3)
whether the employers that participate
in a benefit program, either directly or
indirectly, exercise control over the
program, both in form and substance
(the ‘‘control’’ standard).
The Applicants represent that each
Industry Trust association is an
‘‘employer’’ within the meaning of
ERISA section 3(5). The Applicants
further represent that the Arrangement
is sponsored by ‘‘one or more bona fide
associations’’ as defined in the
Department’s sub-regulatory
guidance.’’ 6 The Department has relied
on these representations to grant this
exemption, and this background
discussion does not reflect factual
findings or opinions of the Department
regarding whether the Arrangement is
sponsored by ‘‘one or more bona fide
associations’’ or any other
representations made by the Applicants.
Although this exemption was
requested by AWB, Forterra and
ProPoint, the prohibited transaction
relief it grants only extends to the Plan
Trustees; the exemption provides no
relief for AWB or its affiliates. AWB,
Forterra and ProPoint represent that (i)
the Plans are established or maintained
by the Industry Trusts associations that
act indirectly in the interests of the
Participating Employers, and (ii) the
and associations that may sponsor a single ERISAcovered group health plan. The rule was vacated by
court order in 2019 (State of New York v. United
States Department of Labor, 363 F.Supp.3d 109,
(March 28, 2019)), and the Department recently
proposed to rescind the rule (88 FR 87968 (Dec. 20,
2023)).
5 See, e.g., Advisory Opinions Nos. 94–07A (Mar.
14, 1994), 95–01A (Feb. 13, 1995), 96–25 (Oct. 31,
1996), 2001–04A (Mar. 22, 2001), 2003–13A (Sept.
30, 2003), 2003–17A (Dec. 12, 2003), 2007–06A
(Aug. 16, 2007), 2012–04A (May 25, 2012), and
2019–01A (July 8. 2019). See also Department of
Labor Publication, ‘‘Multiple Employer Welfare
Arrangements Under ERISA, A Guide to Federal
and State Regulation,’’ at www.dol.gov/sites/dolgov/
files/ebsa/about-ebsa/our-activities/resource-center/
publications/mewa-under-erisa-a-guide-to-federaland-state-regulation.pdf.
6 The Applicant made these representations in a
draft trust agreement provided to the Department.
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Trustees of the Industry Trusts have sole
fiduciary authority over the selection of
service providers for the Plans.
Prohibited Transactions
ERISA prohibits fiduciaries with
respect to employee welfare benefit
plans from engaging in certain
transactions, including transactions that
involve self-dealing, unless an
exemption applies.7 In this case, the
Applicants represent that the Trustees
are vested with fiduciary authority to
select service providers for the Plans.
Because of the Plans’ close relationship
with AWB (e.g., the Plans are available
only to AWB member employers, and
AWB affiliates Forterra and ProPoint
have provided services to the Plans
since their inception), the Department is
concerned that Forterra’s and ProPoint’s
relationship with AWB could affect the
Trustees’ exercise of their best judgment
as fiduciaries with respect to the
selection of plan service providers in
the absence of appropriate safeguards.
The Department has authority under
ERISA section 408(a) to grant an
administrative exemption from the
prohibited transaction rules requested
by the Applicant only if the Department
finds that the exemption is (i)
administratively feasible, (ii) in the
interests of affected plans and of their
participants and beneficiaries, and (iii)
protective of the rights of such
participants and beneficiaries. As
discussed below, this exemption
includes conditions that are designed to
ensure that each Trustee is fully
informed of their fiduciary obligations
with respect to the Plan, possesses sole
fiduciary authority over Plan service
provider selection and monitoring, and
exercises their authority in accordance
with ERISA’s fiduciary standards.
The exemption provides relief from
ERISA section 406(b)(1), which
prohibits fiduciary self-dealing. Each
Trustee is a fiduciary, subject to the
provisions of ERISA sections 403 and
404. This means that each Plan’s assets
must be used for the exclusive purpose
of providing benefits to participants and
beneficiaries covered by that Plan and
defraying reasonable expenses of
administering the Plan. The Trustees
that are part of the Arrangement are
permitted to confer with each other and
collectively enter into service provider
agreements or otherwise act collectively
on behalf of all the Plans. However,
each Trustee is a fiduciary with respect
to the Plan for which it is a Trustee.
Each Plan must always have a Trustee
in order to satisfy the conditions of the
exemption, and that Trustee may not
7 See
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permit the assets, management, or
operation of any Plan to be used to
benefit participants and beneficiaries of
another Plan. The exemption does not
provide relief from ERISA section
406(b)(2), which prohibits fiduciaries
from acting on behalf of a party whose
interests are adverse to the interests of
the Plan. This ensures that Trustees may
not act on behalf of anyone with
interests adverse to a Plan and its
participants and beneficiaries.
The exemption does not provide relief
from ERISA section 406(a)(1)(C), which
prohibits fiduciaries from engaging
parties in interest as service providers.
That relief is available under the
statutory exemption provided in ERISA
section 408(b)(2), and the Department is
not determining whether the conditions
of ERISA section 408(b)(2), including
reasonable compensation, have been
met. To the extent the Trustees fail to
comply with ERISA section 408(b)(2) in
connection with hiring AWB or any of
its affiliates as service providers to the
Plans, for example, by paying fees that
exceed reasonable compensation, AWB
or its affiliates may be subject to liability
for knowing participation in a
prohibited transaction.8
Comment From the Applicant
Comment 1: Direct Fees
In the proposed exemption, the
Department invited all interested
persons to submit written comments
and/or requests for a public hearing
with respect to the Proposed Exemption.
All comments and requests for a hearing
were due to the Department by August
14, 2023.9 The Department received
three written comments that raised
several issues. One of these comments
was from the Applicants who raised
four technical issues involving (1) direct
fees, (2) related fee increases, (3) AWB
membership and (4) the disclosure
required in the Proposed Exemption.
The Department responds to the
material issues and the material
Section III(c)(1) of the proposed
exemption would have required the
Trustee to approve, in writing, all fees
or other compensation paid to AWBAffiliated Service Providers for services
to the Plan, after determining that the
fees and other compensation are direct
payments from the Plan. Similarly,
Section IV(b)(1) would have required a
Trustee to contractually prohibit the
AWB-Affiliated Service Provider from
receiving any fees other than those paid
directly by the Plan as of the first day
of the first plan year after the Grant
Date.
According to the Applicant, fees paid
to Forterra and ProPoint no longer are
paid out of trust assets. The Applicants
explained in their comment that,
effective April 1, 2021, Vimly, a service
provider that is unaffiliated with AWB,
collects contributions remitted by
Participating Employers, retains a
portion of the collected amount as its
fee, remits fees payable to Forterra and
ProPoint directly to those entities, and
remits the balance to the trust.
After considering this comment, the
Department is revising Sections III(c)(1)
and IV(b)(1) to provide that fees and
other compensation must be direct
payments from, or on behalf of, the
Plan. Adding ‘‘on behalf of’’ confirms
that the exemption is available for funds
paid by Vimly directly to Forterra and
ProPoint from contributions remitted by
8 See Harris Trust & Savings Bank v. Salomon
Smith Barney, Inc., 530 U.S. 238 (2000). The
Department notes its longstanding position that the
proposal or grant of a prohibited transaction
exemption is not dispositive of whether a
prohibited transaction has occurred or will occur.
9 The Proposed Exemption established a July 31,
2023, deadline for the public to submit comments
and requests for a hearing. However, the
Department was informed that AWB had to
redistribute the proposed exemption package,
including the notice to interested parties, due to an
incomplete first distribution. Therefore, in a
Federal Register notice published on July 17, 2023
(88 FR 45448), the Department extended the
proposed exemption’s comment period until
August 14, 2023, to provide additional time for
interested parties to prepare and submit their
comments.
10 All information submitted by the Applicant to
the Department in connection with this exemption
is available through the Department’s Public
Disclosure Room, by referencing L–11989.
11 The Representations stated herein are based on
AWB’s representations provided in its exemption
application and do not reflect factual findings or
opinions of the Department unless indicated
otherwise. The Department notes that the
availability of this exemption is subject to the
express condition that the material facts and
representations contained in application L–11989
are true and complete at all times, and accurately
describe all material terms of the transactions
covered by the exemption. If there is any material
change in a transaction covered by the exemption,
or in a material fact or representation described in
the application, the exemption will cease to apply
as of the date of the change.
Written Comments Received
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information provided in the comments
below.10
In granting this exemption, the
Department has relied on the
representations of the Applicants. If any
material statement in the Application,
final exemption or the Applicant’s
comment is not, or may no longer be,
completely and factually accurate, the
Applicants and recipients of the
exemptive relief provided herein must
immediately alert the Department.11
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Participating Employers, even if they are
not contributed to the trust.
Comment 2: Related Fee Increases
The Applicants expressed concern
with Section IV(b)(2) of the Proposed
Exemption. This provision requires fees
provided to service providers, other
than any insurance broker of record that
is not affiliated with AWB, to be
established independently of other
service provider fees, so that an increase
in one fee does not directly or
indirectly, cause an increased fee
payment to another service provider.
The Applicants requested that the
Department eliminate this requirement
in its entirety. Alternatively, Applicants
requested that the Department revise the
requirement to provide that when one
service provider’s fees increase, the fees
paid to other service providers, other
than insurance brokers of record that are
not affiliated with AWB, would be
contractually adjusted unless the
Trustees determine, in accordance with
the other conditions of the Proposed
Exemption that (a) the resulting increase
to the other service providers’ fees does
not cause those fees to exceed
reasonable compensation within the
meaning of ERISA Section 408(b)(2) and
(b) such resulting fee increase is prudent
and in the best interests of Plan
participants. However, if the
Department retains Section IV(b)(2) as
proposed, the Applicants requested that
the Department delay the effective date
of the requirement until the second plan
year after the Grant Date.12
After considering the Applicants’
comment, the Department has decided
to finalize Section IV(b)(2) as proposed.
