Notice2023-03632
Exemptions From Certain Prohibited Transaction Restrictions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 23, 2023
Effective
November 24, 2020
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains exemptions issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). This notice includes the following: 2023-03, Blue Cross and Blue Shield Association, D-12077; 2023-04, Blue Cross and Blue Shield of Arizona, Inc., D-12035; 2023-05, Blue Cross and Blue Shield of Vermont, D-12055; 2023-06, Hawaii Medical Service Association, D-12038; 2023-07, BCS Financial Corporation, D-12036; 2023-08, Blue Cross and Blue Shield of Mississippi, D-12040; 2023-09, Blue Cross and Blue Shield of Nebraska, Inc., D-12041; 2023-10, BlueCross BlueShield of Tennessee, Inc., D- 12045; 2023-11, Midlands Management Corporation 401(k) Plan, D-12031; 2023-12, DISH Network Corporation 401(k) Plan and the EchoStar 401(k) Plan, D-12012.
Full Text
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<title>Federal Register, Volume 88 Issue 36 (Thursday, February 23, 2023)</title>
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[Federal Register Volume 88, Number 36 (Thursday, February 23, 2023)]
[Notices]
[Pages 11676-11701]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03632]
[[Page 11675]]
Vol. 88
Thursday,
No. 36
February 23, 2023
Part VI
Department of Labor
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Employee Benefits Security Administration
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Exemptions From Certain Prohibited Transaction Restrictions; Notice
Federal Register / Vol. 88, No. 36 / Thursday, February 23, 2023 /
Notices
[[Page 11676]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Exemptions From Certain Prohibited Transaction Restrictions
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grants of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code).
This notice includes the following: 2023-03, Blue Cross and Blue Shield
Association, D-12077; 2023-04, Blue Cross and Blue Shield of Arizona,
Inc., D-12035; 2023-05, Blue Cross and Blue Shield of Vermont, D-12055;
2023-06, Hawaii Medical Service Association, D-12038; 2023-07, BCS
Financial Corporation, D-12036; 2023-08, Blue Cross and Blue Shield of
Mississippi, D-12040; 2023-09, Blue Cross and Blue Shield of Nebraska,
Inc., D-12041; 2023-10, BlueCross BlueShield of Tennessee, Inc., D-
12045; 2023-11, Midlands Management Corporation 401(k) Plan, D-12031;
2023-12, DISH Network Corporation 401(k) Plan and the EchoStar 401(k)
Plan, D-12012.
SUPPLEMENTARY INFORMATION: Notices were published in the Federal
Register of the pendency before the Department of proposals to grant
such exemptions. Each notice set forth a summary of the facts and
representations made by the applicant for the exemption and referred
interested persons to the application for a complete statement of the
facts and representations. Each application is available for public
inspection at the Department in Washington, DC. Each notice also
invited interested persons to submit comments on the requested
exemption to the Department. In addition, each notice stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). Each applicant has represented that it has
complied with the requirements of the notification to interested
persons. No requests for a hearing were received by the Department.
Public comments were received by the Department as described in the
granted exemption.
Each notice of proposed exemption was issued, and each exemption is
being granted, solely by the Department, because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), transferred the authority of the Secretary of the
Treasury to issue exemptions of the type proposed to the Secretary of
Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (76 FR 66637, 66644, October 27, 2011) and based upon
the entire record, the Department makes the following findings:
(a) Each exemption is administratively feasible;
(b) Each exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) Each exemption is protective of the rights of the participants
and beneficiaries of the plan.
Blue Cross and Blue Shield Association Located in Chicago, Illinois
[Prohibited Transaction Exemption 2023-03; Exemption Application No. D-
12077]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \1\ permitting Blue Cross and Blue
Shield Association (BCBSA) to make a series of payments to the Non-
Contributory Retirement Program for Certain Employees of Blue Cross and
Blue Shield Association (the Plan), including: (1) the past payment of
$69,000,000, made on March 12, 2021; and (2) the past payment of
$13,500,000, made on March 28, 2022 (the Restorative Payments). If the
Plan receives litigation proceeds from the Claims, the Plan must
transfer the lesser of the ligation proceeds received or the
Restorative Payments amount, plus reasonable attorneys' fees to BCBSA.
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\1\ 87 FR 52118 (August 24, 2022).
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This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $183,368,144, or 77.82
percent of its assets. These losses caused the Plan to be underfunded.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\2\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
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\2\ Case number 20-CIV-07606.
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Rather than wait for the Claims to be resolved through the
litigation, BCBSA took steps to protect Plan benefits and avoid onerous
benefit restrictions under Code section 436 that could result from a
funding shortfall while the litigation was proceeding. Therefore, on
November 24, 2020, BCBSA and the Plan entered into a Contribution and
Assignment Agreement (the Contribution and Assignment Agreement). On
June 22, 2022, BCBSA and the Plan amended the Contribution and
Assignment Agreement to provide that BCBSA's Restorative Payments under
the Agreement will consist of a $69,000,000 payment made on March 12,
2021, and a $13,500,000 payment made on March 28, 2022.
In exchange for the Restorative Payments, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCBSA.\3\ Pursuant to the
assignment, if the Plan receives litigation proceeds from the Claims
when the AGI US/Aon litigation is resolved, the Plan will
[[Page 11677]]
transfer a repayment (the Repayment) to BCBSA that does not exceed the
total Restorative Payments made by BCBSA, plus reasonable attorneys'
fees paid by BCBSA on behalf of the Plan in connection with the Claims.
The attorneys' fees must be reviewed and approved by a qualified
independent fiduciary who confirms that the fees were reasonably
incurred and paid by BCBSA to unrelated third parties (the Attorneys'
Fees).
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\3\ Under the Contribution and Assignment Agreement, if the Plan
receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
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For the purposes of this exemption, Attorneys' Fees reimbursable to
BCBSA do not include: (1) legal expenses paid by the Plan; or (2) legal
expenses paid by BCBSA for representation of its own interests or the
interests of any party other than the Plan. For purposes of determining
the amount of Attorneys' Fees the Plan may reimburse to BCBSA under
this exemption, the amount of reasonable attorneys' fees paid by BCBSA
on behalf of the Plan in connection with the Claims must be reduced by
the amount of attorneys' fees received by BCBSA in connection with the
Claims from any non-Plan party (for example, from a third party
pursuant to a court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
In response, the Department received three written comments from Plan
participants and no requests for a public hearing.
Comments From Plan Participants
The first commenter stated that they do not agree that this
exemption should be granted to BCBSA. They also stated that BCBSA has
not been truthful in the past with how they have made changes to the
Plan and the notice for this exemption was sent on the last possible
day that BCBSA was required to provide notice.
The second commenter stated that they are against the Department
granting this exemption to BCBSA because the Plan was frozen as of 12/
31/2021, and, as a result, they are losing seven years of retirement
income.
The third commenter stated that they supported the exemption with
one caveat: BCBSA should be required to bear the cost of the Attorneys'
Fees incurred in connection with the plan's legal claims without
getting reimbursed for those fees by the plan. The third commenter
stated:
``While Allianz clearly bears primary responsibility for this
situation, I believe BCBSA also bears significant responsibility for
having made the ill-advised decision to invest such a large proportion
of plan assets in the Structured Alpha Funds . . . Notwithstanding the
generally favorable outcome of this situation in the fullness of time,
I believe it is appropriate as a matter of public policy for BCBSA to
bear some financial consequences in this matter.''
Department's Response
With respect to the first commenter, the Department encourages them
to contact the Department at any time if they believe that they have
not received the benefits to which they are entitled under the Plan.
Regarding the issues raised in the comment, the Department notes that
changes to the Plan made by BCBSA in the past are not material to the
terms of this exemption. Regarding BCBSA's requirement to provide
notice within 15 calendar days of the proposed exemption's publication
date, the Department has no reason to believe that BCBSA did not meet
this requirement.
With respect to the second commenter, the Department again
encourages any participant to contact the Department if they believe
they have not received all the benefits they are entitled to under the
Plan. Regarding the substance of the comment, the Department notes that
BCBS's decision to freeze the Plan in 2021 does not affect or relate to
this exemption.
With respect to the third commenter, the Department notes that in
granting this exemption, the Department is explicitly not rendering
judgment as to whether the Plan's fiduciaries have met their general
fiduciary responsibilities of prudence and loyalty as set forth under
ERISA Section 404. Further, condition (b) of this exemption expressly
states, ``[i]n connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against . . .: (1) any fiduciary of the
Plan.''
Regarding Attorneys' Fees, this exemption also has strict standards
that limit BCBSA's receipt of such fees to reasonable legal expenses
paid by BCBSA on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by the Independent Fiduciary who
confirms that the fees were reasonably incurred and paid by BCBSA to
unrelated third parties.
