Exemption Application No. L-11954; Exemption From Certain Prohibited Transaction Restrictions Involving the Fedeli Group, Inc. Employee Benefits Plan Located in Cleveland, OH, 93353-93356 [2024-27630]
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Federal Register / Vol. 89, No. 228 / Tuesday, November 26, 2024 / Notices
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Prohibited Transaction Exemption 2024–
04]
Exemption Application No. L–11954;
Exemption From Certain Prohibited
Transaction Restrictions Involving the
Fedeli Group, Inc. Employee Benefits
Plan Located in Cleveland, OH
Employee Benefits Security
Administration, Labor.
ACTION: Notice of exemption.
AGENCY:
This document contains a
notice of exemption from certain
prohibited transaction restrictions of the
Employee Retirement Income Security
Act of 1974 (ERISA) issued by the
Department of Labor (the Department) to
the Fedeli Group Employee Benefits
Plan.
SUMMARY:
Exemption date: This exemption
will be in effect on November 26, 2024.
FOR FURTHER INFORMATION CONTACT: Mrs.
Blessed Chuksorji-Keefe of the
Department at (202) 693–8567. (This is
not a toll-free number.)
SUPPLEMENTARY INFORMATION: On
November 6, 2023, the Department
published a notice of proposed
exemption in the Federal Register at 88
FR 76253. The proposed exemption
involved the reinsurance of risks and
the receipt of premiums by Risk
Specialists Insurance Company, Inc.
(Risk Specialists) in connection with
insurance contracts sold by THP
Insurance Company, Inc. (THP) or
THP’s successor to provide medical and
hospital coverage to participants in the
Fedeli Group Inc. Employee Benefits
Plan (the Benefit Plan or the Applicant).
THP, is unrelated to the Fedeli Group,
Inc. and any entities related to Fedeli.
(collectively, Fedeli Group). The
Applicant requested an individual
exemption pursuant to ERISA section
408(a) in accordance with the
Department’s exemption procedures set
forth in 29 CFR part 2570, subpart B.1
Based on the record, the Department
has determined to grant the proposed
exemption. This exemption provides
only the relief specified herein. It
provides no relief from violations of any
law other than the prohibited
transaction provisions of ERISA, as
expressly stated herein.
The Department makes the requisite
findings under ERISA Section 408(a)
based on the Applicant’s adherence to
all the conditions of the exemption.
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DATES:
1 76
FR 66637, 66644, (October 27, 2011).
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Accordingly, affected parties should be
aware that the conditions incorporated
in this exemption, considered
individually and as a whole, are
necessary for the Department to grant
the relief requested by the Applicant.
Absent these or similar conditions, the
Department would not have granted this
exemption.
Background
1. As discussed in greater detail below
and in the notice of proposed
exemption, Fedeli Group seeks to use its
captive insurance company, Risk
Specialists, to reinsure participants’
benefit claims under the Benefit Plan.
Parties to the Transaction
2. Fedeli Group: Fedeli Group is a
corporation based in Cleveland, Ohio
that provides insurance products and
risk management services. The Fedeli
Group is 51 percent owned by The
Umberto P. Fedeli Restated Revocable
Trust (dated July 16, 2016) 19 percent
owned by the Umberto P. Fedeli 2012
Discretionary Trust (dated November
28, 2012) and 20% owned by the
Umberto P. Fedeli 2009 Discretionary
Trust (dated December 23, 2009). The
Fedeli Group sponsors and administers
the Benefit Plan.
3. Risk Specialists: Risk Specialists is
a property and casualty captive
insurance company that is licensed and
operates under applicable Tennessee
law. Risk Specialists is 100 percent
owned by Risk Specialists Captive
Holdings, LLC, a limited liability
company formed in Ohio on the same
date as Risk Specialists. Risk Specialists
Captive Holdings, LLC is 51 percent
owned by the Fedeli Revocable Trust,
29% owned by the Fedeli 2012 Trust,
and 20 percent owned by the Fedeli
2009 Trust. Risk Specialists serves as
the reinsurer with respect to 13 different
lines of insurance coverages provided to
Fedeli Group and unrelated third
parties.
4. THP. THP Insurance Company, Inc.
is a domestic stock insurance company
domiciled in West Virginia and licensed
in both Ohio and West Virginia. THP is
unrelated to all Fedeli Group-related
entities and is currently rated ‘‘A+’’ by
A.M. Best Company.
5. The Benefit Plan. The Benefit Plan
is a self-funded employee welfare
benefit plan covering medical and
hospital expenses for eligible Fedeli
Group employees that is sponsored and
administered by the Fedeli Group.
The Transaction
6. Fedeli Group plans to use its
captive insurance company, Risk
Specialists, to reinsure the Benefit
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93353
Plan’s claims. The Plan will enter into
a Master Group Policy with THP,
pursuant to which THP will provide
group health insurance coverage to
eligible participants under the Benefit
Plan. THP will enter into a reinsurance
agreement (the Reinsurance Agreement)
with Risk Specialists. Under this
arrangement, Risk Specialists will be
responsible for the Benefit Plan’s
insurance claims under the Master
Group Policy with THP, and Risk
Specialists will indirectly receive the
Benefit Plan’s premium payments to
THP. The Reinsurance Agreement
between THP and Risk Specialists will
be ‘‘indemnity only,’’ which means that
THP will be responsible for Benefit Plan
claims under the Master Group Policy to
the extent Risk Specialists does not
satisfy those claims under the
Reinsurance Agreement.