The exemption as a whole requires the
Trustees to closely monitor all fees paid
to AWB-affiliated service providers. For
example, Section III(c) requires the
Trustees to closely monitor all fees paid
to AWB-Affiliated Service Providers by
ensuring that that fees and other
compensation paid to them does not
exceed reasonable compensation for
services that are necessary and actually
rendered to the Plan, and Section
IV(b)(1)(A) prohibited rates from
increasing during the contract period.
The Department’s position is that
allowing automatic increases to all
service providers’ fees is contrary to
Trustee’s responsibility.
The Department notes there are
multiple ways that Applicants may
satisfy Section IV(b)(2). For example,
the Applicants’ current method of
12 The Applicants requested this delay because
the cost of coverage has already been determined
for the first plan year after the Grant Date and is
in the process of being communicated to
Participating Employers.
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calculating service provider
compensation based on rates that are
determined by Premera using a
generally-recognized industry method
would not necessarily violate this
condition.
As requested by the Applicants, the
Department is extending the effective
date of the condition. Therefore, while
most of Section IV becomes applicable
as of the first day of the first plan year
after the Grant Date, Section IV(b)(2)
will not become effective until the first
day of the second plan year after the
Grant Date. This will ensure that all
parties have sufficient time to negotiate
fees paid to service providers.
Comment 3: AWB Membership
As proposed, the definition of ‘‘AWBAffiliated Service Provider’’ was AWB,
Forterra, Inc., ProPoint, LLC, or any
other entity providing services to the
Plan that is an Affiliate. Section
IV(b)(1)(B) of the proposal would have
required the Trustees to contractually
prohibit the AWB-Affiliated Service
Providers from receiving any fees other
than those paid directly by the Plan.
Applicants expressed concern that,
because membership in AWB is a
prerequisite for participating in the Plan
and requires the Participating
Employers to pay a membership fee,
proposed Section IV(b)(1)(B) could have
been interpreted as prohibiting AWB
from receiving its routine membership
fees. To address this ambiguity, the
Applicants requested that the
Department clarify that the definition of
AWB-Affiliated Service Provider only
includes AWB only to the extent AWB
provides services to the Plan. Rather
than change the definition of AWBAffiliated Service Provider, which could
affect other exemption conditions, the
Department is revising Section
IV(b)(1)(B) to add ‘‘Notwithstanding the
foregoing, AWB may receive a
membership fee from Participating
Employers.’’
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Comment 4: Disclosure
Section III(d)(2)(B) of the Proposed
Exemption would have required the
AWB-Affiliated Service Providers to
disclose to the Trustee a description of
all compensation, both in the aggregate
and by service, the AWB-Affiliated
Service Providers and any subcontractor
reasonably expect to receive from the
Plan.13
13 In
the proposal, the Department noted ‘‘[t]his
is broader than the statutory language in ERISA
section 408(b)(2)(B)(iii)(III), which requires a
description of all direct compensation ‘either in the
aggregate or by service.’ ’’ However, the
requirements of this condition are specific to this
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The Applicants request that the
Department provide further clarification
and guidance regarding the requirement
to describe compensation ‘‘by service,’’
and regarding whether any specific
services listed in the disclosure would
require a separate allocation of fees.
Alternatively, the Applicants request
that the Department provide guidance
that allows specific services to be
broken down into categories for which
separate fees would be expressed by
category.
The disclosure of all services and fees
by the AWB-Affiliated Service Providers
to the Trustees and the Participating
Employers is paramount to the
Department making its statutory
findings under ERISA section 408(a)
that are required for it to provide the
exemptive relief provided in this final
exemption. The Department’s position
is that providing aggregate and detailed
fee information disclosing the services
provided is crucial for the Trustees and
the Participating Employers to meet
their obligations under the Exemption,
including the determination that the
fees and other compensation do not
exceed reasonable compensation within
the meaning of ERISA section
408(b)(2).14 The Department, however,
acknowledges the exact fees for certain
specific services may not be known at
the time of the disclosure and the
condition requires disclosure of fees
that ‘‘AWB-Affiliated Service Providers
and any subcontractor reasonably
expect to receive from the Plan.’’ The
Department expects that when the
AWB-Affiliated Service Provider or any
subcontractor reasonably expects
specific fees for specific services, those
fees must be disclosed. At the same
time, AWB-Affiliated Service Providers
must disclose all specific services
associated with the aggregate fees.
Comments From the General Public
Comment on ERISA Section 514
The Department received one
comment that expressed the
commenter’s opinion that it was
‘‘legally impermissible’’ for the
Department ‘‘to grant an exemption
from the prohibited transaction
restrictions to the Association of
Washington Business HealthChoice
Employee Benefits Trust’’ because
ERISA Sections 514(b)(6)(A) and (B)
preclude the Department from granting
Arrangement and this exemption. The Department
is not providing guidance on the statutory language.
14 In granting this exemption, the Department is
taking no position on whether the fees described in
Applicant’s comment are reasonable. That
determination must be made by the Trustee based
on all facts and circumstances.
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any exemption to a fully insured
Multiple Employer Employee Welfare
Arrangement (MEWA).
The Department disagrees with the
commenter’s interpretation of ERISA
section 514(b)(6). In general, ERISA’s
broad preemption of state laws
contained in ERISA section 514(a)
provides that ERISA’s Titles I and IV
supersede any state laws that relate to
any ERISA-covered employee benefit
plan except as provided in ERISA
section 514(b). In 1983, Congress
amended ERISA to add section
514(b)(6). One of the main purposes for
this amendment was to protect
employee benefit plan participants and
beneficiaries by facilitating state
regulation of MEWAs.15 To that end,
ERISA section 514(b)(6) modified the
scope of ERISA’s preemption of state
insurance laws as they apply to
employee welfare benefit plans that also
are MEWAs.
Specifically, if an employee welfare
benefit plan that is also a MEWA is not
fully insured, then ERISA section
514(b)(6)(A)(ii) provides that any state
law that regulates insurance may apply
to the MEWA to the extent state law is
not inconsistent with ERISA. If, on the
other hand, an employee welfare benefit
plan that also is a MEWA is fully
insured, ERISA section 514(b)(6)(A)(i)
provides that only those state laws that
regulate the maintenance of specified
contribution and reserve levels may
apply to the MEWA.16
The commenter seems to
misunderstand several aspects of ERISA
section 514(b)(6). Contrary to the
commenter’s assertion that ‘‘ERISA
Section 514(b)(6) provides specific
criteria that must be met before ERISA
title I provisions can be applied’’ to a
MEWA, section 514(b)(6) prescribes
circumstances when state laws that
otherwise would be preempted by
ERISA section 514(a) can be applied to
MEWAs that are employee welfare
benefit plans in addition to ERISA Title
I, which governs the operation of these
plans. In other words, section 514(b)(6)
permits state insurance laws to apply
rather than automatically being
preempted by ERISA, but it does not
eliminate the applicability of Title I
enforcement provisions to MEWAs. In
fact, section 514(b)(6) only is relevant
15 DOL
Advisory Opinion 2011–01A.
section 514(b)(6)(D) provides, in turn,
that a MEWA will be considered fully insured for
purposes of ERISA section 514(b)(6) only if the
terms of the arrangement provide for benefits the
amount of all of which the Secretary determines are
guaranteed under a contract, or policy of insurance,
issued by an insurance company, insurance service,
or insurance organization, ‘‘qualified to conduct
business in a State.’’
16 ERISA
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for plans that are covered by title I of
ERISA, because it provides an exception
to ERISA’s preemption of all State laws
that apply to ‘‘employee benefit plans’’
described in ERISA section 4(a) that are
not exempt by ERISA section 4(b).
Furthermore, the commenter asserts
that ‘‘the Department is barred from
issuing any exemptions that mandate
that Title I of ERISA is applicable to a
fully insured MEWA.’’ To support its
assertion, the commenter relies on the
language in ERISA section 514(b)(6)(B)
which states: ‘‘The Secretary may, under
regulations which may be prescribed by
the Secretary, exempt from
subparagraph (A)(ii), individually or by
class, multiple employer welfare
arrangements which are not fully
insured.’’ (emphasis in the comment).
However, the commenter fails to realize
that this provision is completely
irrelevant to this exemption because this
exemption provides relief from ERISA
section 406, not ERISA section
514(b)(6)(A)(ii).
Based upon the Applicants’
representation that the Arrangement is a
bona fide association as defined in the
Department’s sub-regulatory guidance,
and is a Plan MEWA that provides fullyinsured welfare benefits subject to
ERISA (including the prohibited
transaction provisions in ERISA section
406), the Department has authority to
grant this exemption.
Comment on ERISA Section 408(a)
Another commenter claimed that the
proposed exemption violates ERISA
section 408(a) due to the Department’s
failure to ‘‘demonstrate to the public
that it properly determined that the
specific ‘rights of participants’ of a plan
that is subject to ERISA Title I are being
protected.’’
The Department fully understands
and takes very seriously its
responsibility to adhere to the mandate
in ERISA section 408 that requires the
Department to find that the exemption
is (1) administratively feasible, (2) in the
interests of affected plans and of their
participants and beneficiaries, and (3)
protective of the rights of participants
and beneficiaries of such plans before
granting this exemption. The
Department made its preliminary
statutory findings in the Proposed
Exemption and confirms such findings
in this Notice of Granted Exemption
based on its review of the entire record
and the requirement that the Applicants
fully comply with the exemption
conditions at all times. The record and
the Department’s findings are based in
part on representations made by the
Applicants, one representation of which
is that the Arrangement is a bona fide
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association as defined in the
Department’s sub-regulatory guidance
and a Plan MEWA that provides fullyinsured welfare benefits subject to
ERISA. As stated in the Proposed
Exemption and this Notice of Granted
Exemption, the availability of this
exemption is subject to the express
condition that the material facts and
representations contained in the
application accurately describe all
material terms of the transaction that are
the subject of the exemption and the fact
that a transaction is subject to an
administrative or statutory exemption is
not dispositive of determining whether
the transaction is in fact a prohibited
transaction. If any representation made
by the Applicants is not accurate or
there are any material changes to those
representations the exemptive relief
provided in this exemption would not
be valid.