Department's Additional Comment
The Department is amending the last sentence of Section (III)(c) of
the exemption by replacing the word ``minimize'' with ``avoid.'' The
Department is making this revision to emphasize that the Repayment to
BCBSA under this exemption should be carried out in a manner that
avoids unnecessary costs and disruption to the Plan and Plan
investments.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12077) 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 August 24, 2022 at 87 FR 52118.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCBSA on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by a qualified independent
fiduciary who confirms that the fees were reasonably incurred and paid
by BCBSA to unrelated third parties. For the purposes of this
exemption, the Attorneys' Fees reimbursable to BCBSA do not include:
(1) legal expenses paid by the Plan; and (2) legal expenses paid by
BCBSA for representation of BCBSA or the interests of any party other
than the Plan.
(b) The term ``BCBSA'' means Blue Cross and Blue Shield
Association.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement dated November 24, 2020, and its amendment that
became effective on June 22, 2022, containing all material terms
regarding BCBSA's agreement to make Required Restorative Payments to
the Plan in return for the Plan's potential Repayment to BCBSA of an
amount that is not more than the lesser of the Required Restorative
Payment Amount (as described in Section I(h)) or the amount of
litigation proceeds the Plan receives from the Claims, plus reasonable
Attorneys' Fees paid to unrelated third parties by BCBSA in connection
with the Claims.
[[Page 11678]]
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCBSA and does not hold an ownership
interest in BCBSA or affiliates of BCBSA;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries; \4\
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\4\ 29 CFR 2509.75-4.
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(5) Has not received gross income from BCBSA or its affiliates
during any fiscal year in an amount that exceeds two percent (2%) of
the Independent Fiduciary's gross income from all sources for the prior
fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCBSA or from affiliates of BCBSA
while serving as an Independent Fiduciary. This prohibition will
continue for six months after the party ceases to be an Independent
Fiduciary and/or the Independent Fiduciary negotiates any transaction
on behalf of the Plan during the period that the organization or
individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield Association.
(g) The term ``Plan Losses'' means the $183,368,144 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payments'' means the payments made by
BCBSA to the Plan in connection with the Plan Losses, defined above,
consisting of: (1) the past payment of $69,000,000 on March 12, 2021;
and (2) the past payment of $13,500,000 on March 28, 2022. The sum of
(1)-(2) is the Required Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCBSA following the Plan's receipt of proceeds from the
Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective November 24, 2020, to the following transactions: BCBSA's
transfer of Restorative Payments to the Plan; and, in return, the
Plan's Repayment of an amount to BCBSA, which must be no more than the
lesser of the Restorative Payment Amount or the amount of litigation
proceeds the Plan received from the Claims, plus reasonable Attorneys'
Fees, provided that the Definitions set forth in Section I and the
Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan received the entire Restorative Payment Amount no
later than March 28, 2022;
(b) In connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCBSA; and/or (4) any person or
entity related to a person or entity identified in (1)-(3) of this
paragraph;
(c) The Plan's Repayment to BCBSA is not more than the lesser of
the total Restorative Payments received by the Plan or the amount of
litigation proceeds the Plan receives from the Claims. The Plan's
Repayment to BCBSA may only occur after a qualified independent
fiduciary (the Independent Fiduciary, as further defined in Section
II(e)) has determined that: all the conditions of the exemption are
met; the Plan has received all the Restorative Payments it is due; and
the Plan has received all the litigation proceeds it is due. The Plan's
Repayment to BCBSA must be carried out in a manner designed to avoid
unnecessary costs and disruption to the Plan and Plan investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payments and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payments, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCBSA for legal
expenses in connection with the Claims is limited to only reasonable
legal expenses that were paid by BCBSA to unrelated third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payments;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payments;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative
[[Page 11679]]
Payments. However, if first approved by the Independent Fiduciary, the
Plan may reimburse BCBSA for Attorneys' Fees. For purposes of
determining the amount of Attorneys' Fees the Plan may reimburse to
BCBSA under this exemption, the amount of reasonable attorney fees paid
by BCBSA on behalf of the Plan in connection with the Claims must be
reduced by the amount of legal fees received by BCBSA in connection
with the Claims from any non-Plan party (i.e., pursuant to a court
award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCBSA must notify
the Department's Office of Exemption Determinations of the change in
Independent Fiduciary and such notification must contain all material
information regarding the successor Independent Fiduciary, including
the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of November 24,
2020.
For Further Information: Contact Mr. Joseph Brennan of the
Department, telephone (202) 693-8456. (This is not a toll-free number.)
Blue Cross and Blue Shield of Arizona, Inc., Located in Phoenix,
Arizona
[Prohibited Transaction Exemption 2023-04; Exemption Application No. D-
12035]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \5\ permitting Blue Cross and Blue
Shield of Arizona, Inc. (BCBS AZ) to make a series of payments to the
Non-Contributory Retirement Program for Certain Employees of Blue Cross
and Blue Shield of Arizona, Inc. (the Plan), including: (1) past
payments totaling $130,000,000; and (2) future amounts necessary for
(a) the Plan's assets to be equal to or greater than 100% of the Plan's
current liabilities, and (b) the Plan to have an adjusted funding
target attainment percentage (AFTAP) of 110% (the Restorative
Payments). If the Plan receives litigation proceeds from the Claims,
the Plan must transfer the lesser of the ligation proceeds received or
the Restorative Payments amount, plus reasonable attorneys' fees to
BCBS AZ.
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\5\ 87 FR 52130 (August 24, 2022).
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This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $302,470,379.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\6\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
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\6\ Case number 20-CIV-07606.
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Rather than wait for the Claims to be resolved through the
litigation, BCBS AZ took steps to protect Plan benefits and avoid
onerous benefit restrictions under Code section 436 that could result
from a funding shortfall while the litigation was proceeding.
Therefore, on November 5, 2020, BCBS AZ and the Plan entered into a
Contribution and Assignment Agreement (the Contribution and Assignment
Agreement). Pursuant to the Contribution and Assignment Agreement, BCBS
AZ agreed to make $274 million in Restorative Payments to the Plan
pursuant to an installment payment structure (the Restorative
Payments). BCBS AZ made its first installment payment of $60 million to
the Plan on September 15, 2020. Thereafter, BCBS AZ made Restorative
Payments to the Plan of $35,000,000, on December 28, 2020, $10,000,000,
on July 31, 2021, and $25,000,000 on December 21, 2021.
On October 13, 2021, BCBS AZ and the Plan amended the Restorative
Payments provision of the Contribution and Assignment Agreement to
state that, before December 31, 2023, BCBS AZ would contribute amounts
necessary for the Plan to have: (a) an adjusted funding target
attainment percentage of 110% (after taking into account any waivers of
the funding standard carryover balance by the Plan Sponsor); and (b) an
amount of assets that is at least 100% of current Plan liabilities. In
addition, any minimum required contributions made by BCBS AZ to the
Plan on or after October 13, 2021, will not be included as part of the
Restorative Payments required under the Contribution and Assignment
Agreement.
In exchange for the Restorative Payments, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCBS AZ.\7\ Pursuant to the
assignment, if the Plan receives litigation proceeds from the Claims
when the AGI US/Aon litigation is resolved, the Plan will
[[Page 11680]]
transfer a repayment (the Repayment) to BCBS AZ that does not exceed
the total Restorative Payments made by BCBS AZ, plus reasonable
attorneys' fees paid by BCBS AZ on behalf of the Plan in connection
with the Claims. The attorneys' fees must be reviewed and approved by a
qualified independent fiduciary who confirms that the fees were
reasonably incurred and paid by BCBS AZ to unrelated third parties (the
Attorneys' Fees).
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\7\ Under the Contribution and Assignment Agreement, if the Plan
receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
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For the purposes of this exemption, Attorneys' Fees reimbursable to
BCBS AZ do not include: (1) legal expenses paid by the Plan; or (2)
legal expenses paid by BCBS AZ for representation of its own interests
or the interests of any party other than the Plan. For purposes of
determining the amount of Attorneys' Fees the Plan may reimburse to
BCBS AZ under this exemption, the amount of reasonable attorneys' fees
paid by BCBS AZ on behalf of the Plan in connection with the Claims
must be reduced by the amount of attorneys' fees received by BCBS AZ in
connection with the Claims from any non-Plan party (for example, from a
third party pursuant to a court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12035) 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 August 24, 2022 at 87 FR 52130.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCBS AZ on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by a qualified independent
fiduciary who confirms that the fees were reasonably incurred and paid
by BCBS AZ to unrelated third parties. For the purposes of this
exemption, the Attorneys' Fees reimbursable to BCBS AZ do not include:
(1) legal expenses paid by the Plan; and (2) legal expenses paid by
BCBS AZ for representation of BCBS AZ or the interests of any party
other than the Plan.