7. As described in the notice of
proposed exemption, the Applicant
represents that the only benefits Fedeli
Group expects to receive from the
proposed Captive Approach relative to
the Plan’s current self-funding
arrangement are the incidental benefits
that would result from more
predictability and better control over its
benefit funding obligations. The
proposed exemption describes that the
Captive Approach will result in reduced
overall plan costs because benefit
expenses will be paid based on actual
experience, as opposed to a third-party
insurance carrier (the Third-Party
Approach) requiring a fixed payment at
a premium charged by an insurance
carrier where the premium amount does
not change regardless of the amount of
claims that are incurred.
ERISA Analysis
8. The reinsurance arrangement
would violate certain prohibited
transaction provisions of ERISA for the
following reasons:
• Fedeli Group is a party in interest
with respect to the Benefit Plan
pursuant to ERISA section 3(14)(C),
because it is an employer whose
employees are covered by the Benefit
Plan;
• The Trusts are parties in interest
with respect to the Benefit Plan under
ERISA section 3(14)(E) because they
collectively own 100% of Fedeli Group,
the Benefit Plan sponsor.
• Risk Specialists, the captive
reinsurer, is a party in interest with
respect to the Benefit Plan under ERISA
section 3(14)(G) because it is 100%
owned by the Trusts.
9. ERISA section 406(a) prohibits a
wide range of transactions between
plans and parties in interest with
respect to those plans. As relevant here,
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ERISA section 406(a)(l)(D) prohibits a
plan fiduciary from engaging in a
transaction if the fiduciary knows or
should know the transaction constitutes
a direct or indirect transfer of any plan
assets for the use or benefit of a party
in interest. The reinsurance arrangement
would result in an indirect transfer of
Benefit Plan premium payments to Risk
Specialists, which is a party in interest
with respect to the Benefit Plan.
10. ERISA section 406(b)(1) of ERISA
prohibits a fiduciary from dealing with
plan assets for the fiduciary’s own
interest or own account. The fiduciaries
of the Benefit Plan would violate ERISA
section 406(b)(1) by causing the Benefit
Plan to pay premiums to THP, with the
knowledge that the premiums will
ultimately be directed to Risk
Specialists, the captive reinsurer.
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Merits of the Transaction
11. As described in further detail in
the notice of proposed exemption, a
qualified, independent fiduciary has
concluded that the reinsurance
arrangement will reduce each Benefit
Plan participant’s share of the Benefit
Plan premium paid to THP by at least
$2,023.20 per participant per year for
the duration of the exemption relative to
the contribution the participant would
otherwise have made under a
noncaptive arrangement with a
competitive third party insurer
receiving no more than reasonable
compensation within the meaning of
ERISA section 408(b)(2). Historically,
Benefit Plan participants contributed
approximately 25% towards the cost of
the Benefit Plan. Under this exemption,
all the savings from the reinsurance
arrangement will be used to reduce
Benefit Plan participants’ share of the
Benefit Plan’s premiums, and Benefit
Plan participants will contribute no
more than 17.38% of the Benefit Plan’s
costs throughout the duration of the
exemption.
12. Therefore, this exemption requires
the Fedeli Group to use any of the
savings it derives from the captive
reinsurance arrangement to reduce the
amount each Benefit Plan participant is
required to contribute toward the
premiums the Benefit Plan pays to THP
or another fronting insurer. If any Fedeli
Group-related entity receives a direct or
indirect profit, tax benefit, investment
gain or other remunerative benefit
through the reinsurance arrangement,
the Fedeli Group must further enhance
the Benefit Plan in an amount greater
than the $2,023.20 per participant per
year contribution reduction in a manner
consistent with the terms and
conditions of this exemption.
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13. On an on-going basis, the
independent fiduciary is required to
review all relevant financial information
of Risk Specialists and any other Fedelirelated entity as is necessary to ensure
that this and the other terms and
conditions described in this proposal
are met and to annually certify in a
written report submitted to the
Department that all requirements of the
proposed exemption have been met.
Furthermore, as described in the notice
of proposed exemption, this exemption
requires a number of protective
conditions designed to ensure that the
rights of the Plan and its participants
and beneficiaries are protected.
Comments Received Regarding
Proposed Exemption
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
by December 21, 2023. The Department
did not receive any written comments or
requests for a public hearing.2
Therefore, on basis of the entirety of
the public record for this exemption
application and the conditions for relief
included below, the Department finds
that the exemption is administratively
feasible for the Department, in the
interests of the Benefit Plan and its
participants and beneficiaries, and
protective of the rights of the Benefit
Plan’s participants and beneficiaries.
The complete application file (L–
11954) 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
November 6, 2023, at 88 FR 76253.
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,
2 The Department notes that it did not make any
changes to the operative text of the proposed
exemption in this final grant notice except for
minor editorial revisions.
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among other things, require a fiduciary
to discharge his or her 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: (a) administratively
feasible for the Department; (b) in the
interests of affected plans and of their
participants and beneficiaries; and (c)
protective of the rights of participants
and beneficiaries of the Benefit Plan.
(3) This 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 the Department is granting an
administrative exemption for this
transaction is not dispositive to
determining whether the transaction is
in fact a prohibited transaction.