Comment From the Department
This final amendment makes minor
ministerial changes, such as spelling out
numbers and moving clauses within a
sentence.
The complete application file (L–
11989) is available for public inspection
in the Public Disclosure Room of the
Employee Benefits Security
Administration, Room N–1515, U.S.
Department of Labor, 200 Constitution
Avenue NW, Washington, DC 20210.
For a more complete statement of the
facts and representations supporting the
Department’s decision to grant this
exemption, please refer to the notice of
proposed exemption published on June
14, 2023, at 88 FR 38896.
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under ERISA
section 408(a) does not relieve a
fiduciary or other party in interest from
certain requirements of other ERISA
provisions, including any prohibited
transaction provisions to which the
exemption does not apply and the
general fiduciary responsibility
provisions of ERISA Section 404, which,
among other things, require a fiduciary
to discharge their duties respecting the
plan solely in the interest of the plan’s
participants and beneficiaries and in a
prudent fashion in accordance with
ERISA section 404(a)(1)(B).
(2) As required by ERISA section
408(a), the Department hereby finds that
the exemption is (1) administratively
feasible, (2) in the interests of affected
plans and of their participants and
beneficiaries, and (3) protective of the
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56413
rights of participants and beneficiaries
of such plans;
(3) The exemption is supplemental to,
and not in derogation of, any other
ERISA provisions, including statutory or
administrative exemptions and
transitional rules. Furthermore, the fact
that a transaction is subject to an
administrative or statutory exemption is
not dispositive of determining whether
the transaction is in fact a prohibited
transaction; and
(4) The availability of this exemption
is subject to the express condition that
the material facts and representations
contained in the application accurately
describe all material terms of the
transaction that are the subject of the
exemption.
Accordingly, the following exemption
is granted under the authority of ERISA
Section 408(a) and in accordance with
the procedures set forth in 29 CFR part
2570, subpart B (76 FR 66637, 66644,
October 27, 2011):
Exemption
Section I. Definitions
(a) ‘‘AWB’’ means the Association of
Washington Business.
(b) ‘‘AWB-Affiliated Service Provider’’
means AWB, Forterra, Inc., ProPoint,
LLC, or any other entity providing
services to the Plan that is an Affiliate.
(c) An ‘‘Affiliate’’ is a person that is:
(1) Controlling, controlled by, or
under common control with AWB;
(2) An officer, director, partner, or
employee of AWB; or
(3) A corporation or partnership of
which AWB is an officer, director,
partner, or employee.
For purposes of this definition,
‘‘control’’ means the power, direct or
indirect, to exercise a controlling
influence over the management or
policies of a person other than an
individual;
(d) The ‘‘Grant Date’’ is the date the
final exemption is published in the
Federal Register.
(e) ‘‘Participating Employer’’ means
any of the member employers of AWB
who provides medical, dental, vision,
and life insurance benefits to their
employees through the Plan.
(f) ‘‘Plan’’ means any plan that is
funded by the AWB HealthChoice
Employee Benefits Trust, including
through an Industry Trust.
(g) A ‘‘Trustee’’ is a person elected in
accordance with Section III(a)(3).
Section II. Covered Transactions
The exemption provides relief to the
Trustees for their selection of an AWBAffiliated Service Provider to provide
services to the Plans for a fee, if the
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conditions of Sections III and IV are
met, subject to the definitional terms in
Section I. The exemption would provide
relief only from the restrictions of
ERISA section 406(b)(1).
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Section III. General Conditions
The following conditions apply for
each Plan as of the Grant Date, as
defined in Section I(d).
(a) Plan Structure
(1) The Plan is a fully-insured
employee welfare benefit plan.
(2) The Plan is established or
maintained by an employer within the
meaning of ERISA section 3(5).
(3) The Trustee with respect to the
Plan is:
(A) A trustee, employee, officer,
director, or owner of a Participating
Employer in the industry classification
associated with the Plan;
(B) Nominated by a Participating
Employer in the industry classification
associated with the Plan and elected by
a majority vote of Participating
Employers in the industry classification;
(C) Independent of AWB and its
Affiliate, which means the Trustee (1) is
not an Affiliate of AWB or a trustee,
employee, officer, director, member or
agent of any Affiliate of AWB, and (2)
does not have a relationship with or an
interest in AWB or any of its Affiliates
that might affect the exercise of the
person’s best judgment in connection
with transactions described in Section II
of this exemption; and
(D) Not an employee, officer, director,
member or agent of a Participating
Employer that is also a service provider
to any Plan.
(4) The Participating Employers in
each industry classification have the
sole authority to:
(A) Remove the Trustee with respect
to the Plan associated with that industry
classification, with or without cause, by
majority vote; and
(B) Dissolve or amend the Plan
associated with that industry
classification by majority vote.
(5) Each person who is nominated to
serve as a Trustee to the Plan undergoes
fiduciary training before their decision
to serve as a Trustee, if elected, and
annually thereafter. The fiduciary
training is provided by a professional
who has appropriate technical training
and proficiency with ERISA and who
has been prudently selected by the
board of Trustees and covers, at a
minimum, ERISA compliance, fiduciary
duties, the conditions of the exemption,
and the consequences of failing to
comply with the conditions (including
any loss of exemptive relief provided
herein). Existing Trustees as of the Grant
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Date must receive this training within
three (3) months of the Grant Date.
(6) Neither the Plan nor any
Participating Employer indemnifies
AWB or its Affiliates for any reason.
(7) Legal counsel for the Plan does not
also represent AWB or any Affiliate.
(b) Selection of Service Providers
(1) The Trustee has and exercises sole
fiduciary authority to select service
providers for the Plan. The Trustee
exercises their fiduciary authority in
accordance with ERISA section 404 to
prudently and loyally select service
providers and document the selection
process and considerations, including
whether an AWB-Affiliated Service
Provider and its personnel have the
qualifications and capability to perform
such services; whether the fees to be
charged reflect arm’s-length terms; and
whether the arrangements are
reasonable, compared with similarly
qualified service providers. The
documentation must provide sufficient
context and detail and be written in a
manner to ensure that any party
authorized to review the records under
Section III(e) can understand the
reasoning for the selection.
(2) Before entering into or renewing
any services contracts with an AWBAffiliated Service Provider on behalf of
the Plan, the Trustee determines that the
services are necessary to the operation
of the Plan and documents the reasons
for the determination.
(3) Contracts (including renewals)
between the Plan and an AWBAffiliated Service Provider:
(A) Are limited to no more than three
years’ duration; and
(B) Allow the Trustee to terminate the
contract any time without penalty to the
Plan by providing thirty (30) days’
written notice.
(4) The AWB-Affiliated Service
Provider may be compensated by the
Plan for its services as an insurance
broker of record to a Participating
Employer only if:
(A) The Trustee selects the AWBAffiliated Service Provider in
accordance with Section III(b)(2);
(B) The Trustee obtains the
Participating Employer’s written
certification that it has received a
disclosure from the Trustee that
includes descriptions of:
(i) the nature of the affiliation (as
described in Section I(c)) between the
AWB-Affiliated Service Provider and
AWB;
(ii) the services that will be provided
by the AWB-Affiliated Service Provider;
and
(iii) the amount of fees that the AWBAffiliated Service Provider will receive,
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provided that if the fee is disclosed as
a percentage of another amount, it is
accompanied by an example of the
calculation expressed in dollars; and
(C) The Trustee ensures the Plan pays
the AWB-Affiliated Service Provider for
its services as broker of record no more
than the lowest commission paid to an
unaffiliated broker of record.
(5) The Trustee monitors the AWBAffiliated Service Provider’s
performance of services and compliance
with the applicable conditions of this
exemption prudently and loyally in
accordance with ERISA section 404.
(c) Fees
The Trustee approves, in writing, all
fees or other compensation paid to
AWB-Affiliated Service Providers for
services to the Plan, after determining
that the fees and other compensation:
(1) are direct payments from, or on
behalf of, the Plan;
(2) are for services that are necessary
and actually rendered to the Plan; and
(3) do not exceed reasonable
compensation within the meaning of
ERISA section 408(b)(2).
(d) Disclosure
(1) The Trustee distributes the
following disclosures to Participating
Employers at initial enrollment and at
each annual renewal thereafter:
(A) A description of the relationship
between AWB and any other AWBAffiliated Service Provider that the
Trustee has selected;
(B) A statement that that the Trustee
is a fiduciary with respect to the Plan
and that before entering into or
renewing any services contracts with an
AWB-Affiliated Service Provider on
behalf of the Plan, the Trustee exercised
their fiduciary authority in accordance
with ERISA section 404 to prudently
and loyally select service providers; and
(C) A statement that the Participating
Employers, directly or indirectly
through the Trustees, have control over
the Plan, including the authority and
control to select alternative service
providers to AWB or AWB-Affiliated
Service Providers.