(b) The term ``BCBS AZ'' means Blue Cross and Blue Shield of
Arizona, Inc.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between BCBS AZ and the Plan, dated November 5, 2020,
and its amendment that became effective on October 13, 2021, containing
all material terms regarding BCBS AZ's agreement to make Required
Restorative Payments to the Plan in return for the Plan's potential
Repayment to BCBS AZ of an amount that is not more than lesser of the
Required Restorative Payment Amount (as described in Section I(h))
already received or the amount of litigation proceeds the Plan receives
from the Claims, plus reasonable Attorneys' Fees paid to unrelated
third parties by BCBS AZ in connection with the Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCBS AZ and does not hold an ownership
interest in BCBS AZ or affiliates of BCBS AZ;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries; \8\
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\8\ 29 CFR 2509.75-4.
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(5) Has not received gross income from BCBS AZ or its affiliates
during any fiscal year in an amount that exceeds two percent (2%) of
the Independent Fiduciary's gross income from all sources for the prior
fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCBS AZ or from affiliates of
BCBS AZ while serving as an Independent Fiduciary. This prohibition
will continue for six months after the party ceases to be an
Independent Fiduciary and/or the Independent Fiduciary negotiates any
transaction on behalf of the Plan during the period that the
organization or individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield of Arizona, Inc.
(g) The term ``Plan Losses'' means the $302,470,379 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payments'' means the payments made by
BCBS AZ to the Plan in connection with the Plan Losses, defined above,
consisting of: (1) a first installment amount of $60,000,000 that BCBS
AZ contributed to the Plan on September 15, 2020; (2) a second
installment amount of $35,000,000 that BCBS AZ contributed to the Plan
on December 28, 2020; (3) a third installment amount of $10,000,000
that BCBS AZ contributed to the Plan on July 30, 2021; (4) a fourth
installment amount of $25,000,000 that BCBS AZ contributed to the Plan
on December 21, 2021; and (5) other amounts contributed to the Plan by
BCBS AZ before December 31, 2023 that are necessary for (i) the Plan to
have an adjusted funding target attainment percentage of 110% after
taking into account any waivers of the funding standard carryover
balance by the Plan
[[Page 11681]]
Sponsor, and (ii) the Plan's assets to be equal to or greater than 100%
of the current liabilities of the Plan. The sum of (1)-(5) is the
Required Restorative Payment Amount. The term ``Required Restorative
Payment'' will not include any required minimum contributions that BCBS
AZ makes to the Plan on and after October 13, 2021.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCBS AZ following the Plan's receipt of proceeds from the
Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective September 15, 2020, to the following transactions: BCBS AZ's
transfer of Restorative Payments to the Plan; and, in return, the
Plan's Repayment of an amount to BCBS AZ, which must be no more than
the lesser of the Restorative Payment Amount or the amount of
litigation proceeds the Plan received from the Claims, plus reasonable
Attorneys' Fees, provided that the Definitions set forth in Section I
and the Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan received the entire Restorative Payment Amount no
later than December 31, 2023;
(b) In connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCBS AZ; and/or (4) any person or
entity related to a person or entity identified in (1)-(3) of this
paragraph;
(c) The Plan's Repayment to BCBS AZ is not more than the lesser of
the total Restorative Payments received by the Plan or the amount of
litigation proceeds the Plan receives from the Claims. The Plan's
Repayment to BCBS AZ may only occur after a qualified independent
fiduciary (the Independent Fiduciary, as further defined in Section
II(e)) has determined that: all the conditions of the exemption are
met; the Plan has received all the Restorative Payments it is due; and
the Plan has received all the litigation proceeds it is due. The Plan's
Repayment to BCBS AZ must be carried out in a manner designed to avoid
unnecessary costs and disruption to the Plan and Plan investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payments and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payments, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCBS AZ for legal
expenses in connection with the Claims is limited to only reasonable
legal expenses that were paid by BCBS AZ to unrelated third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payments;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payments;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payments. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
BCBS AZ for Attorneys' Fees. For purposes of determining the amount of
Attorneys' Fees the Plan may reimburse to BCBS AZ under this exemption,
the amount of reasonable attorney fees paid by BCBS AZ on behalf of the
Plan in connection with the Claims must be reduced by the amount of
legal fees received by BCBS AZ in connection with the Claims from any
non-Plan party (i.e., pursuant to a court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCBS AZ must
notify the Department's Office of Exemption Determinations of the
change in Independent Fiduciary and such notification must contain all
material information regarding the successor Independent Fiduciary,
including the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of September 15,
2020.
For Further Information: Contact Mr. Frank Gonzalez of the
Department, telephone (202) 693-8553. (This is not a toll-free number.)
Blue Cross and Blue Shield of Vermont Located in Berlin, Vermont
[Prohibited Transaction Exemption 2023-05; Exemption Application No. D-
12055]
Exemption
On August 24, 2022, the Department published a notice of proposed
[[Page 11682]]
exemption in the Federal Register \9\ permitting Blue Cross and Blue
Shield of Vermont (BCBS VT) to make a series of payments to the Non-
Contributory Retirement Program for Certain Employees of Blue Cross and
Blue Shield of Vermont (the Plan) over a four-year period (the
Restorative Payments). The Restorative Payments will return the Plan to
at least the Plan's funding level (126.61%) as of January 1, 2019. If
the Plan receives litigation proceeds from the Claims, the Plan must
transfer the lesser of the ligation proceeds received or the
Restorative Payment amount, plus reasonable attorneys' fees to BCBS VT.
---------------------------------------------------------------------------
\9\ 87 FR 52135 (August 24, 2022).
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This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $41,588,205.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\10\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
---------------------------------------------------------------------------
\10\ Case number 20-CIV-07606.
---------------------------------------------------------------------------
Rather than wait for the Claims to be resolved through the
litigation, BCBS VT took steps to protect Plan benefits and avoid
onerous benefit restrictions under Code section 436 that could result
from a funding shortfall while the litigation was proceeding.
Therefore, on December 21, 2020, BCBS VT and the Plan entered into a
Contribution and Assignment Agreement (the Contribution and Assignment
Agreement).
In the Contribution and Assignment Agreement, BCBS VT agreed to
make an initial $13,000,000 lump sum payment to the Plan which was
expected to restore the Plan to an AFTAP funding level of approximately
80% as of the January 1, 2021 valuation of the Plan. BCBS VT also
agreed to make such additional payments to the Plan as necessary to
maintain the Plan's funding level at 80% as of such date, to the extent
the preliminary $13,000,000 installment payment fails to do so.
Finally, BCBS VT stated that it intended to make subsequent installment
payments to the Plan on at least an annual basis and over a four-year
period to restore Plan funding to approximately the level that was
reported prior to the losses sustained within the Allianz Structured
Alpha strategy.
Since the effective date of the Contribution and Assignment
Agreement, BCBS VT has made two Restorative Payments to the Plan: a
$13,000,000 payment remitted on December 23, 2020, and a $3,100,000
payment remitted on September 14, 2021.
This exemption requires BCBS VT to make the Restorative Payments
necessary to bring the Plan's funding percentage to at least its
January 1, 2019, pre-loss funded percentage of 126.61%, by December 31,
2024. The prior restorative payments noted together with the funding
obligations noted here constitute the Required Restorative Payments
under this exemption.
In exchange for the Restorative Payments, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCBS VT.\11\ Pursuant to
the assignment, if the Plan receives litigation proceeds from the
Claims when the AGI US/Aon litigation is resolved, the Plan will
transfer a repayment (the Repayment) to BCBS VT that does not exceed
the total Restorative Payments made by BCBS VT, plus reasonable
attorneys' fees paid by BCBS VT on behalf of the Plan in connection
with the Claims. The attorneys' fees must be reviewed and approved by a
qualified independent fiduciary who confirms that the fees were
reasonably incurred and paid by BCBS VT to unrelated third parties (the
Attorneys' Fees).
---------------------------------------------------------------------------
\11\ Under the Contribution and Assignment Agreement, if the
Plan receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
---------------------------------------------------------------------------
For the purposes of this exemption, Attorneys' Fees reimbursable to
BCBS VT do not include: (1) legal expenses paid by the Plan; or (2)
legal expenses paid by BCBS VT for representation of its own interests
or the interests of any party other than the Plan. For purposes of
determining the amount of Attorneys' Fees the Plan may reimburse to
BCBS VT under this exemption, the amount of reasonable attorneys' fees
paid by BCBS VT on behalf of the Plan in connection with the Claims
must be reduced by the amount of attorneys' fees received by BCBS VT in
connection with the Claims from any non-Plan party (for example, from a
third party pursuant to a court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12055) 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 August 24, 2022 at 87 FR 52135.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCBS VT on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by a qualified independent
fiduciary who confirms that the fees were reasonably incurred and paid
by BCBS VT to unrelated third parties. For the purposes of this
exemption, the Attorneys' Fees reimbursable to BCBS VT do not include:
(1) legal expenses paid by the
[[Page 11683]]
Plan; and (2) legal expenses paid by BCBS VT for representation of BCBS
VT or the interests of any party other than the Plan.