(4) The Department’s grant of this
exemption is based on the express
condition that the material facts and
representations contained in the
application accurately describe all
material terms of the transactions that
are the subject of the exemption.
Accordingly, the Department grants
the following exemption under the
authority of ERISA Section 408(a)in
accordance with its exemption
procedures set forth in 29 CFR part
2570, subpart B (76 FR 66637, 66644,
October 27, 2011):
Exemption
Section I. Covered Transactions
The restrictions of ERISA sections
406(a)(1)(D) and 406(b)(1) will not apply
to the reinsurance of risks and the
receipt of premiums therefrom by Risk
Specialists LLC (Risk Specialists), in
connection with insurance contracts
sold by THP Insurance Company, Inc.
(THP) or any successor insurance
company to THP, which is unrelated to
the Fedeli Group, Inc. (Fedeli Group or
the Applicant), including any entity
related to Fedeli Group to provide
medical and hospital coverage to
participants in the Fedeli Group, Inc.
Employee Benefits Plan (the Benefit
Plan) (these covered transactions are
referred to as the Captive Reinsurance
Arrangement) provided that the
conditions set forth in Section II are
met.
Section II. Conditions
(a) All of the savings from the Captive
Reinsurance Arrangement will be used
to reduce the amount that each Benefit
Plan participant is required to
contribute toward the premium the
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Benefit Plan pays to THP or another
fronting insurer. The cost savings will
be determined relative to the reasonable
cost the Benefit Plan would otherwise
have paid for comparable benefits
pursuant to a non-captive arrangement
with an unrelated, third-party insurer.
In no year will the reduction in Benefit
Plan participant contributions be less
than $2,023.20 per participant per year.
The premium reduction will benefit all
Plan participants equally and will be
verified by the Independent Fiduciary
as described below.
(b) Benefit Plan participant
contributions will be further reduced by
an amount equal to any net benefit (the
Extra Benefit) any Fedeli Group entity
received that is directly or indirectly
generated by the Captive Reinsurance
Arrangement over each five-year period,
the first of which begins on the grant
date this exemption is granted. Extra
Benefits include, but are not limited to,
increased earned income, increased
savings, a tax reduction or a profit or
any benefit arising from a further
diversification of Risk Specialist’s risks
in connection with adding Plan-related
insurance risks to Risk Specialist’s other
risks. The reduction will be received by
Benefit Plan participants on a pro rata
basis in the year following the five-year
period to which the Extra Benefit
relates; plus an additional interest
payment on the amount of the Extra
Benefit at the Internal Revenue Code’s
federal underpayment rate established
in Code section 6621(b). The interest on
the Extra Benefit will be calculated for
the period from the end of the Benefit
Plan year the Extra Benefit was earned
through the start of the Benefit Plan year
in which the Extra Benefit is applied to
reduce Benefit Plan participants’
contributions.
(c) Benefit Plan participants will
contribute no more than 17.38% of the
premium paid by the Benefit Plan to
THP or another fronting insurer.
(d) Risk Specialists:
(1) Is a party in interest with respect
to the Benefit Plan by reason of a stock
affiliation with Fedeli Group that is
described in ERISA section 3(14)(E) or
(G);
(2) Is licensed to sell insurance or
conduct reinsurance operations in the
state of Tennessee;
(3) Has obtained a Certificate of
Authority from the insurance
commissioner of the State of Tennessee
to transact the business of a captive
insurance company, which has neither
been revoked nor suspended, and has
undergone a financial examination
(within the meaning of the law of its
domiciliary State, Tennessee) by the
Insurance Commissioner of the State of
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Jkt 265001
Tennessee within five years before the
end of the year preceding the year in
which the reinsurance transaction
occurred;
(4) Has undergone and shall continue
to undergo an examination by an
independent certified public accountant
for its last completed taxable year
immediately prior to the taxable year of
the reinsurance transaction covered by
this exemption; and
(5) Is licensed to conduct reinsurance
transactions by a state whose law
requires that an actuarial review of
reserves be conducted annually by an
independent firm of actuaries and
reported to the appropriate regulatory
authority.
(e) The Benefit Plan will pay no more
than adequate consideration with
respect to insurance that is part of the
Captive Reinsurance Arrangement.
(f) No commissions will be paid by
the Benefit Plan with respect to the
direct sale of such contracts or the
reinsurance thereof.
(g) In the initial year of any contract
involving Risk Specialists and THP or
any successor insurer, the Benefit Plan’s
participants and beneficiaries will
receive an immediate and objectively
determined benefit in the form of
decreased participant contributions, and
such benefits will continue in all
subsequent years of each contract and in
every renewal of each contract.
(h) In the initial year and in
subsequent years of coverage provided
by THP or another fronting insurer
(either, a Fronting Insurer), the formulae
used by THP or a Fronting Insurer to
calculate premiums will be similar to
formulae used by other insurers
providing comparable life insurance
coverage under similar programs that
are not captive reinsured. Furthermore,
the premium charges calculated in
accordance with the formulae will be
reasonable and will be comparable to
the premiums charged by the Fronting
Insurer and its competitors with the
same or a better financial strength rating
providing the same coverage under
comparable programs that are not
captive reinsured.