(2) The Trustee receives the following
disclosure from the AWB-Affiliated
Service Providers, and reviews,
approves and distributes the disclosures
to Participating Employers at initial
enrollment and at each annual renewal
thereafter:
(A) A description of the services that
are to be provided by any AWBAffiliated Service Provider to the Plan;
(B) A description of all compensation,
both in the aggregate and by service, the
AWB-Affiliated Service Providers and
any subcontractor reasonably expect to
receive from the Plan;
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(C) A description of any
compensation that will be paid among
the AWB-Affiliated Service Providers or
a subcontractor, if such compensation is
set on a transaction basis (such as
commissions, finder’s fees, or other
similar incentive compensation based
on business placed or retained). The
AWB-Affiliated Service Provider must
identify the services for which such
compensation will be paid and identify
the payers and recipients of such
compensation (including the status of a
payer or recipient as an Affiliate or a
subcontractor) regardless of whether
such compensation also is disclosed
pursuant to paragraph (E) or (F), below;
(D) A description of any
compensation that the AWB-Affiliated
Service Provider, an affiliate, or a
subcontractor reasonably expects to
receive in connection with termination
of the contract or arrangement, and how
any prepaid amounts will be calculated
and refunded upon such termination;
and
(E) a description of the manner in
which the compensation described in
clause (B) through (D), as applicable,
will be received.
(e) Recordkeeping
(1) The Trustee maintains for a period
of six (6) years, in a manner that is
reasonably accessible for examination,
the records necessary to enable the
persons described in paragraph (2)
below to determine whether the
conditions of this exemption have been
met, except that:
(A) If such records are lost or
destroyed due to circumstances beyond
the control of the Trustee, then no
prohibited transaction will be
considered to have occurred solely on
the basis of the unavailability of those
records; and
(B) No party in interest other than the
Trustee will be subject to the civil
penalty that may be assessed under
ERISA section 502(i) if the records are
not maintained or are not available for
examination as required below:
(2)(A) Except as provided in
paragraph (B) below, and
notwithstanding any provisions of
ERISA section 504(a)(2) and (b), the
records referred to in Section III(d)(1)
are reasonably available at their
customary location for examination
during normal business hours by:
(i) Any authorized employee or
representative of the Department;
(ii) Any Participating Employer or
fiduciary of a Plan, or any authorized
employee or representative of these
entities; or
(iii) Any individual participant or
beneficiary of a Plan or any authorized
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56415
All the material facts and
representations provided by the
Applicants are true and accurate at all
times.
that the rate does not increase during
the contract period; and
(B) Contractually prohibits the AWBAffiliated Service Provider from
receiving any fees other than those paid
directly by, or on behalf of, the Plan.
Notwithstanding the foregoing, AWB
may receive a membership fee from
directly Participating Employers. The
membership fee may be a prerequisite
for participation in the Plan, but the
membership fee may not be
compensation for any services provided
to the Plan.
(2) As of the first day of the second
plan year after the Grant Date, fees for
service providers, other than any
insurance broker of record that is not
Affiliated with AWB, are established
independently of other service provider
fees, so that an increase in one fee does
not cause, directly or indirectly, an
increased payment to another service
provider. For purposes of this condition,
a service provider fee does not include
an insurance premium (i.e., fees may be
calculated as percentages of premiums
paid to the insurance company).
(3) Fees collected from Participating
Employers and Plan participants are
based on actual, rather than estimated,
amounts due to service providers.
Section IV. Phase-In Conditions
(c) Disclosure
Except as otherwise noted in section
IV(b)(2), the following additional
conditions apply as of the first day of
the first plan year after the Grant Date.
(1) The disclosure described in
Section III(d)(1) includes the following
additional information:
(A) A description of any
compensation that the AWB-Affiliated
Service Provider, or any subcontractor,
reasonably expects to receive in
connection with termination of a
contract or arrangement with the Plan
and how any prepaid amounts will be
calculated and refunded upon such
termination; and
(B) A description of the methodology
by which AWB-Affiliated Service
Provider fees are calculated, including
examples with dollar amounts.
(2) The Plan documents require the
AWB-Affiliated Service Provider to
furnish, upon written request, any
information the Trustee reasonably
requests, within 30 days after the
request unless the disclosure cannot be
provided due to extraordinary
circumstances beyond the control of the
AWB-Affiliated Service Provider, in
which case the information must be
provided as soon as reasonably
practicable and the AWB-Affiliated
Service Provider must provide the
Trustee with a notice explaining why
they cannot meet the 30-day deadline.
representative of the participant or,
beneficiary; and
(B) None of the persons described in
paragraph (e)(2)(A)(ii) or (iii) of this
Section above are authorized to examine
records that are confidential, privileged
trade secrets, or privileged commercial
or financial information.
(C) If the Trustee refuses to disclose
information on the basis that the
information is exempt from disclosure
under subsection (B), the Trustee must
provide a written notice advising the
requestor of the reasons for the refusal
and that the Department may request
such information by the close of the
thirtieth (30th) day following the
request.
(3) The Trustee must provide
sufficient information necessary to
demonstrate that the exemption
conditions have been met over the prior
six-year period. The Trustee must
maintain and retain such records in a
manner that ensures it would be able to
provide the information to the
Department within 30 calendar days of
a request.
(f) Material Facts and Representations
(a) Plan Documents and Contracts
(1) Plan documents and disclosures:
(A) accurately describe the role and
fiduciary status of the Trustee;
(B) do not include any disclaimers of
fiduciary status for any party, including
AWB and any Affiliate; and
(C) do not indicate, in any way,
including on a website, that AWB or its
Affiliates are the sponsor of the Plan.
(2) The insurance contract is held in
the name of the Plan.
(3) AWB-Affiliated Service Providers
contractually agree that all information
they provide to the Trustee,
Participating Employers and prospective
Participating Employers regarding their
services to the Plan and related fees is
materially accurate at the time it is
provided.
(b) Fees
(1) Before entering into any contract
for services with an AWB-Affiliated
Service Provider on behalf of the Plan,
the Trustee:
(A) Negotiates the rate of fees to be
paid for services to the Plan and ensures
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Federal Register / Vol. 89, No. 131 / Tuesday, July 9, 2024 / Notices
(d) Monthly Billing Statements
The Trustees provide to Participating
Employers a monthly billing statement
that includes:
(1) The following statement: ‘‘The
amounts you pay each month for health
insurance coverage include fees for
administrative services, including fees
paid to service providers affiliated with
the Association of Washington Business
(AWB). A description of the services
provided by each AWB affiliate is
provided to you at the time of your
initial enrollment and at each annual
renewal. You can also contact [NAME,
phone number, email address] for
additional copies.’’
(2) A chart accurately listing all
service providers and the fee
percentages or other amounts they
receive. If any administrative services
fees are expressed as a percentage of the
insurance premium, the disclosure must
also include an example showing how
fees would be calculated based on a
$1,000 insurance premium; and
(3) A point of contact, including a
phone number and email address, for
copies of disclosures or for additional
information.
Exemption date: The exemption will
be in effect as of the date of publication
of the final exemption in the Federal
Register.
Signed at Washington, DC, this 2nd day of
July 2024.
George Christopher Cosby,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2024–14959 Filed 7–8–24; 8:45 am]
BILLING CODE 4510–29–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
Agency Information Collection
Activities; Request for Public
Comment
Employee Benefits Security
Administration (EBSA), Department of
Labor.
ACTION: Notice.
AGENCY:
The Department of Labor (the
Department), in accordance with the
Paperwork Reduction Act, provides the
general public and Federal agencies
with an opportunity to comment on
proposed and continuing collections of
information. This helps the Department
assess the impact of its information
collection requirements and minimize
the public’s reporting burden. It also
helps the public understand the
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SUMMARY:
VerDate Sep<11>2014
18:00 Jul 08, 2024
Jkt 262001
Department’s information collection
requirements and provide the requested
data in the desired format. The
Employee Benefits Security
Administration (EBSA) is soliciting
comments on the proposed extension of
the information collection requests
(ICRs) contained in the documents
described below. A copy of the ICRs
may be obtained by contacting the office
listed in the ADDRESSES section of this
notice. ICRs also are available at
reginfo.gov (https://www.reginfo.gov/
public/do/PRAMain).
DATES: Written comments must be
submitted to the office shown in the
ADDRESSES section on or before
September 9, 2024.
ADDRESSES: U.S. Department of Labor,
Employee Benefits Security
Administration, Office of Research and
Analysis, Attention: PRA Officer, 200
Constitution Avenue NW, Room N–
5718, Washington, DC 20210, or
ebsa.opr@dol.gov.
SUPPLEMENTARY INFORMATION:
I. Current Actions
This notice requests public comment
on the Department’s request for
extension of the Office of Management
and Budget’s (OMB) approval of ICRs
contained in the rules and prohibited
transaction exemptions described
below. This action is not related to any
pending rulemakings and the
Department is not proposing any
changes to the existing ICRs at this time.
An agency may not conduct or sponsor,
and a person is not required to respond
to, an information collection unless it
displays a valid OMB control number. A
summary of the ICRs and the burden
estimates follows:
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: Bank Collective Investment
Funds, Prohibited Transaction Class
Exemption 1991–38.
Type of Review: Extension of a
currently approved collection of
information.
OMB Number: 1210–0082.
Affected Public: Private sector,
Businesses or other for-profits, Not-forprofit institutions.
Respondents: 9,332.
Responses: 9,332.
Estimated Total Burden Hours: 1,555.
Estimated Total Burden Cost
(Operating and Maintenance): $0.
Description: Prohibited Transaction
Class Exemption (PTE) 91–38 provides
an exemption from the restrictions of
sections 406(a), 406(b)(2) and 407(a) of
ERISA and the taxes imposed by section
4975(a) and (b) of the Code by reason of
section 4975(c)(1)(A), (B), (C), or (D) of
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the Code for certain transactions
between a bank collective investment
fund in which an employee benefit plan
has invested assets and persons who are
parties in interest to the employee
benefit plan, as long as the interest of
the plan together with the interests of
any other plans maintained by the same
employer or employee organization in
the collective investment fund does not
exceed 10% of the total assets in the
collective investment fund. In addition,
the bank managing the common
investment fund must not itself be a
party in interest to the participating
plan, the terms of the transaction must
be at least as favorable to the collective
investment fund as those available in an
arm’s length transaction with an
unrelated party, and the bank must
maintain records of the transactions for
six years and make the records available
for inspection to specified interested
persons (including the Department and
the Internal Revenue Service).