(b) The term ``BCBS VT'' means Blue Cross and Blue Shield of
Vermont.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between BCBS VT and the Plan, dated December 21,
2020, containing all material terms regarding BCBS VT's agreement to
make Restorative Payments (as described in Section I(h)) to the Plan in
return for the Plan's potential Repayment to BCBS VT of an amount that
is not more than lesser of the Required Restorative Payment Amount (as
described in Section I(h)) already received or the amount of litigation
proceeds the Plan receives from the Claims, plus reasonable Attorneys'
Fees paid to unrelated third parties by BCBS VT in connection with the
Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCBS VT and does not hold an ownership
interest in BCBS VT or affiliates of BCBS VT;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries;
\12\
---------------------------------------------------------------------------
\12\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------
(5) Has not received gross income from BCBS VT or its affiliates
during any fiscal year in an amount that exceeds two percent (2%) of
the Independent Fiduciary's gross income from all sources for the prior
fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCBS VT or from affiliates of
BCBS VT while serving as an Independent Fiduciary. This prohibition
will continue for six months after the party ceases to be an
Independent Fiduciary and/or the Independent Fiduciary negotiates any
transaction on behalf of the Plan during the period that the
organization or individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield of Vermont, Inc.
(g) The term ``Plan Losses'' means the $41,588,205 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payments'' means the payments made by
BCBS VT to the Plan in connection with the Plan Losses, defined above,
including: (1) the past payment of $13,000,000 made on December 23,
2020, (2) the past payment of $3,100,000 made on September 14, 2021,
and (3) amounts necessary to restore the Plan to its funding level of
126.91% before December 31, 2024. The sum of (1)-(3) is the Required
Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCBS VT following the Plan's receipt of proceeds from the
Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective September 17, 2020, to the following transactions: BCBS VT's
transfer of the Restorative Payments to the Plan; and, in return, the
Plan's Repayment of an amount to BCBS VT, which must be no more than
the lesser of the Restorative Payment Amount or the amount of
litigation proceeds the Plan received from the Claims, plus reasonable
Attorneys' Fees, provided that the Definitions set forth in Section I
and the Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan receives the entire Restorative Payment Amount no
later than December 31, 2024;
(b) In connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCBS VT; and/or (4) any person or
entity related to a person or entity identified in (1)-(3) of this
paragraph;
(c) The Plan's Repayment to BCBS VT is not more than the lesser of
the total Restorative Payments received by the Plan or the amount of
litigation proceeds the Plan receives from the Claims. The Plan's
Repayment to BCBS VT may only occur after a qualified independent
fiduciary (the Independent Fiduciary, as further defined in Section
II(e)) has determined that: all the conditions of the exemption are
met; the Plan has received all the Restorative Payments it is due; and
the Plan has received all the litigation proceeds it is due. The Plan's
Repayment to BCBS VT must be carried out in a manner designed to avoid
unnecessary costs and disruption to the Plan and Plan investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payments and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payments, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
[[Page 11684]]
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCBS VT for legal
expenses in connection with the Claims is limited to only reasonable
legal expenses that were paid by BCBS VT to unrelated third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payments;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payments;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payments. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
BCBS VT for Attorneys' Fees. For purposes of determining the amount of
Attorneys' Fees the Plan may reimburse to BCBS VT under this exemption,
the amount of reasonable attorney fees paid by BCBS VT on behalf of the
Plan in connection with the Claims must be reduced by the amount of
legal fees received by BCBS VT in connection with the Claims from any
non-Plan party (i.e., pursuant to a court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCBS VT must
notify the Department's Office of Exemption Determinations of the
change in Independent Fiduciary and such notification must contain all
material information regarding the successor Independent Fiduciary,
including the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of December 21,
2020.
For Further Information: Contact Mr. Nicholas Schroth of the
Department, telephone (202) 693-8571. (This is not a toll-free number.)
Hawaii Medical Service Association Located in Honolulu, Hawaii
[Prohibited Transaction Exemption 2023-06; Exemption Application No. D-
12038]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \13\ permitting the past restorative
payment of $50,000,000 (the Restorative Payment) by Hawaii Medical
Service Association (HMSA) to the Non-Contributory Retirement Program
for Certain Employees of Hawaii Medical Service Association (the Plan).
If the Plan receives litigation proceeds from the Claims, the Plan must
transfer the lesser of the ligation proceeds received or the
Restorative Payment amount, plus reasonable attorneys' fees to HMSA.
---------------------------------------------------------------------------
\13\ 87 FR 52141 (August 24, 2022).
---------------------------------------------------------------------------
This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $187,271,581.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\14\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
---------------------------------------------------------------------------
\14\ Case number 20-CIV-07606.
---------------------------------------------------------------------------
Rather than wait for the Claims to be resolved through the
litigation, HMSA took steps to protect Plan benefits and avoid onerous
benefit restrictions under Code section 436 that could result from a
funding shortfall while the litigation was proceeding. Therefore, on
November 3, 2020, HMSA and the Plan entered into a Contribution and
Assignment Agreement (the Contribution and Assignment Agreement)
whereby HMSA agreed to make a $50,000,000 Restorative Payment to the
Plan. Subsequently, on December 18, 2020, HMSA made a $50,000,000
Restorative Payment to the Plan. This $50,000,000 payment is the
Required Restorative Payment Amount under this exemption.
In exchange for the Restorative Payment, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to HMSA.\15\ Pursuant to the
assignment, if the Plan receives litigation proceeds from the Claims
when the AGI US/Aon litigation is resolved, the Plan will
[[Page 11685]]
transfer a repayment (the Repayment) to HMSA that does not exceed the
total Restorative Payment made by HMSA, plus reasonable attorneys' fees
paid by HMSA on behalf of the Plan in connection with the Claims. The
attorneys' fees must be reviewed and approved by a qualified
independent fiduciary who confirms that the fees were reasonably
incurred and paid by HMSA to unrelated third parties (the Attorneys'
Fees).
---------------------------------------------------------------------------
\15\ Under the Contribution and Assignment Agreement, if the
Plan receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
---------------------------------------------------------------------------
For the purposes of this exemption, Attorneys' Fees reimbursable to
HMSA do not include: (1) legal expenses paid by the Plan; or (2) legal
expenses paid by HMSA for representation of its own interests or the
interests of any party other than the Plan. For purposes of determining
the amount of Attorneys' Fees the Plan may reimburse to HMSA under this
exemption, the amount of reasonable attorneys' fees paid by HMSA on
behalf of the Plan in connection with the Claims must be reduced by the
amount of attorneys' fees received by HMSA in connection with the
Claims from any non-Plan party (for example, from a third party
pursuant to a court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12038) 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 August 24, 2022 at 87 FR 52141.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by HMSA on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by a qualified independent
fiduciary who confirms that the fees were reasonably incurred and paid
by HMSA to unrelated third parties. For the purposes of this exemption,
the Attorneys' Fees reimbursable to HMSA do not include: (1) legal
expenses paid by the Plan; and (2) legal expenses paid by HMSA for
representation of HMSA or the interests of any party other than the
Plan.
(b) The term ``HMSA'' means Hawaii Medical Service Association.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between HMSA and the Plan, dated November 3, 2020,
containing all material terms regarding HMSA's agreement to make a
$50,000,000 payment to the Plan in return for the Plan's potential
Repayment to HMSA of an amount that is not more than lesser of the
Required Restorative Payment Amount (as described in Section I(h))
already received or the amount of litigation proceeds the Plan receives
from the Claims, plus reasonable Attorneys' Fees paid to unrelated
third parties by HMSA in connection with the Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of HMSA and does not hold an ownership
interest in HMSA or affiliates of HMSA;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries;
\16\
---------------------------------------------------------------------------
\16\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------
(5) Has not received gross income from HMSA or its affiliates
during any fiscal year in an amount that exceeds two percent (2%) of
the Independent Fiduciary's gross income from all sources for the prior
fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from HMSA or from affiliates of HMSA
while serving as an Independent Fiduciary. This prohibition will
continue for six months after the party ceases to be an Independent
Fiduciary and/or the Independent Fiduciary negotiates any transaction
on behalf of the Plan during the period that the organization or
individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of Hawaii Medical Service Association.