(i) Fedeli Group will only contract
with insurers with a financial strength
rating of ‘‘A’’ or better from A.M. Best
Company. The reinsurance arrangement
between any fronting insurer and Risk
Specialists will be indemnity insurance
only, which means that the fronting
insurer will not be relieved of any
liability to the Benefit Plan should Risk
Specialists be unable or unwilling to
cover any liability arising from the
reinsurance arrangement.
(j) Participants and beneficiaries in
the Benefit Plan will receive no less
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93355
than the immediate and objectively
determined increased benefits the
participant and beneficiary received in
the initial year of each such contract
involving Risk Specialists and THP in
subsequent years of every contract of
reinsurance involving Risk Specialists
and THP.
(k) For each taxable year of Risk
Specialists, the gross premiums received
in that taxable year by Risk Specialists
for benefit insurance provided to Fedeli
Group and its employees with respect to
which Risk Specialists is a party in
interest by reason of the relationship to
Fedeli Group as described in ERISA
section 3(14)(E) or (G), will not exceed
50% of the gross premiums received for
all lines of insurance (i.e., benefit
insurance and non-benefit insurance) in
that taxable year by Risk Specialists.
(l) The Benefit Plan will retain a
qualified independent fiduciary (the
Independent Fiduciary) to analyze the
transactions covered by the exemption
and render an opinion that the terms
and conditions of this exemption have
been satisfied.
(m) The Independent Fiduciary will:
(1) Monitor the transactions described
here on behalf of the Benefit Plan on a
continuing basis to ensure such
transactions remain in the interest of the
Benefit Plan;
(2) Take all appropriate actions to
safeguard the interests of the Benefit
Plan;
(3) Enforce compliance with all
conditions of this exemption and all
conditions and obligations imposed on
any party dealing with the Benefit Plan;
(4) Review all contracts, and any
renewals of such contracts, pertaining to
the Captive Reinsurance Arrangement,
to determine whether the requirements
of this exemption, and the terms of the
increased benefits continue to be
satisfied; and
(5) Provide an annual, certified report
to the Department, under penalty of
perjury, indicating whether the terms
and conditions of the exemption
continue to be satisfied. Each report will
be completed within six months after
the end of the twelve-month period to
which it relates (the first twelve-month
period begins on the first day of the
implementation of the Captive
Reinsurance Arrangement), and be
submitted to the Department within 60
days thereafter. The relevant report will
include all the objective data necessary
to demonstrate that the Primary Benefit
Test has been met.
(n) The Benefit Plan, Fedeli Group
and its related parties have not, and will
not, indemnify the Independent
Fiduciary, in whole or in part, for
negligence and/or for any violations of
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state or federal law that may be
attributable to the Independent
Fiduciary in performing its duties under
the Captive Reinsurance Arrangement.
In addition, no contract or instrument
will purport to waive any liability under
state or federal law for any such
violations. In the event a successor
Independent Fiduciary is appointed to
represent the interests of the Plan with
respect to the subject transaction, no
time shall elapse between the
resignation or termination of the former
Independent Fiduciary and the
appointment of the successor
Independent Fiduciary.
(o) No Fedeli Group entity or related
entity will use participant-related data
or information generated by or derived
from the proposed arrangement in a
manner that benefits the Fedeli Group
or related entity.
(p) No amount of THP’s reserves that
are attributable to the Plan participants’
contributions will be transferred to
Fedeli Group or a related party.
(q) Fedeli Group will not evade the
conditions in this exemption by
offsetting or reducing any benefits
provided to Fedeli Group employees to
defray the costs, expenses, or
obligations of complying with this
exemption.
(r) All expenses associated with the
exemption and the exemption
application, including any payment to
the Independent Fiduciary, will be paid
by Fedeli Group and not the Plan.
(s) All the material facts and
representations set forth in the
Summary of Facts and Representation
are and will be true and accurate at all
times.
Exemption date: This exemption will
be in effect on November 26, 2024.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2024–27630 Filed 11–25–24; 8:45 am]
BILLING CODE 4510–29–P
DEPARTMENT OF LABOR
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Agency Information Collection
Activities; Submission for OMB
Review; Comment Request;
Characteristics of the Insured
Unemployed
Notice of availability; request
for comments.
ACTION:
The Department of Labor
(DOL) is submitting this Employment
and Training Administration (ETA)sponsored information collection
SUMMARY:
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18:03 Nov 25, 2024
Jkt 265001
request (ICR) to the Office of
Management and Budget (OMB) for
review and approval in accordance with
the Paperwork Reduction Act of 1995
(PRA). Public comments on the ICR are
invited.
DATES: The OMB will consider all
written comments that the agency
receives on or before December 26,
2024.
ADDRESSES: Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to www.reginfo.gov/public/do/
PRAMain. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function.
FOR FURTHER INFORMATION CONTACT:
Michael Howell by telephone at 202–
693–6782, or by email at DOL_PRA_
PUBLIC@dol.gov.
SUPPLEMENTARY INFORMATION: This
report is the only source of current,
consistent demographic information
(age, race/ethnic, sex, occupation,
industry) on the Unemployment
Insurance (UI) claimant population.
These characteristics identify important
claimant cohorts for legislative,
economic and social planning purposes,
and evaluation of the UI program on the
Federal and State levels. For additional
substantive information about this ICR,
see the related notice published in the
Federal Register on May 9, 2024 (89 FR
39649).