The Department has received
approval from OMB for this ICR under
OMB Control No. 1210–0082. The
current approval is scheduled to expire
on April 30, 2025.
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: PTE 1990–1; Insurance
Company Pooled Separate Accounts.
Type of Review: Extension of a
currently approved collection of
information.
OMB Number: 1210–0083.
Affected Public: Private sector,
Business or other for profits.
Respondents: 108.
Responses: 1,080.
Estimated Total Burden Hours: 108.
Estimated Total Burden Cost
(Operating and Maintenance): $0.
Description: Prohibited Transaction
Exemption (PTE) 90–1 provides an
exemption from the restrictions of
ERISA section 406 and Code section
4975, in part, for certain transactions
between insurance company pooled
separate accounts and parties in interest
to plans that invest assets in the pooled
separate accounts. PTE 90–1 provides
an exemption for certain transactions
between a party in interest with respect
to a plan and an insurance company
pooled separate account in which the
plan has an interest or any acquisition
or holding by the pooled separate
account of employer securities or
employer real property, provided that
the party in interest is not the insurance
company (or an affiliate of the insurance
company) which holds the plan assets
in its pooled separate account or any
other separate account of the insurance
company and that the amount of the
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Agencies
[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56409-56416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14959]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2024-03; Application Number L-11989]
Exemption for Certain Prohibited Transactions Involving the
Association of Washington Business (AWB) HealthChoice Employee Benefits
Trust Located in Olympia, Washington
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document gives notice of an individual exemption from
certain prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (ERISA). The exemption permits the trustee
of a plan funded by the AWB HealthChoice Employee Benefits Trust (the
Arrangement), to hire entities affiliated with AWB to provide services
to the Arrangement for a fee subject to conditions designed to
safeguard the interests of the plan and its participants and
beneficiaries.
DATES: Exemption date: This final exemption will be in effect as of
July 9, 2024.
FOR FURTHER INFORMATION CONTACT: Susan Wilker, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8557 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION: AWB, Forterra and ProPoint (the Applicants)
requested an exemption pursuant to ERISA section 408(a) and
supplemented the request with certain additional information
(collectively, this information is referred to as ``the
Application'').\1\ On June 14, 2023, the Department published a notice
of proposed exemption in the Federal Register at 88 FR 38896 (Proposed
Exemption).
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\1\ The procedures for requesting an exemption are set forth in
29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
Effective December 31, 1978, section 102 of the Reorganization Plan
No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of
the Secretary of the Treasury to issue administrative exemptions
under the Code Section 4975(c)(2) to the Secretary of Labor.
Accordingly, the Department grants this exemption under its sole
authority.
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Based on the record and representations of the Applicants, the
Department has determined to grant the Proposed Exemption with the
modifications discussed below. This exemption provides only the relief
specified herein and does not provide relief from violations of any law
other
[[Page 56410]]
than the prohibited transaction provisions of ERISA.
As discussed below, the Department makes the requisite findings
under ERISA Section 408(a) based on the Applicants' adherence to all
the conditions of the exemption. Accordingly, affected parties should
be aware that the conditions incorporated in this exemption are, taken
individually and as a whole, necessary for the Department to grant the
relief requested by the Applicants. Absent these conditions, the
Department would not have granted this exemption.
Background
AWB HealthChoice Employee Benefits Trust
As described in the proposal, Association of Washington Business
(AWB) members can choose to offer medical, dental, vision, and life
insurance benefits to their eligible employees by participating in a
fully-insured ERISA-covered employee welfare benefit plan (the Plans).
The Plans are funded through multiple industry trusts (Industry Trusts)
that comprise the AWB HealthChoice Employee Benefits Trust. The trustee
for each Industry Trust (the Trustee) is a representative (e.g.,
employee, officer, or director) of an employer participating in the
Plan (Participating Employer) that is in a specific industry
classification.\2\ The Trustees are Plan fiduciaries under ERISA,
responsible for performing a wide range of activities in administering
the Plans, including selecting service providers.
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\2\ The industry classifications are: manufacturing,
professional services, retail/wholesale, hospitality, construction,
agriculture, communications, technology, and transportation.
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Bona Fide Groups or Associations Under the Department's Sub-Regulatory
Guidance
Under ERISA section 3(1), an employee welfare benefit plan must be
established or maintained by an ``employer,'' an ``employee
organization,'' or both.\3\ ERISA section 3(5) defines an ``employer''
as ``. . . any person acting directly as an employer, or indirectly in
the interest of an employer, in relation to an employee benefit plan;
and includes a group or association of employers acting for an employer
in such capacity.'' The Department's guidance in this area is provided
primarily in several advisory opinions it has issued over more than
three decades (the sub-regulatory guidance).\4\ In the sub-regulatory
guidance, the Department expressed its position regarding whether a
particular group or association is a ``bona fide group or association''
that is permitted to sponsor a multiple employer welfare plan on behalf
of its employer members.\5\ In making this determination, the
Department has consistently focused on three criteria: (1) whether the
group or association has business or organizational purposes and
functions unrelated to the provision of benefits (the ``business
purpose'' standard); (2) whether the employers share some commonality
of interest and genuine organizational relationship unrelated to the
provision of benefits (the ``commonality'' standard); and (3) whether
the employers that participate in a benefit program, either directly or
indirectly, exercise control over the program, both in form and
substance (the ``control'' standard).
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\3\ ERISA section 3(1).
\4\ In 2018, the Department issued a rule (29 CFR 2510.3-5),
which broadened the types of groups and associations that may
sponsor a single ERISA-covered group health plan. The rule was
vacated by court order in 2019 (State of New York v. United States
Department of Labor, 363 F.Supp.3d 109, (March 28, 2019)), and the
Department recently proposed to rescind the rule (88 FR 87968 (Dec.
20, 2023)).
\5\ See, e.g., Advisory Opinions Nos. 94-07A (Mar. 14, 1994),
95-01A (Feb. 13, 1995), 96-25 (Oct. 31, 1996), 2001-04A (Mar. 22,
2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A
(Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8.
2019). See also Department of Labor Publication, ``Multiple Employer
Welfare Arrangements Under ERISA, A Guide to Federal and State
Regulation,'' at www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf.
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The Applicants represent that each Industry Trust association is an
``employer'' within the meaning of ERISA section 3(5). The Applicants
further represent that the Arrangement is sponsored by ``one or more
bona fide associations'' as defined in the Department's sub-regulatory
guidance.'' \6\ The Department has relied on these representations to
grant this exemption, and this background discussion does not reflect
factual findings or opinions of the Department regarding whether the
Arrangement is sponsored by ``one or more bona fide associations'' or
any other representations made by the Applicants.
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\6\ The Applicant made these representations in a draft trust
agreement provided to the Department.
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Although this exemption was requested by AWB, Forterra and
ProPoint, the prohibited transaction relief it grants only extends to
the Plan Trustees; the exemption provides no relief for AWB or its
affiliates. AWB, Forterra and ProPoint represent that (i) the Plans are
established or maintained by the Industry Trusts associations that act
indirectly in the interests of the Participating Employers, and (ii)
the Trustees of the Industry Trusts have sole fiduciary authority over
the selection of service providers for the Plans.
Prohibited Transactions
ERISA prohibits fiduciaries with respect to employee welfare
benefit plans from engaging in certain transactions, including
transactions that involve self-dealing, unless an exemption applies.\7\
In this case, the Applicants represent that the Trustees are vested
with fiduciary authority to select service providers for the Plans.
Because of the Plans' close relationship with AWB (e.g., the Plans are
available only to AWB member employers, and AWB affiliates Forterra and
ProPoint have provided services to the Plans since their inception),
the Department is concerned that Forterra's and ProPoint's relationship
with AWB could affect the Trustees' exercise of their best judgment as
fiduciaries with respect to the selection of plan service providers in
the absence of appropriate safeguards.
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\7\ See ERISA section 406.
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The Department has authority under ERISA section 408(a) to grant an
administrative exemption from the prohibited transaction rules
requested by the Applicant only if the Department finds that the
exemption is (i) administratively feasible, (ii) in the interests of
affected plans and of their participants and beneficiaries, and (iii)
protective of the rights of such participants and beneficiaries. As
discussed below, this exemption includes conditions that are designed
to ensure that each Trustee is fully informed of their fiduciary
obligations with respect to the Plan, possesses sole fiduciary
authority over Plan service provider selection and monitoring, and
exercises their authority in accordance with ERISA's fiduciary
standards.
The exemption provides relief from ERISA section 406(b)(1), which
prohibits fiduciary self-dealing. Each Trustee is a fiduciary, subject
to the provisions of ERISA sections 403 and 404. This means that each
Plan's assets must be used for the exclusive purpose of providing
benefits to participants and beneficiaries covered by that Plan and
defraying reasonable expenses of administering the Plan. The Trustees
that are part of the Arrangement are permitted to confer with each
other and collectively enter into service provider agreements or
otherwise act collectively on behalf of all the Plans. However, each
Trustee is a fiduciary with respect to the Plan for which it is a
Trustee. Each Plan must always have a Trustee in order to satisfy the
conditions of the exemption, and that Trustee may not
[[Page 56411]]
permit the assets, management, or operation of any Plan to be used to
benefit participants and beneficiaries of another Plan. The exemption
does not provide relief from ERISA section 406(b)(2), which prohibits
fiduciaries from acting on behalf of a party whose interests are
adverse to the interests of the Plan. This ensures that Trustees may
not act on behalf of anyone with interests adverse to a Plan and its
participants and beneficiaries.