(g) The term ``Plan Losses'' means the $187,271,581 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payment'' means the payments made by
HMSA to the Plan in connection with the Plan Losses, defined above,
consisting of a $50,000,000 payment that HMSA contributed to the Plan
on December 18, 2020. This $50,000,000 payment is the Required
Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to HMSA following the Plan's receipt of proceeds from the
Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective November 3, 2020, to the following transactions: HMSA's
transfer of the Restorative Payment to
[[Page 11686]]
the Plan; and, in return, the Plan's Repayment of an amount to HMSA,
which must be no more than the lesser of the Restorative Payment Amount
or the amount of litigation proceeds the Plan received from the Claims,
plus reasonable Attorneys' Fees, provided that the Definitions set
forth in Section I and the Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan received the entire Restorative Payment Amount on
December 18, 2020;
(b) In connection with its receipt of the Required Restorative
Payment, the Plan does not release any claims, demands and/or causes of
action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) HMSA; and/or (4) any person or entity
related to a person or entity identified in (1)-(3) of this paragraph;
(c) The Plan's Repayment to HMSA is not more than the lesser of the
total Restorative Payment received by the Plan or the amount of
litigation proceeds the Plan receives from the Claims. The Plan's
Repayment to HMSA may only occur after a qualified independent
fiduciary (the Independent Fiduciary, as further defined in Section
II(e)) has determined that: all the conditions of the exemption are
met; the Plan has received all the Restorative Payments it is due; and
the Plan has received all the litigation proceeds it is due. The Plan's
Repayment to HMSA must be carried out in a manner designed to avoid
unnecessary costs and disruption to the Plan and Plan investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payment and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payment, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to HMSA for legal
expenses in connection with the Claims is limited to only reasonable
legal expenses that were paid by HMSA to unrelated third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payment;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payment;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payment. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
HMSA for Attorneys' Fees. For purposes of determining the amount of
Attorneys' Fees the Plan may reimburse to HMSA under this exemption,
the amount of reasonable attorney fees paid by HMSA on behalf of the
Plan in connection with the Claims must be reduced by the amount of
legal fees received by HMSA in connection with the Claims from any non-
Plan party (i.e., pursuant to a court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, HMSA must notify
the Department's Office of Exemption Determinations of the change in
Independent Fiduciary and such notification must contain all material
information regarding the successor Independent Fiduciary, including
the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of November 3, 2020.
For Further Information: Contact Mrs. Blessed Chuksorji-Keefe of
the Department, telephone (202) 693-8567. (This is not a toll-free
number.)
BCS Financial Corporation Located in Oakbrook Terrace, Illinois
[Prohibited Transaction Exemption 2023-07; Application No. D-12036]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \17\ permitting BCS Financial
Corporation (BCS) to make a series of payments to the Non-Contributory
Retirement Program for Certain Employees of BCS Financial Corporation
(the Plan), including: (a) past payments totaling $19,600,000; and (b)
a payment of $1,800,000 on or before September 13, 2023 (the
Restorative Payments). If the Plan receives litigation proceeds from
the Claims, the Plan must transfer the lesser of the ligation proceeds
received or the Restorative Payment amount, plus reasonable attorneys'
fees to BCS.
---------------------------------------------------------------------------
\17\ 87 FR 52146 (August 24, 2022).
---------------------------------------------------------------------------
This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
[[Page 11687]]
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $29,496,983.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\18\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
---------------------------------------------------------------------------
\18\ Case number 20-CIV-07606.
---------------------------------------------------------------------------
Rather than wait for the Claims to be resolved through the
litigation, BCS took steps to protect Plan benefits and avoid onerous
benefit restrictions under Code section 436 that could result from a
funding shortfall while the litigation was proceeding. Therefore, on
October 9, 2020, BCS and the Plan entered into a Contribution and
Assignment Agreement (the Contribution and Assignment Agreement).
Pursuant to the Contribution and Assignment Agreement, BCS agreed to
make a $16,000,000 Restorative Payment to the Plan within seven
business days after the Agreement's effective date. Subsequently, on
October 13, 2020, BCS made a $16,000,000 Restorative Payment to the
Plan.
On September 27, 2021, BCS and the Plan amended the Restorative
Payments provision of the Contribution and Assignment Agreement.
Pursuant to the amendment, BCS agreed to make the following three
additional Restorative Payments to the Plan: (a) a payment of
$1,800,000 on or before September 13, 2021; (b) a payment of $1,800,000
on or before September 13, 2022; and (c) a payment of $1,800,000 on or
before September 13, 2023. Since the effective date of the Restorative
Payment Amendment, BCS Financial has made two additional Restorative
Payments to the Plan: a $1,800,000 payment on September 14, 2021, and a
$1,800,000 payment on January 14, 2022.
In exchange for the Restorative Payments, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCS.\19\ Pursuant to the
assignment, if the Plan receives litigation proceeds from the Claims
when the AGI US/Aon litigation is resolved, the Plan will transfer a
repayment (the Repayment) to BCS that does not exceed the total
Restorative Payments made by BCS, plus reasonable attorneys' fees paid
by BCS on behalf of the Plan in connection with the Claims. The
attorneys' fees must be reviewed and approved by a qualified
independent fiduciary who confirms that the fees were reasonably
incurred and paid by BCS to unrelated third parties (the Attorneys'
Fees).
---------------------------------------------------------------------------
\19\ Under the Contribution and Assignment Agreement, if the
Plan receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
---------------------------------------------------------------------------
For the purposes of this exemption, Attorneys' Fees reimbursable to
BCS do not include: (1) legal expenses paid by the Plan; or (2) legal
expenses paid by BCS for representation of its own interests or the
interests of any party other than the Plan. For purposes of determining
the amount of Attorneys' Fees the Plan may reimburse to BCS under this
exemption, the amount of reasonable attorneys' fees paid by BCS on
behalf of the Plan in connection with the Claims must be reduced by the
amount of attorneys' fees received by BCS in connection with the Claims
from any non-Plan party (for example, from a third party pursuant to a
court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12036) 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 August 24, 2022 at 87 FR 52146.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCS on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by a qualified independent
fiduciary who confirms that the fees were reasonably incurred and paid
by BCS to unrelated third parties. For the purposes of this exemption,
the Attorneys' Fees reimbursable to BCS do not include: (1) legal
expenses paid by the Plan; and (2) legal expenses paid by BCS for
representation of BCS or the interests of any party other than the
Plan.
(b) The term ``BCS'' means BCS Financial Corporation.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between BCS and the Plan, dated October 9, 2020, and
its amendment that became effective on September 27, 2021, containing
all material terms regarding BCS's agreement to make Restorative
Payments (as described in Section I(h)) to the Plan in return for the
Plan's potential Repayment to BCS of an amount that is not more than
lesser of the Required Restorative Payment Amount (as described in
Section I(h)) already received or the amount of litigation proceeds the
Plan receives from the Claims, plus reasonable Attorneys' Fees paid to
unrelated third parties by BCS in connection with the Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCS and does not hold an ownership
interest in BCS or affiliates of BCS;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction
[[Page 11688]]
in which it has an interest that might affect its best judgment as a
fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries;
\20\
---------------------------------------------------------------------------
\20\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------
(5) Has not received gross income from BCS or its affiliates during
any fiscal year in an amount that exceeds two percent (2%) of the
Independent Fiduciary's gross income from all sources for the prior
fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCS or from affiliates of BCS
while serving as an Independent Fiduciary. This prohibition will
continue for six months after the party ceases to be an Independent
Fiduciary and/or the Independent Fiduciary negotiates any transaction
on behalf of the Plan during the period that the organization or
individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of BCS Financial Corporation.
(g) The term ``Plan Losses'' means the $29,496,983 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payments'' means the payments made by
BCS to the Plan in connection with the Plan Losses, defined above,
including: (1) the past payment of $16,000,000, made on October 13,
2020; (2) the past payment of $1,800,000, made on September 14, 2021;
(3) the past payment of $1,800,000 made on January 14, 2022; and (4) a
payment of $1,800,000 to be made on or before September 13, 2023. The
sum of (1)-(4) is the Required Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCS following the Plan's receipt of proceeds from the
Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective September 17, 2020, to the following transactions: BCS's
transfer of the Restorative Payments to the Plan; and, in return, the
Plan's Repayment of an amount to BCS, which must be no more than the
lesser of the Restorative Payment Amount or the amount of litigation
proceeds the Plan received from the Claims, plus reasonable Attorneys'
Fees, provided that the Definitions set forth in Section I and the
Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan receives the entire Restorative Payment Amount no
later than September 13, 2023;
(b) In connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCS; and/or (4) any person or entity
related to a person or entity identified in (1)-(3) of this paragraph;
(c) The Plan's Repayment to BCS is not more than the lesser of the
total Restorative Payments received by the Plan or the amount of
litigation proceeds the Plan receives from the Claims. The Plan's
Repayment to BCS may only occur after a qualified independent fiduciary
(the Independent Fiduciary, as further defined in Section II(e)) has
determined that: all the conditions of the exemption are met; the Plan
has received all the Restorative Payments it is due; and the Plan has
received all the litigation proceeds it is due. The Plan's Repayment to
BCS must be carried out in a manner designed to avoid unnecessary costs
and disruption to the Plan and Plan investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payments and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payments, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCS for legal expenses
in connection with the Claims is limited to only reasonable legal
expenses that were paid by BCS to unrelated third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payments;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payments;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payments. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
BCS for Attorneys' Fees. For purposes of determining the amount of
Attorneys' Fees the Plan may reimburse to BCS under this exemption, the
amount of reasonable attorney fees paid by BCS on behalf of the Plan in
connection with the Claims must be reduced by the amount of legal fees
received by BCS in connection with the Claims from any non-Plan party
(i.e., pursuant to a court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
[[Page 11689]]
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCS must notify
the Department's Office of Exemption Determinations of the change in
Independent Fiduciary and such notification must contain all material
information regarding the successor Independent Fiduciary, including
the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of October 9, 2020.