Comments are invited on: (1) whether
the collection of information is
necessary for the proper performance of
the functions of the Department,
including whether the information will
have practical utility; (2) the accuracy of
the agency’s estimates of the burden and
cost of the collection of information,
including the validity of the
methodology and assumptions used; (3)
ways to enhance the quality, utility and
clarity of the information collection; and
(4) ways to minimize the burden of the
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are to respond, including the use of
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other forms of information technology.
This information collection is subject
to the PRA. A Federal agency generally
cannot conduct or sponsor a collection
of information, and the public is
generally not required to respond to an
information collection, unless the OMB
approves it and displays a currently
valid OMB Control Number. In addition,
notwithstanding any other provisions of
law, no person shall generally be subject
to penalty for failing to comply with a
collection of information that does not
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display a valid OMB Control Number.
See 5 CFR 1320.5(a) and 1320.6.
DOL seeks PRA authorization for this
information collection for three (3)
years. OMB authorization for an ICR
cannot be for more than three (3) years
without renewal. The DOL notes that
information collection requirements
submitted to the OMB for existing ICRs
receive a month-to-month extension
while they undergo review.
Agency: DOL–ETA.
Title of Collection: Characteristics of
the Insured Unemployed.
OMB Control Number: 1205–0009.
Affected Public: State, Local and
Tribal Governments.
Total Estimated Number of
Respondents: 53.
Total Estimated Number of
Responses: 636.
Total Estimated Annual Time Burden:
426 hours.
Total Estimated Annual Other Costs
Burden: $0.
(Authority: 44 U.S.C. 3507(a)(1)(D))
Michael Howell,
Senior Paperwork Reduction Act Analyst.
[FR Doc. 2024–27629 Filed 11–25–24; 8:45 am]
BILLING CODE 4510–FN–P
NATIONAL ARCHIVES AND RECORDS
ADMINISTRATION
[NARA–24–2025; NARA–2025–009]
Records Schedules; Availability and
Request for Comments
National Archives and Records
Administration (NARA).
ACTION: Notice of availability of
proposed records schedules; request for
comments.
AGENCY:
The National Archives and
Records Administration (NARA)
publishes notice of certain Federal
agency requests for records disposition
authority (records schedules). We
publish notice in the Federal Register
and on regulations.gov for records
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dispose of records they no longer need
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public comments on such records
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SUMMARY:
We must receive responses on
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ADDRESSES: To view a records schedule
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www.regulations.gov/docket/NARA-240025/document. This is a direct link to
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this notice on regulations.gov. You may
DATES:
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]]>Agencies
[Federal Register Volume 89, Number 228 (Tuesday, November 26, 2024)]
[Notices]
[Pages 93353-93356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27630]
[[Page 93353]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2024-04]
Exemption Application No. L-11954; Exemption From Certain
Prohibited Transaction Restrictions Involving the Fedeli Group, Inc.
Employee Benefits Plan Located in Cleveland, OH
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document contains a notice of exemption from certain
prohibited transaction restrictions of the Employee Retirement Income
Security Act of 1974 (ERISA) issued by the Department of Labor (the
Department) to the Fedeli Group Employee Benefits Plan.
DATES: Exemption date: This exemption will be in effect on November 26,
2024.
FOR FURTHER INFORMATION CONTACT: Mrs. Blessed Chuksorji-Keefe of the
Department at (202) 693-8567. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On November 6, 2023, the Department
published a notice of proposed exemption in the Federal Register at 88
FR 76253. The proposed exemption involved the reinsurance of risks and
the receipt of premiums by Risk Specialists Insurance Company, Inc.
(Risk Specialists) in connection with insurance contracts sold by THP
Insurance Company, Inc. (THP) or THP's successor to provide medical and
hospital coverage to participants in the Fedeli Group Inc. Employee
Benefits Plan (the Benefit Plan or the Applicant). THP, is unrelated to
the Fedeli Group, Inc. and any entities related to Fedeli.
(collectively, Fedeli Group). The Applicant requested an individual
exemption pursuant to ERISA section 408(a) in accordance with the
Department's exemption procedures set forth in 29 CFR part 2570,
subpart B.\1\
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\1\ 76 FR 66637, 66644, (October 27, 2011).
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Based on the record, the Department has determined to grant the
proposed exemption. This exemption provides only the relief specified
herein. It provides no relief from violations of any law other than the
prohibited transaction provisions of ERISA, as expressly stated herein.
The Department makes the requisite findings under ERISA Section
408(a) based on the Applicant's adherence to all the conditions of the
exemption. Accordingly, affected parties should be aware that the
conditions incorporated in this exemption, considered individually and
as a whole, are necessary for the Department to grant the relief
requested by the Applicant. Absent these or similar conditions, the
Department would not have granted this exemption.
Background
1. As discussed in greater detail below and in the notice of
proposed exemption, Fedeli Group seeks to use its captive insurance
company, Risk Specialists, to reinsure participants' benefit claims
under the Benefit Plan.
Parties to the Transaction
2. Fedeli Group: Fedeli Group is a corporation based in Cleveland,
Ohio that provides insurance products and risk management services. The
Fedeli Group is 51 percent owned by The Umberto P. Fedeli Restated
Revocable Trust (dated July 16, 2016) 19 percent owned by the Umberto
P. Fedeli 2012 Discretionary Trust (dated November 28, 2012) and 20%
owned by the Umberto P. Fedeli 2009 Discretionary Trust (dated December
23, 2009). The Fedeli Group sponsors and administers the Benefit Plan.