The exemption does not provide relief from ERISA section
406(a)(1)(C), which prohibits fiduciaries from engaging parties in
interest as service providers. That relief is available under the
statutory exemption provided in ERISA section 408(b)(2), and the
Department is not determining whether the conditions of ERISA section
408(b)(2), including reasonable compensation, have been met. To the
extent the Trustees fail to comply with ERISA section 408(b)(2) in
connection with hiring AWB or any of its affiliates as service
providers to the Plans, for example, by paying fees that exceed
reasonable compensation, AWB or its affiliates may be subject to
liability for knowing participation in a prohibited transaction.\8\
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\8\ See Harris Trust & Savings Bank v. Salomon Smith Barney,
Inc., 530 U.S. 238 (2000). The Department notes its longstanding
position that the proposal or grant of a prohibited transaction
exemption is not dispositive of whether a prohibited transaction has
occurred or will occur.
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Written Comments Received
In the proposed exemption, the Department invited all interested
persons to submit written comments and/or requests for a public hearing
with respect to the Proposed Exemption. All comments and requests for a
hearing were due to the Department by August 14, 2023.\9\ The
Department received three written comments that raised several issues.
One of these comments was from the Applicants who raised four technical
issues involving (1) direct fees, (2) related fee increases, (3) AWB
membership and (4) the disclosure required in the Proposed Exemption.
The Department responds to the material issues and the material
information provided in the comments below.\10\
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\9\ The Proposed Exemption established a July 31, 2023, deadline
for the public to submit comments and requests for a hearing.
However, the Department was informed that AWB had to redistribute
the proposed exemption package, including the notice to interested
parties, due to an incomplete first distribution. Therefore, in a
Federal Register notice published on July 17, 2023 (88 FR 45448),
the Department extended the proposed exemption's comment period
until August 14, 2023, to provide additional time for interested
parties to prepare and submit their comments.
\10\ All information submitted by the Applicant to the
Department in connection with this exemption is available through
the Department's Public Disclosure Room, by referencing L-11989.
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In granting this exemption, the Department has relied on the
representations of the Applicants. If any material statement in the
Application, final exemption or the Applicant's comment is not, or may
no longer be, completely and factually accurate, the Applicants and
recipients of the exemptive relief provided herein must immediately
alert the Department.\11\
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\11\ The Representations stated herein are based on AWB's
representations provided in its exemption application and do not
reflect factual findings or opinions of the Department unless
indicated otherwise. The Department notes that the availability of
this exemption is subject to the express condition that the material
facts and representations contained in application L-11989 are true
and complete at all times, and accurately describe all material
terms of the transactions covered by the exemption. If there is any
material change in a transaction covered by the exemption, or in a
material fact or representation described in the application, the
exemption will cease to apply as of the date of the change.
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Comment From the Applicant
Comment 1: Direct Fees
Section III(c)(1) of the proposed exemption would have required the
Trustee to approve, in writing, all fees or other compensation paid to
AWB-Affiliated Service Providers for services to the Plan, after
determining that the fees and other compensation are direct payments
from the Plan. Similarly, Section IV(b)(1) would have required a
Trustee to contractually prohibit the AWB-Affiliated Service Provider
from receiving any fees other than those paid directly by the Plan as
of the first day of the first plan year after the Grant Date.
According to the Applicant, fees paid to Forterra and ProPoint no
longer are paid out of trust assets. The Applicants explained in their
comment that, effective April 1, 2021, Vimly, a service provider that
is unaffiliated with AWB, collects contributions remitted by
Participating Employers, retains a portion of the collected amount as
its fee, remits fees payable to Forterra and ProPoint directly to those
entities, and remits the balance to the trust.
After considering this comment, the Department is revising Sections
III(c)(1) and IV(b)(1) to provide that fees and other compensation must
be direct payments from, or on behalf of, the Plan. Adding ``on behalf
of'' confirms that the exemption is available for funds paid by Vimly
directly to Forterra and ProPoint from contributions remitted by
Participating Employers, even if they are not contributed to the trust.
Comment 2: Related Fee Increases
The Applicants expressed concern with Section IV(b)(2) of the
Proposed Exemption. This provision requires fees provided to service
providers, other than any insurance broker of record that is not
affiliated with AWB, to be established independently of other service
provider fees, so that an increase in one fee does not directly or
indirectly, cause an increased fee payment to another service provider.
The Applicants requested that the Department eliminate this requirement
in its entirety. Alternatively, Applicants requested that the
Department revise the requirement to provide that when one service
provider's fees increase, the fees paid to other service providers,
other than insurance brokers of record that are not affiliated with
AWB, would be contractually adjusted unless the Trustees determine, in
accordance with the other conditions of the Proposed Exemption that (a)
the resulting increase to the other service providers' fees does not
cause those fees to exceed reasonable compensation within the meaning
of ERISA Section 408(b)(2) and (b) such resulting fee increase is
prudent and in the best interests of Plan participants. However, if the
Department retains Section IV(b)(2) as proposed, the Applicants
requested that the Department delay the effective date of the
requirement until the second plan year after the Grant Date.\12\
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\12\ The Applicants requested this delay because the cost of
coverage has already been determined for the first plan year after
the Grant Date and is in the process of being communicated to
Participating Employers.
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After considering the Applicants' comment, the Department has
decided to finalize Section IV(b)(2) as proposed. The exemption as a
whole requires the Trustees to closely monitor all fees paid to AWB-
affiliated service providers. For example, Section III(c) requires the
Trustees to closely monitor all fees paid to AWB-Affiliated Service
Providers by ensuring that that fees and other compensation paid to
them does not exceed reasonable compensation for services that are
necessary and actually rendered to the Plan, and Section IV(b)(1)(A)
prohibited rates from increasing during the contract period. The
Department's position is that allowing automatic increases to all
service providers' fees is contrary to Trustee's responsibility.
The Department notes there are multiple ways that Applicants may
satisfy Section IV(b)(2). For example, the Applicants' current method
of
[[Page 56412]]
calculating service provider compensation based on rates that are
determined by Premera using a generally-recognized industry method
would not necessarily violate this condition.
As requested by the Applicants, the Department is extending the
effective date of the condition. Therefore, while most of Section IV
becomes applicable as of the first day of the first plan year after the
Grant Date, Section IV(b)(2) will not become effective until the first
day of the second plan year after the Grant Date. This will ensure that
all parties have sufficient time to negotiate fees paid to service
providers.
Comment 3: AWB Membership
As proposed, the definition of ``AWB-Affiliated Service Provider''
was AWB, Forterra, Inc., ProPoint, LLC, or any other entity providing
services to the Plan that is an Affiliate. Section IV(b)(1)(B) of the
proposal would have required the Trustees to contractually prohibit the
AWB-Affiliated Service Providers from receiving any fees other than
those paid directly by the Plan. Applicants expressed concern that,
because membership in AWB is a prerequisite for participating in the
Plan and requires the Participating Employers to pay a membership fee,
proposed Section IV(b)(1)(B) could have been interpreted as prohibiting
AWB from receiving its routine membership fees. To address this
ambiguity, the Applicants requested that the Department clarify that
the definition of AWB-Affiliated Service Provider only includes AWB
only to the extent AWB provides services to the Plan. Rather than
change the definition of AWB-Affiliated Service Provider, which could
affect other exemption conditions, the Department is revising Section
IV(b)(1)(B) to add ``Notwithstanding the foregoing, AWB may receive a
membership fee from Participating Employers.''
Comment 4: Disclosure
Section III(d)(2)(B) of the Proposed Exemption would have required
the AWB-Affiliated Service Providers to disclose to the Trustee a
description of all compensation, both in the aggregate and by service,
the AWB-Affiliated Service Providers and any subcontractor reasonably
expect to receive from the Plan.\13\
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\13\ In the proposal, the Department noted ``[t]his is broader
than the statutory language in ERISA section 408(b)(2)(B)(iii)(III),
which requires a description of all direct compensation `either in
the aggregate or by service.' '' However, the requirements of this
condition are specific to this Arrangement and this exemption. The
Department is not providing guidance on the statutory language.
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The Applicants request that the Department provide further
clarification and guidance regarding the requirement to describe
compensation ``by service,'' and regarding whether any specific
services listed in the disclosure would require a separate allocation
of fees. Alternatively, the Applicants request that the Department
provide guidance that allows specific services to be broken down into
categories for which separate fees would be expressed by category.
The disclosure of all services and fees by the AWB-Affiliated
Service Providers to the Trustees and the Participating Employers is
paramount to the Department making its statutory findings under ERISA
section 408(a) that are required for it to provide the exemptive relief
provided in this final exemption. The Department's position is that
providing aggregate and detailed fee information disclosing the
services provided is crucial for the Trustees and the Participating
Employers to meet their obligations under the Exemption, including the
determination that the fees and other compensation do not exceed
reasonable compensation within the meaning of ERISA section
408(b)(2).\14\ The Department, however, acknowledges the exact fees for
certain specific services may not be known at the time of the
disclosure and the condition requires disclosure of fees that ``AWB-
Affiliated Service Providers and any subcontractor reasonably expect to
receive from the Plan.'' The Department expects that when the AWB-
Affiliated Service Provider or any subcontractor reasonably expects
specific fees for specific services, those fees must be disclosed. At
the same time, AWB-Affiliated Service Providers must disclose all
specific services associated with the aggregate fees.
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\14\ In granting this exemption, the Department is taking no
position on whether the fees described in Applicant's comment are
reasonable. That determination must be made by the Trustee based on
all facts and circumstances.
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Comments From the General Public
Comment on ERISA Section 514
The Department received one comment that expressed the commenter's
opinion that it was ``legally impermissible'' for the Department ``to
grant an exemption from the prohibited transaction restrictions to the
Association of Washington Business HealthChoice Employee Benefits
Trust'' because ERISA Sections 514(b)(6)(A) and (B) preclude the
Department from granting any exemption to a fully insured Multiple
Employer Employee Welfare Arrangement (MEWA).