For Further Information: Contact Mr. Frank Gonzalez of the
Department, telephone (202) 693-8553. (This is not a toll-free number.)
Blue Cross and Blue Shield of Mississippi, A Mutual Insurance Company
Located in Flowood, Mississippi
[Prohibited Transaction Exemption 2023-08; Application No. D-12040]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \21\ permitting the past payments of
$70,000,000 and $12,000,000 (the Restorative Payments) by the Plan
sponsor, Blue Cross and Blue Shield of Mississippi, A Mutual Insurance
Company (BCBS MS), to the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield of Mississippi (the
Plan). If the Plan receives litigation proceeds from the Claims, the
Plan must transfer the lesser of the ligation proceeds received or the
Restorative Payment amount, plus reasonable attorneys' fees to BCBS MS.
---------------------------------------------------------------------------
\21\ 87 FR 52152 (August 24, 2022).
---------------------------------------------------------------------------
This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $102,446,155.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\22\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
---------------------------------------------------------------------------
\22\ Case number 20-CIV-07606.
---------------------------------------------------------------------------
Rather than wait for the Claims to be resolved through the
litigation, BCBS MS took steps to protect Plan benefits and avoid
onerous benefit restrictions under Code section 436 that could result
from a funding shortfall while the litigation was proceeding.
Therefore, on September 17, 2020, BCBS MS and the Plan entered into a
Contribution and Assignment Agreement (the Contribution and Assignment
Agreement).
Pursuant to the Contribution and Assignment Agreement, BCBS MS
agreed to make the following Restorative Payments to the Plan: (a) a
$70,000,000 payment within seven business days of the effective date of
the Contribution and Assignment Agreement; and (b) a $12,000,000
payment on or about November 24, 2020. BCBS MS subsequently made the
following Restorative Payments to the Plan: (a) a payment of
$70,000,000 on September 21, 2020; and (b) a payment of $12,000,000 on
November 25, 2020.
In exchange for the Restorative Payments, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCBS MS.\23\ Pursuant to
the assignment, if the Plan receives litigation proceeds from the
Claims when the AGI US/Aon litigation is resolved, the Plan will
transfer a repayment (the Repayment) to BCBS MS that does not exceed
the total Restorative Payments made by BCBS MS, plus reasonable
attorneys' fees paid by BCBS MS on behalf of the Plan in connection
with the Claims. The attorneys' fees must be reviewed and approved by a
qualified independent fiduciary who confirms that the fees were
reasonably incurred and paid by BCBS MS to unrelated third parties (the
Attorneys' Fees).
---------------------------------------------------------------------------
\23\ Under the Contribution and Assignment Agreement, if the
Plan receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
---------------------------------------------------------------------------
For the purposes of this exemption, Attorneys' Fees reimbursable to
BCBS MS do not include: (1) legal expenses paid by the Plan; or (2)
legal expenses paid by BCBS MS for representation of its own interests
or the interests of any party other than the Plan. For purposes of
determining the amount of Attorneys' Fees the Plan may reimburse to
BCBS MS under this exemption, the amount of reasonable attorneys' fees
paid by BCBS MS on behalf of the Plan in connection with the Claims
must be reduced by the amount of attorneys' fees received by BCBS MS in
connection with the Claims from any non-Plan party (for example, from a
third party pursuant to a court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The
[[Page 11690]]
Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12040) 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 August 24, 2022 at 87 FR 52152.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCBS MS on behalf of the Plan in connection with the Claims, if
such fees are reviewed and approved by a qualified independent
fiduciary who confirms that the fees were reasonably incurred and paid
by BCBS MS to unrelated third parties. For the purposes of this
exemption, the Attorneys' Fees reimbursable to BCBS MS do not include:
(1) legal expenses paid by the Plan; and (2) legal expenses paid by
BCBS MS for representation of BCBS MS or the interests of any party
other than the Plan.
(b) The term ``BCBS MS'' means Blue Cross and Blue Shield of
Mississippi, A Mutual Insurance Company.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between BCBS MS and the Plan, dated September 17,
2020, containing all material terms regarding BCBS MS's agreement to
make (a) a $70,000,000 payment within seven business days of the
effective date of the Contribution and Assignment Agreement and (b) a
$12,000,000 payment on or about November 24, 2020, in return for the
Plan's potential Repayment to BCBS MS of an amount that is not more
than lesser of the Required Restorative Payment Amount (as described in
Section I(h)) already received or the amount of litigation proceeds the
Plan receives from the Claims, plus reasonable Attorneys' Fees paid to
unrelated third parties by BCBS MS in connection with the Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCBS MS and does not hold an ownership
interest in BCBS MS or affiliates of BCBS MS;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries;
\24\
---------------------------------------------------------------------------
\24\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------
(5) Has not received gross income from BCBS MS or its affiliates
during any fiscal year in an amount that exceeds two percent (2%) of
the Independent Fiduciary's gross income from all sources for the prior
fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCBS MS or from affiliates of
BCBS MS while serving as an Independent Fiduciary. This prohibition
will continue for six months after the party ceases to be an
Independent Fiduciary and/or the Independent Fiduciary negotiates any
transaction on behalf of the Plan during the period that the
organization or individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield of Mississippi.
(g) The term ``Plan Losses'' means the $102,446,155 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payments'' means the payments made by
BCBS MS to the Plan in connection with the Plan Losses, defined above,
consisting of (1) a payment of $70,000,000 on September 21, 2020; and
(2) a payment of $12,000,000 on November 25, 2020. The sum of (1) and
(2) is the Required Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCBS MS following the Plan's receipt of proceeds from the
Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective September 17, 2020, to the following transactions: BCBS MS's
transfer of the Restorative Payments to the Plan; and, in return, the
Plan's Repayment of an amount to BCBS MS, which must be no more than
the lesser of the Restorative Payment Amount or the amount of
litigation proceeds the Plan received from the Claims, plus reasonable
Attorneys' Fees, provided that the Definitions set forth in Section I
and the Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan received the entire Restorative Payment Amount by
November 25, 2020;
(b) In connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCBS MS; and/or (4) any person or
entity related to a person or entity identified in (1)-(3) of this
paragraph;
(c) The Plan's Repayment to BCBS MS is not more than the lesser of
the total Restorative Payments received by the Plan or the amount of
litigation
[[Page 11691]]
proceeds the Plan receives from the Claims. The Plan's Repayment to
BCBS MS may only occur after a qualified independent fiduciary (the
Independent Fiduciary, as further defined in Section II(e)) has
determined that: all the conditions of the exemption are met; the Plan
has received all the Restorative Payments it is due; and the Plan has
received all the litigation proceeds it is due. The Plan's Repayment to
BCBS MS must be carried out in a manner designed to avoid unnecessary
costs and disruption to the Plan and Plan investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payments and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payments, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCBS MS for legal
expenses in connection with the Claims is limited to only reasonable
legal expenses that were paid by BCBS MS to unrelated third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payments;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payments;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payments. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
BCBS MS for Attorneys' Fees. For purposes of determining the amount of
Attorneys' Fees the Plan may reimburse to BCBS MS under this exemption,
the amount of reasonable attorney fees paid by BCBS MS on behalf of the
Plan in connection with the Claims must be reduced by the amount of
legal fees received by BCBS MS in connection with the Claims from any
non-Plan party (i.e., pursuant to a court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCBS MS must
notify the Department's Office of Exemption Determinations of the
change in Independent Fiduciary and such notification must contain all
material information regarding the successor Independent Fiduciary,
including the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of September 17,
2020.
For Further Information: Contact Mrs. Blessed Chuksorji-Keefe of
the Department, telephone (202) 693-8567. (This is not a toll-free
number.)
Blue Cross and Blue Shield of Nebraska, Inc. Located in Omaha, Nebraska
[Prohibited Transaction Exemption 2023-09; Application No. D-12041]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \25\ permitting the past payments of
$7,000,000 and $6,600,000 (the Restorative Payments) by the Plan
sponsor, Blue Cross and Blue Shield of Nebraska, Inc. (BCBS Nebraska),
to the Non-Contributory Retirement Program for Certain Employees of
Blue Cross and Blue Shield of Nebraska, Inc. (the Plan). If the Plan
receives litigation proceeds from the Claims, the Plan must transfer
the lesser of the ligation proceeds received or the Restorative Payment
amount, plus reasonable attorneys' fees to BCBS Nebraska.
---------------------------------------------------------------------------
\25\ 87 FR 52157 (August 24, 2022).
---------------------------------------------------------------------------
This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $33,649,481.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach
[[Page 11692]]
of contract (the Claims).\26\ At the time of filing, the Applicant
anticipated that a resolution of the Claims could take an extended
period of time.