3. Risk Specialists: Risk Specialists is a property and casualty
captive insurance company that is licensed and operates under
applicable Tennessee law. Risk Specialists is 100 percent owned by Risk
Specialists Captive Holdings, LLC, a limited liability company formed
in Ohio on the same date as Risk Specialists. Risk Specialists Captive
Holdings, LLC is 51 percent owned by the Fedeli Revocable Trust, 29%
owned by the Fedeli 2012 Trust, and 20 percent owned by the Fedeli 2009
Trust. Risk Specialists serves as the reinsurer with respect to 13
different lines of insurance coverages provided to Fedeli Group and
unrelated third parties.
4. THP. THP Insurance Company, Inc. is a domestic stock insurance
company domiciled in West Virginia and licensed in both Ohio and West
Virginia. THP is unrelated to all Fedeli Group-related entities and is
currently rated ``A+'' by A.M. Best Company.
5. The Benefit Plan. The Benefit Plan is a self-funded employee
welfare benefit plan covering medical and hospital expenses for
eligible Fedeli Group employees that is sponsored and administered by
the Fedeli Group.
The Transaction
6. Fedeli Group plans to use its captive insurance company, Risk
Specialists, to reinsure the Benefit Plan's claims. The Plan will enter
into a Master Group Policy with THP, pursuant to which THP will provide
group health insurance coverage to eligible participants under the
Benefit Plan. THP will enter into a reinsurance agreement (the
Reinsurance Agreement) with Risk Specialists. Under this arrangement,
Risk Specialists will be responsible for the Benefit Plan's insurance
claims under the Master Group Policy with THP, and Risk Specialists
will indirectly receive the Benefit Plan's premium payments to THP. The
Reinsurance Agreement between THP and Risk Specialists will be
``indemnity only,'' which means that THP will be responsible for
Benefit Plan claims under the Master Group Policy to the extent Risk
Specialists does not satisfy those claims under the Reinsurance
Agreement.
7. As described in the notice of proposed exemption, the Applicant
represents that the only benefits Fedeli Group expects to receive from
the proposed Captive Approach relative to the Plan's current self-
funding arrangement are the incidental benefits that would result from
more predictability and better control over its benefit funding
obligations. The proposed exemption describes that the Captive Approach
will result in reduced overall plan costs because benefit expenses will
be paid based on actual experience, as opposed to a third-party
insurance carrier (the Third-Party Approach) requiring a fixed payment
at a premium charged by an insurance carrier where the premium amount
does not change regardless of the amount of claims that are incurred.
ERISA Analysis
8. The reinsurance arrangement would violate certain prohibited
transaction provisions of ERISA for the following reasons:
Fedeli Group is a party in interest with respect to the
Benefit Plan pursuant to ERISA section 3(14)(C), because it is an
employer whose employees are covered by the Benefit Plan;
The Trusts are parties in interest with respect to the
Benefit Plan under ERISA section 3(14)(E) because they collectively own
100% of Fedeli Group, the Benefit Plan sponsor.
Risk Specialists, the captive reinsurer, is a party in
interest with respect to the Benefit Plan under ERISA section 3(14)(G)
because it is 100% owned by the Trusts.
9. ERISA section 406(a) prohibits a wide range of transactions
between plans and parties in interest with respect to those plans. As
relevant here,
[[Page 93354]]
ERISA section 406(a)(l)(D) prohibits a plan fiduciary from engaging in
a transaction if the fiduciary knows or should know the transaction
constitutes a direct or indirect transfer of any plan assets for the
use or benefit of a party in interest. The reinsurance arrangement
would result in an indirect transfer of Benefit Plan premium payments
to Risk Specialists, which is a party in interest with respect to the
Benefit Plan.
10. ERISA section 406(b)(1) of ERISA prohibits a fiduciary from
dealing with plan assets for the fiduciary's own interest or own
account. The fiduciaries of the Benefit Plan would violate ERISA
section 406(b)(1) by causing the Benefit Plan to pay premiums to THP,
with the knowledge that the premiums will ultimately be directed to
Risk Specialists, the captive reinsurer.
Merits of the Transaction
11. As described in further detail in the notice of proposed
exemption, a qualified, independent fiduciary has concluded that the
reinsurance arrangement will reduce each Benefit Plan participant's
share of the Benefit Plan premium paid to THP by at least $2,023.20 per
participant per year for the duration of the exemption relative to the
contribution the participant would otherwise have made under a
noncaptive arrangement with a competitive third party insurer receiving
no more than reasonable compensation within the meaning of ERISA
section 408(b)(2). Historically, Benefit Plan participants contributed
approximately 25% towards the cost of the Benefit Plan. Under this
exemption, all the savings from the reinsurance arrangement will be
used to reduce Benefit Plan participants' share of the Benefit Plan's
premiums, and Benefit Plan participants will contribute no more than
17.38% of the Benefit Plan's costs throughout the duration of the
exemption.