The Department disagrees with the commenter's interpretation of
ERISA section 514(b)(6). In general, ERISA's broad preemption of state
laws contained in ERISA section 514(a) provides that ERISA's Titles I
and IV supersede any state laws that relate to any ERISA-covered
employee benefit plan except as provided in ERISA section 514(b). In
1983, Congress amended ERISA to add section 514(b)(6). One of the main
purposes for this amendment was to protect employee benefit plan
participants and beneficiaries by facilitating state regulation of
MEWAs.\15\ To that end, ERISA section 514(b)(6) modified the scope of
ERISA's preemption of state insurance laws as they apply to employee
welfare benefit plans that also are MEWAs.
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\15\ DOL Advisory Opinion 2011-01A.
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Specifically, if an employee welfare benefit plan that is also a
MEWA is not fully insured, then ERISA section 514(b)(6)(A)(ii) provides
that any state law that regulates insurance may apply to the MEWA to
the extent state law is not inconsistent with ERISA. If, on the other
hand, an employee welfare benefit plan that also is a MEWA is fully
insured, ERISA section 514(b)(6)(A)(i) provides that only those state
laws that regulate the maintenance of specified contribution and
reserve levels may apply to the MEWA.\16\
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\16\ ERISA section 514(b)(6)(D) provides, in turn, that a MEWA
will be considered fully insured for purposes of ERISA section
514(b)(6) only if the terms of the arrangement provide for benefits
the amount of all of which the Secretary determines are guaranteed
under a contract, or policy of insurance, issued by an insurance
company, insurance service, or insurance organization, ``qualified
to conduct business in a State.''
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The commenter seems to misunderstand several aspects of ERISA
section 514(b)(6). Contrary to the commenter's assertion that ``ERISA
Section 514(b)(6) provides specific criteria that must be met before
ERISA title I provisions can be applied'' to a MEWA, section 514(b)(6)
prescribes circumstances when state laws that otherwise would be
preempted by ERISA section 514(a) can be applied to MEWAs that are
employee welfare benefit plans in addition to ERISA Title I, which
governs the operation of these plans. In other words, section 514(b)(6)
permits state insurance laws to apply rather than automatically being
preempted by ERISA, but it does not eliminate the applicability of
Title I enforcement provisions to MEWAs. In fact, section 514(b)(6)
only is relevant
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for plans that are covered by title I of ERISA, because it provides an
exception to ERISA's preemption of all State laws that apply to
``employee benefit plans'' described in ERISA section 4(a) that are not
exempt by ERISA section 4(b).
Furthermore, the commenter asserts that ``the Department is barred
from issuing any exemptions that mandate that Title I of ERISA is
applicable to a fully insured MEWA.'' To support its assertion, the
commenter relies on the language in ERISA section 514(b)(6)(B) which
states: ``The Secretary may, under regulations which may be prescribed
by the Secretary, exempt from subparagraph (A)(ii), individually or by
class, multiple employer welfare arrangements which are not fully
insured.'' (emphasis in the comment). However, the commenter fails to
realize that this provision is completely irrelevant to this exemption
because this exemption provides relief from ERISA section 406, not
ERISA section 514(b)(6)(A)(ii).
Based upon the Applicants' representation that the Arrangement is a
bona fide association as defined in the Department's sub-regulatory
guidance, and is a Plan MEWA that provides fully-insured welfare
benefits subject to ERISA (including the prohibited transaction
provisions in ERISA section 406), the Department has authority to grant
this exemption.
Comment on ERISA Section 408(a)
Another commenter claimed that the proposed exemption violates
ERISA section 408(a) due to the Department's failure to ``demonstrate
to the public that it properly determined that the specific `rights of
participants' of a plan that is subject to ERISA Title I are being
protected.''
The Department fully understands and takes very seriously its
responsibility to adhere to the mandate in ERISA section 408 that
requires the Department to find that the exemption is (1)
administratively feasible, (2) in the interests of affected plans and
of their participants and beneficiaries, and (3) protective of the
rights of participants and beneficiaries of such plans before granting
this exemption. The Department made its preliminary statutory findings
in the Proposed Exemption and confirms such findings in this Notice of
Granted Exemption based on its review of the entire record and the
requirement that the Applicants fully comply with the exemption
conditions at all times. The record and the Department's findings are
based in part on representations made by the Applicants, one
representation of which is that the Arrangement is a bona fide
association as defined in the Department's sub-regulatory guidance and
a Plan MEWA that provides fully-insured welfare benefits subject to
ERISA. As stated in the Proposed Exemption and this Notice of Granted
Exemption, the availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transaction
that are the subject of the exemption and the fact that a transaction
is subject to an administrative or statutory exemption is not
dispositive of determining whether the transaction is in fact a
prohibited transaction. If any representation made by the Applicants is
not accurate or there are any material changes to those representations
the exemptive relief provided in this exemption would not be valid.
Comment From the Department
This final amendment makes minor ministerial changes, such as
spelling out numbers and moving clauses within a sentence.
The complete application file (L-11989) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210. For a more complete
statement of the facts and representations supporting the Department's
decision to grant this exemption, please refer to the notice of
proposed exemption published on June 14, 2023, at 88 FR 38896.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA section 408(a) does not relieve a fiduciary or other party
in interest from certain requirements of other ERISA provisions,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
ERISA Section 404, which, among other things, require a fiduciary to
discharge their duties respecting the plan solely in the interest of
the plan's participants and beneficiaries and in a prudent fashion in
accordance with ERISA section 404(a)(1)(B).
(2) As required by ERISA section 408(a), the Department hereby
finds that the exemption is (1) administratively feasible, (2) in the
interests of affected plans and of their participants and
beneficiaries, and (3) protective of the rights of participants and
beneficiaries of such plans;
(3) The exemption is supplemental to, and not in derogation of, any
other ERISA provisions, including statutory or administrative
exemptions and transitional rules. Furthermore, the fact that a
transaction is subject to an administrative or statutory exemption is
not dispositive of determining whether the transaction is in fact a
prohibited transaction; and
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transaction
that are the subject of the exemption.
Accordingly, the following exemption is granted under the authority
of ERISA Section 408(a) and in accordance with the procedures set forth
in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011):
Exemption
Section I. Definitions
(a) ``AWB'' means the Association of Washington Business.
(b) ``AWB-Affiliated Service Provider'' means AWB, Forterra, Inc.,
ProPoint, LLC, or any other entity providing services to the Plan that
is an Affiliate.
(c) An ``Affiliate'' is a person that is:
(1) Controlling, controlled by, or under common control with AWB;
(2) An officer, director, partner, or employee of AWB; or
(3) A corporation or partnership of which AWB is an officer,
director, partner, or employee.
For purposes of this definition, ``control'' means the power,
direct or indirect, to exercise a controlling influence over the
management or policies of a person other than an individual;
(d) The ``Grant Date'' is the date the final exemption is published
in the Federal Register.
(e) ``Participating Employer'' means any of the member employers of
AWB who provides medical, dental, vision, and life insurance benefits
to their employees through the Plan.
(f) ``Plan'' means any plan that is funded by the AWB HealthChoice
Employee Benefits Trust, including through an Industry Trust.
(g) A ``Trustee'' is a person elected in accordance with Section
III(a)(3).
Section II. Covered Transactions
The exemption provides relief to the Trustees for their selection
of an AWB-Affiliated Service Provider to provide services to the Plans
for a fee, if the
[[Page 56414]]
conditions of Sections III and IV are met, subject to the definitional
terms in Section I. The exemption would provide relief only from the
restrictions of ERISA section 406(b)(1).
Section III. General Conditions
The following conditions apply for each Plan as of the Grant Date,
as defined in Section I(d).
(a) Plan Structure
(1) The Plan is a fully-insured employee welfare benefit plan.
(2) The Plan is established or maintained by an employer within the
meaning of ERISA section 3(5).
(3) The Trustee with respect to the Plan is:
(A) A trustee, employee, officer, director, or owner of a
Participating Employer in the industry classification associated with
the Plan;
(B) Nominated by a Participating Employer in the industry
classification associated with the Plan and elected by a majority vote
of Participating Employers in the industry classification;
(C) Independent of AWB and its Affiliate, which means the Trustee
(1) is not an Affiliate of AWB or a trustee, employee, officer,
director, member or agent of any Affiliate of AWB, and (2) does not
have a relationship with or an interest in AWB or any of its Affiliates
that might affect the exercise of the person's best judgment in
connection with transactions described in Section II of this exemption;
and
(D) Not an employee, officer, director, member or agent of a
Participating Employer that is also a service provider to any Plan.
(4) The Participating Employers in each industry classification
have the sole authority to:
(A) Remove the Trustee with respect to the Plan associated with
that industry classification, with or without cause, by majority vote;
and
(B) Dissolve or amend the Plan associated with that industry
classification by majority vote.
(5) Each person who is nominated to serve as a Trustee to the Plan
undergoes fiduciary training before their decision to serve as a
Trustee, if elected, and annually thereafter. The fiduciary training is
provided by a professional who has appropriate technical training and
proficiency with ERISA and who has been prudently selected by the board
of Trustees and covers, at a minimum, ERISA compliance, fiduciary
duties, the conditions of the exemption, and the consequences of
failing to comply with the conditions (including any loss of exemptive
relief provided herein). Existing Trustees as of the Grant Date must
receive this training within three (3) months of the Grant Date.
(6) Neither the Plan nor any Participating Employer indemnifies AWB
or its Affiliates for any reason.
(7) Legal counsel for the Plan does not also represent AWB or any
Affiliate.
(b) Selection of Service Providers
(1) The Trustee has and exercises sole fiduciary authority to
select service providers for the Plan. The Trustee exercises their
fiduciary authority in accordance with ERISA section 404 to prudently
and loyally select service providers and document the selection process
and considerations, including whether an AWB-Affiliated Service
Provider and its personnel have the qualifications and capability to
perform such services; whether the fees to be charged reflect arm's-
length terms; and whether the arrangements are reasonable, compared
with similarly qualified service providers. The documentation must
provide sufficient context and detail and be written in a manner to
ensure that any party authorized to review the records under Section
III(e) can understand the reasoning for the selection.