---------------------------------------------------------------------------
\26\ Case number 20-CIV-07606.
---------------------------------------------------------------------------
Rather than wait for the Claims to be resolved through the
litigation, BCBS Nebraska took steps to protect Plan benefits and avoid
onerous benefit restrictions under Code section 436 that could result
from a funding shortfall while the litigation was proceeding.
Therefore, on November 5, 2020, BCBS Nebraska and the Plan entered into
a Contribution and Assignment Agreement (the Contribution and
Assignment Agreement). Pursuant to the Contribution and Assignment
Agreement, BCBS Nebraska agreed to make Restorative Payments to the
Plan not in excess of $33,649,481 by September 15, 2022. Subsequently,
on August 25, 2021, BCBS Nebraska made a $7,000,000 Restorative Payment
to the Plan.
On March 17, 2022, BCBS Nebraska and the Plan amended the
Restorative Payments provision of the Contribution and Assignment
Agreement to require BCBS Nebraska to make one additional Restorative
Payment of $6,600,000 to the Plan by September 15, 2022. Subsequently,
on March 29, 2022, BCBS Nebraska made a $6,600,000 Restorative Payment
to the Plan.
In exchange for the Restorative Payments, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCBS Nebraska.\27\ Pursuant
to the assignment, if the Plan receives litigation proceeds from the
Claims when the AGI US/Aon litigation is resolved, the Plan will
transfer a repayment (the Repayment) to BCBS Nebraska that does not
exceed the total Restorative Payments made by BCBS Nebraska, plus
reasonable attorneys' fees paid by BCBS Nebraska on behalf of the Plan
in connection with the Claims. The attorneys' fees must be reviewed and
approved by a qualified independent fiduciary who confirms that the
fees were reasonably incurred and paid by BCBS Nebraska to unrelated
third parties (the Attorneys' Fees).
---------------------------------------------------------------------------
\27\ Under the Contribution and Assignment Agreement, if the
Plan receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
---------------------------------------------------------------------------
For the purposes of this exemption, Attorneys' Fees reimbursable to
BCBS Nebraska do not include: (1) legal expenses paid by the Plan; or
(2) legal expenses paid by BCBS Nebraska for representation of its own
interests or the interests of any party other than the Plan. For
purposes of determining the amount of Attorneys' Fees the Plan may
reimburse to BCBS Nebraska under this exemption, the amount of
reasonable attorneys' fees paid by BCBS Nebraska on behalf of the Plan
in connection with the Claims must be reduced by the amount of
attorneys' fees received by BCBS Nebraska in connection with the Claims
from any non-Plan party (for example, from a third party pursuant to a
court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12041) 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 August 24, 2022. at 87 FR 52157.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCBS Nebraska on behalf of the Plan in connection with the
Claims, if such fees are reviewed and approved by a qualified
independent fiduciary who confirms that the fees were reasonably
incurred and paid by BCBS Nebraska to unrelated third parties. For the
purposes of this exemption, the Attorneys' Fees reimbursable to BCBS
Nebraska do not include: (1) legal expenses paid by the Plan; and (2)
legal expenses paid by BCBS Nebraska for representation of BCBS
Nebraska or the interests of any party other than the Plan.
(b) The term ``BCBS Nebraska'' means Blue Cross and Blue Shield of
Nebraska, Inc.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between BCBS Nebraska and the Plan, dated November 5,
2020, and its amendment that became effective on March 17, 2022,
containing all material terms regarding BCBS Nebraska's agreement to
make (a) a payment not in excess of $33,649,481 by September 15, 2022,
and (b) a payment of $6,600,000 by September 15, 2022, in return for
the Plan's potential Repayment to BCBS Nebraska of an amount that is
not more than lesser of the Required Restorative Payment Amount (as
described in Section I(h)) already received or the amount of litigation
proceeds the Plan receives from the Claims, plus reasonable Attorneys'
Fees paid to unrelated third parties by BCBS Nebraska in connection
with the Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCBS Nebraska and does not hold an
ownership interest in BCBS Nebraska or affiliates of BCBS Nebraska;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries;
\28\
---------------------------------------------------------------------------
\28\ 29 CFR 2509.75-4.
---------------------------------------------------------------------------
(5) Has not received gross income from BCBS Nebraska or its
affiliates during any fiscal year in an amount that exceeds two percent
(2%) of the Independent Fiduciary's gross income from all sources for
the prior fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any
[[Page 11693]]
prohibited transaction exemption granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCBS Nebraska or from affiliates
of BCBS Nebraska while serving as an Independent Fiduciary. This
prohibition will continue for six months after the party ceases to be
an Independent Fiduciary and/or the Independent Fiduciary negotiates
any transaction on behalf of the Plan during the period that the
organization or individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield of Nebraska, Inc.
(g) The term ``Plan Losses'' means the $33,649,481 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payments'' means the payments made by
BCBS Nebraska to the Plan in connection with the Plan Losses, defined
above, consisting of (1) a payment of $7,000,000 on August 25, 2021;
and (2) a payment of $6,600,000 on March 29, 2022. The sum of (1) and
(2) is the Required Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCBS Nebraska following the Plan's receipt of proceeds from
the Claims, where the Repayment is made following the full and complete
resolution of the Claims, and in a manner that is consistent with the
terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective September 17, 2020, to the following transactions: BCBS
Nebraska's transfer of the Restorative Payments to the Plan; and, in
return, the Plan's Repayment of an amount to BCBS Nebraska, which must
be no more than the lesser of the Restorative Payment Amount or the
amount of litigation proceeds the Plan received from the Claims, plus
reasonable Attorneys' Fees, provided that the Definitions set forth in
Section I and the Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan received the entire Restorative Payment Amount by
March 29, 2022;
(b) In connection with its receipt of the Required Restorative
Payments, the Plan does not release any claims, demands and/or causes
of action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCBS Nebraska; and/or (4) any person
or entity related to a person or entity identified in (1)-(3) of this
paragraph;
(c) The Plan's Repayment to BCBS Nebraska is not more than the
lesser of the total Restorative Payments received by the Plan or the
amount of litigation proceeds the Plan receives from the Claims. The
Plan's Repayment to BCBS Nebraska may only occur after a qualified
independent fiduciary (the Independent Fiduciary, as further defined in
Section II(e)) has determined that: all the conditions of the exemption
are met; the Plan has received all the Restorative Payments it is due;
and the Plan has received all the litigation proceeds it is due. The
Plan's Repayment to BCBS Nebraska must be carried out in a manner
designed to avoid unnecessary costs and disruption to the Plan and Plan
investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payments and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payments, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCBS Nebraska for
legal expenses in connection with the Claims is limited to only
reasonable legal expenses that were paid by BCBS Nebraska to unrelated
third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payments;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payments;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payments. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
BCBS Nebraska for Attorneys' Fees. For purposes of determining the
amount of Attorneys' Fees the Plan may reimburse to BCBS Nebraska under
this exemption, the amount of reasonable attorney fees paid by BCBS
Nebraska on behalf of the Plan in connection with the Claims must be
reduced by the amount of legal fees received by BCBS Nebraska in
connection with the Claims from any non-Plan party (i.e., pursuant to a
court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
[[Page 11694]]
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCBS Nebraska
must notify the Department's Office of Exemption Determinations of the
change in Independent Fiduciary and such notification must contain all
material information regarding the successor Independent Fiduciary,
including the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of November 5, 2020.
For Further Information: Contact Ms. Anna Vaughan of the
Department, telephone (202) 693-8565. (This is not a toll-free number.)
BlueCross BlueShield of Tennessee, Inc. Located in Chattanooga,
Tennessee
[Prohibited Transaction Exemption 2023-10; Application No. D-12045]
Exemption
On August 24, 2022, the Department published a notice of proposed
exemption in the Federal Register \29\ permitting the past restorative
payment of $100,000,000 to the BlueCross BlueShield of Tennessee, Inc.
Pension Plan (the Plan) Plan by the Plan sponsor, BlueCross BlueShield
of Tennessee, Inc. (BCBS Tennessee). If the Plan receives litigation
proceeds from the Claims, the Plan must transfer the lesser of the
ligation proceeds received or the Restorative Payment amount, plus
reasonable attorneys' fees to BCBS Tennessee.
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\29\ 87 FR 52163 (August 24, 2022).
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This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the notice of proposed exemption,
in March 2020 the Plan sustained significant asset losses through its
investment in a series of Structured Alpha Funds managed by AGI US.
These investment losses were caused, in significant part, by a
fraudulent risk misrepresentation and forgery scheme carried out by
three fund managers within AGI US. In March 2020, when equity markets
declined sharply and volatility spiked, AGI US's promised risk
protections were absent, and the Plan lost $93,576,015.