12. Therefore, this exemption requires the Fedeli Group to use any
of the savings it derives from the captive reinsurance arrangement to
reduce the amount each Benefit Plan participant is required to
contribute toward the premiums the Benefit Plan pays to THP or another
fronting insurer. If any Fedeli Group-related entity receives a direct
or indirect profit, tax benefit, investment gain or other remunerative
benefit through the reinsurance arrangement, the Fedeli Group must
further enhance the Benefit Plan in an amount greater than the
$2,023.20 per participant per year contribution reduction in a manner
consistent with the terms and conditions of this exemption.
13. On an on-going basis, the independent fiduciary is required to
review all relevant financial information of Risk Specialists and any
other Fedeli-related entity as is necessary to ensure that this and the
other terms and conditions described in this proposal are met and to
annually certify in a written report submitted to the Department that
all requirements of the proposed exemption have been met. Furthermore,
as described in the notice of proposed exemption, this exemption
requires a number of protective conditions designed to ensure that the
rights of the Plan and its participants and beneficiaries are
protected.
Comments Received Regarding Proposed Exemption
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 by December 21, 2023. The
Department did not receive any written comments or requests for a
public hearing.\2\
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\2\ The Department notes that it did not make any changes to the
operative text of the proposed exemption in this final grant notice
except for minor editorial revisions.
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Therefore, on basis of the entirety of the public record for this
exemption application and the conditions for relief included below, the
Department finds that the exemption is administratively feasible for
the Department, in the interests of the Benefit Plan and its
participants and beneficiaries, and protective of the rights of the
Benefit Plan's participants and beneficiaries.
The complete application file (L-11954) 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 November 6, 2023, at 88 FR 76253.
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 his or her 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: (a) administratively feasible for the
Department; (b) in the interests of affected plans and of their
participants and beneficiaries; and (c) protective of the rights of
participants and beneficiaries of the Benefit Plan.
(3) This 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 the
Department is granting an administrative exemption for this transaction
is not dispositive to determining whether the transaction is in fact a
prohibited transaction.
(4) The Department's grant of this exemption is based on the
express condition that the material facts and representations contained
in the application accurately describe all material terms of the
transactions that are the subject of the exemption.
Accordingly, the Department grants the following exemption under
the authority of ERISA Section 408(a)in accordance with its exemption
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011):
Exemption
Section I. Covered Transactions
The restrictions of ERISA sections 406(a)(1)(D) and 406(b)(1) will
not apply to the reinsurance of risks and the receipt of premiums
therefrom by Risk Specialists LLC (Risk Specialists), in connection
with insurance contracts sold by THP Insurance Company, Inc. (THP) or
any successor insurance company to THP, which is unrelated to the
Fedeli Group, Inc. (Fedeli Group or the Applicant), including any
entity related to Fedeli Group to provide medical and hospital coverage
to participants in the Fedeli Group, Inc. Employee Benefits Plan (the
Benefit Plan) (these covered transactions are referred to as the
Captive Reinsurance Arrangement) provided that the conditions set forth
in Section II are met.
Section II. Conditions
(a) All of the savings from the Captive Reinsurance Arrangement
will be used to reduce the amount that each Benefit Plan participant is
required to contribute toward the premium the
[[Page 93355]]
Benefit Plan pays to THP or another fronting insurer. The cost savings
will be determined relative to the reasonable cost the Benefit Plan
would otherwise have paid for comparable benefits pursuant to a non-
captive arrangement with an unrelated, third-party insurer. In no year
will the reduction in Benefit Plan participant contributions be less
than $2,023.20 per participant per year. The premium reduction will
benefit all Plan participants equally and will be verified by the
Independent Fiduciary as described below.
(b) Benefit Plan participant contributions will be further reduced
by an amount equal to any net benefit (the Extra Benefit) any Fedeli
Group entity received that is directly or indirectly generated by the
Captive Reinsurance Arrangement over each five-year period, the first
of which begins on the grant date this exemption is granted. Extra
Benefits include, but are not limited to, increased earned income,
increased savings, a tax reduction or a profit or any benefit arising
from a further diversification of Risk Specialist's risks in connection
with adding Plan-related insurance risks to Risk Specialist's other
risks. The reduction will be received by Benefit Plan participants on a
pro rata basis in the year following the five-year period to which the
Extra Benefit relates; plus an additional interest payment on the
amount of the Extra Benefit at the Internal Revenue Code's federal
underpayment rate established in Code section 6621(b). The interest on
the Extra Benefit will be calculated for the period from the end of the
Benefit Plan year the Extra Benefit was earned through the start of the
Benefit Plan year in which the Extra Benefit is applied to reduce
Benefit Plan participants' contributions.
(c) Benefit Plan participants will contribute no more than 17.38%
of the premium paid by the Benefit Plan to THP or another fronting
insurer.
(d) Risk Specialists:
(1) Is a party in interest with respect to the Benefit Plan by
reason of a stock affiliation with Fedeli Group that is described in
ERISA section 3(14)(E) or (G);
(2) Is licensed to sell insurance or conduct reinsurance operations
in the state of Tennessee;
(3) Has obtained a Certificate of Authority from the insurance
commissioner of the State of Tennessee to transact the business of a
captive insurance company, which has neither been revoked nor
suspended, and has undergone a financial examination (within the
meaning of the law of its domiciliary State, Tennessee) by the
Insurance Commissioner of the State of Tennessee within five years
before the end of the year preceding the year in which the reinsurance
transaction occurred;
(4) Has undergone and shall continue to undergo an examination by
an independent certified public accountant for its last completed
taxable year immediately prior to the taxable year of the reinsurance
transaction covered by this exemption; and
(5) Is licensed to conduct reinsurance transactions by a state
whose law requires that an actuarial review of reserves be conducted
annually by an independent firm of actuaries and reported to the
appropriate regulatory authority.