(2) Before entering into or renewing any services contracts with an
AWB-Affiliated Service Provider on behalf of the Plan, the Trustee
determines that the services are necessary to the operation of the Plan
and documents the reasons for the determination.
(3) Contracts (including renewals) between the Plan and an AWB-
Affiliated Service Provider:
(A) Are limited to no more than three years' duration; and
(B) Allow the Trustee to terminate the contract any time without
penalty to the Plan by providing thirty (30) days' written notice.
(4) The AWB-Affiliated Service Provider may be compensated by the
Plan for its services as an insurance broker of record to a
Participating Employer only if:
(A) The Trustee selects the AWB-Affiliated Service Provider in
accordance with Section III(b)(2);
(B) The Trustee obtains the Participating Employer's written
certification that it has received a disclosure from the Trustee that
includes descriptions of:
(i) the nature of the affiliation (as described in Section I(c))
between the AWB-Affiliated Service Provider and AWB;
(ii) the services that will be provided by the AWB-Affiliated
Service Provider; and
(iii) the amount of fees that the AWB-Affiliated Service Provider
will receive, provided that if the fee is disclosed as a percentage of
another amount, it is accompanied by an example of the calculation
expressed in dollars; and
(C) The Trustee ensures the Plan pays the AWB-Affiliated Service
Provider for its services as broker of record no more than the lowest
commission paid to an unaffiliated broker of record.
(5) The Trustee monitors the AWB-Affiliated Service Provider's
performance of services and compliance with the applicable conditions
of this exemption prudently and loyally in accordance with ERISA
section 404.
(c) Fees
The Trustee approves, in writing, all fees or other compensation
paid to AWB-Affiliated Service Providers for services to the Plan,
after determining that the fees and other compensation:
(1) are direct payments from, or on behalf of, the Plan;
(2) are for services that are necessary and actually rendered to
the Plan; and
(3) do not exceed reasonable compensation within the meaning of
ERISA section 408(b)(2).
(d) Disclosure
(1) The Trustee distributes the following disclosures to
Participating Employers at initial enrollment and at each annual
renewal thereafter:
(A) A description of the relationship between AWB and any other
AWB-Affiliated Service Provider that the Trustee has selected;
(B) A statement that that the Trustee is a fiduciary with respect
to the Plan and that before entering into or renewing any services
contracts with an AWB-Affiliated Service Provider on behalf of the
Plan, the Trustee exercised their fiduciary authority in accordance
with ERISA section 404 to prudently and loyally select service
providers; and
(C) A statement that the Participating Employers, directly or
indirectly through the Trustees, have control over the Plan, including
the authority and control to select alternative service providers to
AWB or AWB-Affiliated Service Providers.
(2) The Trustee receives the following disclosure from the AWB-
Affiliated Service Providers, and reviews, approves and distributes the
disclosures to Participating Employers at initial enrollment and at
each annual renewal thereafter:
(A) A description of the services that are to be provided by any
AWB-Affiliated Service Provider to the Plan;
(B) A description of all compensation, both in the aggregate and by
service, the AWB-Affiliated Service Providers and any subcontractor
reasonably expect to receive from the Plan;
[[Page 56415]]
(C) A description of any compensation that will be paid among the
AWB-Affiliated Service Providers or a subcontractor, if such
compensation is set on a transaction basis (such as commissions,
finder's fees, or other similar incentive compensation based on
business placed or retained). The AWB-Affiliated Service Provider must
identify the services for which such compensation will be paid and
identify the payers and recipients of such compensation (including the
status of a payer or recipient as an Affiliate or a subcontractor)
regardless of whether such compensation also is disclosed pursuant to
paragraph (E) or (F), below;
(D) A description of any compensation that the AWB-Affiliated
Service Provider, an affiliate, or a subcontractor reasonably expects
to receive in connection with termination of the contract or
arrangement, and how any prepaid amounts will be calculated and
refunded upon such termination; and
(E) a description of the manner in which the compensation described
in clause (B) through (D), as applicable, will be received.
(e) Recordkeeping
(1) The Trustee maintains for a period of six (6) years, in a
manner that is reasonably accessible for examination, the records
necessary to enable the persons described in paragraph (2) below to
determine whether the conditions of this exemption have been met,
except that:
(A) If such records are lost or destroyed due to circumstances
beyond the control of the Trustee, then no prohibited transaction will
be considered to have occurred solely on the basis of the
unavailability of those records; and
(B) No party in interest other than the Trustee will be subject to
the civil penalty that may be assessed under ERISA section 502(i) if
the records are not maintained or are not available for examination as
required below:
(2)(A) Except as provided in paragraph (B) below, and
notwithstanding any provisions of ERISA section 504(a)(2) and (b), the
records referred to in Section III(d)(1) are reasonably available at
their customary location for examination during normal business hours
by:
(i) Any authorized employee or representative of the Department;
(ii) Any Participating Employer or fiduciary of a Plan, or any
authorized employee or representative of these entities; or
(iii) Any individual participant or beneficiary of a Plan or any
authorized representative of the participant or, beneficiary; and
(B) None of the persons described in paragraph (e)(2)(A)(ii) or
(iii) of this Section above are authorized to examine records that are
confidential, privileged trade secrets, or privileged commercial or
financial information.
(C) If the Trustee refuses to disclose information on the basis
that the information is exempt from disclosure under subsection (B),
the Trustee must provide a written notice advising the requestor of the
reasons for the refusal and that the Department may request such
information by the close of the thirtieth (30th) day following the
request.
(3) The Trustee must provide sufficient information necessary to
demonstrate that the exemption conditions have been met over the prior
six-year period. The Trustee must maintain and retain such records in a
manner that ensures it would be able to provide the information to the
Department within 30 calendar days of a request.
(f) Material Facts and Representations
All the material facts and representations provided by the
Applicants are true and accurate at all times.
Section IV. Phase-In Conditions
Except as otherwise noted in section IV(b)(2), the following
additional conditions apply as of the first day of the first plan year
after the Grant Date.
(a) Plan Documents and Contracts
(1) Plan documents and disclosures:
(A) accurately describe the role and fiduciary status of the
Trustee;
(B) do not include any disclaimers of fiduciary status for any
party, including AWB and any Affiliate; and
(C) do not indicate, in any way, including on a website, that AWB
or its Affiliates are the sponsor of the Plan.
(2) The insurance contract is held in the name of the Plan.
(3) AWB-Affiliated Service Providers contractually agree that all
information they provide to the Trustee, Participating Employers and
prospective Participating Employers regarding their services to the
Plan and related fees is materially accurate at the time it is
provided.
(b) Fees
(1) Before entering into any contract for services with an AWB-
Affiliated Service Provider on behalf of the Plan, the Trustee:
(A) Negotiates the rate of fees to be paid for services to the Plan
and ensures that the rate does not increase during the contract period;
and
(B) Contractually prohibits the AWB-Affiliated Service Provider
from receiving any fees other than those paid directly by, or on behalf
of, the Plan. Notwithstanding the foregoing, AWB may receive a
membership fee from directly Participating Employers. The membership
fee may be a prerequisite for participation in the Plan, but the
membership fee may not be compensation for any services provided to the
Plan.
(2) As of the first day of the second plan year after the Grant
Date, fees for service providers, other than any insurance broker of
record that is not Affiliated with AWB, are established independently
of other service provider fees, so that an increase in one fee does not
cause, directly or indirectly, an increased payment to another service
provider. For purposes of this condition, a service provider fee does
not include an insurance premium (i.e., fees may be calculated as
percentages of premiums paid to the insurance company).
(3) Fees collected from Participating Employers and Plan
participants are based on actual, rather than estimated, amounts due to
service providers.
(c) Disclosure
(1) The disclosure described in Section III(d)(1) includes the
following additional information:
(A) A description of any compensation that the AWB-Affiliated
Service Provider, or any subcontractor, reasonably expects to receive
in connection with termination of a contract or arrangement with the
Plan and how any prepaid amounts will be calculated and refunded upon
such termination; and
(B) A description of the methodology by which AWB-Affiliated
Service Provider fees are calculated, including examples with dollar
amounts.
(2) The Plan documents require the AWB-Affiliated Service Provider
to furnish, upon written request, any information the Trustee
reasonably requests, within 30 days after the request unless the
disclosure cannot be provided due to extraordinary circumstances beyond
the control of the AWB-Affiliated Service Provider, in which case the
information must be provided as soon as reasonably practicable and the
AWB-Affiliated Service Provider must provide the Trustee with a notice
explaining why they cannot meet the 30-day deadline.
[[Page 56416]]
(d) Monthly Billing Statements
The Trustees provide to Participating Employers a monthly billing
statement that includes:
(1) The following statement: ``The amounts you pay each month for
health insurance coverage include fees for administrative services,
including fees paid to service providers affiliated with the
Association of Washington Business (AWB). A description of the services
provided by each AWB affiliate is provided to you at the time of your
initial enrollment and at each annual renewal. You can also contact
[NAME, phone number, email address] for additional copies.''
(2) A chart accurately listing all service providers and the fee
percentages or other amounts they receive. If any administrative
services fees are expressed as a percentage of the insurance premium,
the disclosure must also include an example showing how fees would be
calculated based on a $1,000 insurance premium; and
(3) A point of contact, including a phone number and email address,
for copies of disclosures or for additional information.
Exemption date: The exemption will be in effect as of the date of
publication of the final exemption in the Federal Register.
Signed at Washington, DC, this 2nd day of July 2024.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2024-14959 Filed 7-8-24; 8:45 am]
BILLING CODE 4510-29-P