(e) The Benefit Plan will pay no more than adequate consideration
with respect to insurance that is part of the Captive Reinsurance
Arrangement.
(f) No commissions will be paid by the Benefit Plan with respect to
the direct sale of such contracts or the reinsurance thereof.
(g) In the initial year of any contract involving Risk Specialists
and THP or any successor insurer, the Benefit Plan's participants and
beneficiaries will receive an immediate and objectively determined
benefit in the form of decreased participant contributions, and such
benefits will continue in all subsequent years of each contract and in
every renewal of each contract.
(h) In the initial year and in subsequent years of coverage
provided by THP or another fronting insurer (either, a Fronting
Insurer), the formulae used by THP or a Fronting Insurer to calculate
premiums will be similar to formulae used by other insurers providing
comparable life insurance coverage under similar programs that are not
captive reinsured. Furthermore, the premium charges calculated in
accordance with the formulae will be reasonable and will be comparable
to the premiums charged by the Fronting Insurer and its competitors
with the same or a better financial strength rating providing the same
coverage under comparable programs that are not captive reinsured.
(i) Fedeli Group will only contract with insurers with a financial
strength rating of ``A'' or better from A.M. Best Company. The
reinsurance arrangement between any fronting insurer and Risk
Specialists will be indemnity insurance only, which means that the
fronting insurer will not be relieved of any liability to the Benefit
Plan should Risk Specialists be unable or unwilling to cover any
liability arising from the reinsurance arrangement.
(j) Participants and beneficiaries in the Benefit Plan will receive
no less than the immediate and objectively determined increased
benefits the participant and beneficiary received in the initial year
of each such contract involving Risk Specialists and THP in subsequent
years of every contract of reinsurance involving Risk Specialists and
THP.
(k) For each taxable year of Risk Specialists, the gross premiums
received in that taxable year by Risk Specialists for benefit insurance
provided to Fedeli Group and its employees with respect to which Risk
Specialists is a party in interest by reason of the relationship to
Fedeli Group as described in ERISA section 3(14)(E) or (G), will not
exceed 50% of the gross premiums received for all lines of insurance
(i.e., benefit insurance and non-benefit insurance) in that taxable
year by Risk Specialists.
(l) The Benefit Plan will retain a qualified independent fiduciary
(the Independent Fiduciary) to analyze the transactions covered by the
exemption and render an opinion that the terms and conditions of this
exemption have been satisfied.
(m) The Independent Fiduciary will:
(1) Monitor the transactions described here on behalf of the
Benefit Plan on a continuing basis to ensure such transactions remain
in the interest of the Benefit Plan;
(2) Take all appropriate actions to safeguard the interests of the
Benefit Plan;
(3) Enforce compliance with all conditions of this exemption and
all conditions and obligations imposed on any party dealing with the
Benefit Plan;
(4) Review all contracts, and any renewals of such contracts,
pertaining to the Captive Reinsurance Arrangement, to determine whether
the requirements of this exemption, and the terms of the increased
benefits continue to be satisfied; and
(5) Provide an annual, certified report to the Department, under
penalty of perjury, indicating whether the terms and conditions of the
exemption continue to be satisfied. Each report will be completed
within six months after the end of the twelve-month period to which it
relates (the first twelve-month period begins on the first day of the
implementation of the Captive Reinsurance Arrangement), and be
submitted to the Department within 60 days thereafter. The relevant
report will include all the objective data necessary to demonstrate
that the Primary Benefit Test has been met.
(n) The Benefit Plan, Fedeli Group and its related parties have
not, and will not, indemnify the Independent Fiduciary, in whole or in
part, for negligence and/or for any violations of
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state or federal law that may be attributable to the Independent
Fiduciary in performing its duties under the Captive Reinsurance
Arrangement. In addition, no contract or instrument will purport to
waive any liability under state or federal law for any such violations.
In the event a successor Independent Fiduciary is appointed to
represent the interests of the Plan with respect to the subject
transaction, no time shall elapse between the resignation or
termination of the former Independent Fiduciary and the appointment of
the successor Independent Fiduciary.
(o) No Fedeli Group entity or related entity will use participant-
related data or information generated by or derived from the proposed
arrangement in a manner that benefits the Fedeli Group or related
entity.
(p) No amount of THP's reserves that are attributable to the Plan
participants' contributions will be transferred to Fedeli Group or a
related party.
(q) Fedeli Group will not evade the conditions in this exemption by
offsetting or reducing any benefits provided to Fedeli Group employees
to defray the costs, expenses, or obligations of complying with this
exemption.
(r) All expenses associated with the exemption and the exemption
application, including any payment to the Independent Fiduciary, will
be paid by Fedeli Group and not the Plan.
(s) All the material facts and representations set forth in the
Summary of Facts and Representation are and will be true and accurate
at all times.
Exemption date: This exemption will be in effect on November 26,
2024.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2024-27630 Filed 11-25-24; 8:45 am]
BILLING CODE 4510-29-P