On September 16, 2020, the Blue Cross and Blue Shield Association
National Employee Benefits Committee (the Committee) filed a cause of
action in the United States District Court for the Southern District of
New York against AGI US and Aon for Breach of Fiduciary Duty under
ERISA Section 404, Breach of Co-Fiduciary Duty under ERISA Section 405,
violation of ERISA Section 406(b) for the self-interested management of
Plan assets, and breach of contract (the Claims).\30\ At the time of
filing, the Applicant anticipated that a resolution of the Claims could
take an extended period of time.
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\30\ Case number 20-CIV-07606.
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Rather than wait for the Claims to be resolved through the
litigation, BCBS Tennessee took steps to protect Plan benefits and
avoid onerous benefit restrictions under Code section 436 that could
result from a funding shortfall while the litigation was proceeding.
Therefore, on October 8, 2020, BCBS Tennessee and the Plan entered into
a Contribution and Assignment Agreement (the Contribution and
Assignment Agreement), whereby BCBS Tennessee agreed to make a
$100,000,000 payment to the Plan within seven business days of the
effective date of the Contribution and Assignment Agreement. This
$100,0000 payment is the Required Restorative Payment Amount under this
exemption. BCBS Tennessee remitted $100,000,000 to the Plan on October
8, 2020.
In exchange for the Restorative Payment, the Plan assigned its
right to retain certain litigation and/or settlement proceeds recovered
from the Claims (the Assigned Interests) to BCBS Tennessee.\31\
Pursuant to the assignment, if the Plan receives litigation proceeds
from the Claims when the AGI US/Aon litigation is resolved, the Plan
will transfer a repayment (the Repayment) to BCBS Tennessee that does
not exceed the total Restorative Payment made by BCBS Tennessee, plus
reasonable attorneys' fees paid by BCBS Tennessee on behalf of the Plan
in connection with the Claims. The attorneys' fees must be reviewed and
approved by a qualified independent fiduciary who confirms that the
fees were reasonably incurred and paid by BCBS Tennessee to unrelated
third parties (the Attorneys' Fees).
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\31\ Under the Contribution and Assignment Agreement, if the
Plan receives litigation or settlement proceeds from the Claims, the
proceeds would first flow to the Trust, and then each Plan's pro
rata portion of the proceeds would be deposited into the individual
trust funding that Plan.
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For the purposes of this exemption, Attorneys' Fees reimbursable to
BCBS Tennessee do not include: (1) legal expenses paid by the Plan; or
(2) legal expenses paid by BCBS Tennessee for representation of its own
interests or the interests of any party other than the Plan. For
purposes of determining the amount of Attorneys' Fees the Plan may
reimburse to BCBS Tennessee under this exemption, the amount of
reasonable attorneys' fees paid by BCBS Tennessee on behalf of the Plan
in connection with the Claims must be reduced by the amount of
attorneys' fees received by BCBS Tennessee in connection with the
Claims from any non-Plan party (for example, from a third party
pursuant to a court award).
Written Comments
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 notice of proposed exemption by October 11, 2022.
The Department received no comments or requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption.
The complete application file (D-12045) 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 August 24, 2022 at 87 FR 52163.
Exemption
Section I. Definitions
(a) The term ``Attorneys' Fees'' means reasonable legal expenses
paid by BCBS Tennessee on behalf of the Plan in connection with the
Claims, if such fees are reviewed and approved by a qualified
independent fiduciary who confirms that the fees were reasonably
incurred and paid by BCBS Tennessee to unrelated third parties. For the
purposes of this exemption, the Attorneys' Fees reimbursable to BCBS
Tennessee do not include: (1) legal
[[Page 11695]]
expenses paid by the Plan; and (2) legal expenses paid by BCBS
Tennessee for representation of BCBS Tennessee or the interests of any
party other than the Plan.
(b) The term ``BCBS Tennessee'' means BlueCross BlueShield of
Tennessee, Inc.
(c) The term ``Claims'' means the legal claims against Allianz
Global Investors U.S. LLC (AGI US) and Aon Investments USA Inc. (Aon),
to recover certain losses incurred by the Plan in the first quarter of
2020.
(d) The term ``Contribution and Assignment Agreement'' means the
written agreement between BCBS Tennessee and the Plan, dated October 8,
2020, containing all material terms regarding BCBS Tennessee's
agreement to make a $100,000,000 payment to the Plan in return for the
Plan's potential Repayment to BCBS Tennessee of an amount that is not
more than lesser of the Required Restorative Payment Amount (as
described in Section I(h)) already received or the amount of litigation
proceeds the Plan receives from the Claims, plus reasonable Attorneys'
Fees paid to unrelated third parties by BCBS Tennessee in connection
with the Claims.
(e) The term ``Independent Fiduciary'' means Gallagher Fiduciary
Advisors, LLC (Gallagher) or a successor Independent Fiduciary to the
extent Gallagher or the successor Independent Fiduciary continues to
serve in such capacity who:
(1) Is not an affiliate of BCBS Tennessee and does not hold an
ownership interest in BCBS Tennessee or affiliates of BCBS Tennessee;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries;
\32\
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\32\ 29 CFR 2509.75-4.
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(5) Has not received gross income from BCBS Tennessee or its
affiliates during any fiscal year in an amount that exceeds two percent
(2%) of the Independent Fiduciary's gross income from all sources for
the prior fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from BCBS Tennessee or from affiliates
of BCBS Tennessee while serving as an Independent Fiduciary. This
prohibition will continue for six months after the party ceases to be
an Independent Fiduciary and/or the Independent Fiduciary negotiates
any transaction on behalf of the Plan during the period that the
organization or individual serves as an Independent Fiduciary.
(f) The ``Plan'' means the BlueCross BlueShield of Tennessee, Inc.
Pension Plan.
(g) The term ``Plan Losses'' means the $93,576,015 in Plan losses
the BCBSA's National Employee Benefits Committee alleges were the
result of breaches of fiduciary responsibilities and breaches of
contract by Allianz Global Investors U.S. LLC and/or Aon Investments
USA Inc.
(h) The term ``Restorative Payment'' means the payments made by
BCBS Tennessee to the Plan in connection with the Plan Losses, defined
above, consisting of a $100,000,000 payment that BCBS Tennessee
contributed to the Plan on October 8, 2020. This $100,000,000 payment
is the Required Restorative Payment Amount.
(i) The ``Repayment'' means the payment, if any, that the Plan will
transfer to BCBS Tennessee following the Plan's receipt of proceeds
from the Claims, where the Repayment is made following the full and
complete resolution of the Claims, and in a manner that is consistent
with the terms of the exemption.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), (B) and (D) and
the sanctions resulting from the application of Code Section 4975, by
reason of Code Sections 4975(c)(1)(A), (B) and (D), shall not apply,
effective October 8, 2020, to the following transactions: BCBS
Tennessee's transfer of the Restorative Payment to the Plan; and, in
return, the Plan's Repayment of an amount to BCBS Tennessee, which must
be no more than the lesser of the Restorative Payment Amount or the
amount of litigation proceeds the Plan received from the Claims, plus
reasonable Attorneys' Fees, provided that the Definitions set forth in
Section I and the Conditions set forth in Section III are met.
Section III. Conditions
(a) The Plan received the entire Restorative Payment Amount by
October 8, 2020;
(b) In connection with its receipt of the Required Restorative
Payment, the Plan does not release any claims, demands and/or causes of
action the Plan may have against the following: (1) any fiduciary of
the Plan; (2) any fiduciary of the Blue Cross and Blue Shield National
Retirement Trust (the Trust); (3) BCBS Tennessee; and/or (4) any person
or entity related to a person or entity identified in (1)-(3) of this
paragraph;
(c) The Plan's Repayment to BCBS Tennessee is not more than the
lesser of the total Restorative Payment received by the Plan or the
amount of litigation proceeds the Plan receives from the Claims. The
Plan's Repayment to BCBS Tennessee may only occur after a qualified
independent fiduciary (the Independent Fiduciary, as further defined in
Section II(e)) has determined that: all the conditions of the exemption
are met; the Plan has received all the Restorative Payments it is due;
and the Plan has received all the litigation proceeds it is due. The
Plan's Repayment to BCBS Tennessee must be carried out in a manner
designed to avoid unnecessary costs and disruption to the Plan and Plan
investments;
(d) The Independent Fiduciary, acting solely on behalf of the Plan
in full accordance with its obligations of prudence and loyalty under
ERISA Sections 404(a)(1)(A) and (B), must:
(1) Have reviewed, negotiated, and approved the terms and
conditions of the Restorative Payment and the Repayment under the
Contribution and Assignment Agreement, all of which must be in writing,
before the Plan entered into those transactions/agreement;
(2) Have determined that the Restorative Payment, the Repayment,
and the terms of the Contribution and Assignment Agreement, are prudent
and in the interests of the Plan and its participants and
beneficiaries;
(3) Confirm that the Required Restorative Payment Amount was fully
and timely made;
[[Page 11696]]
(4) Monitor the litigation related to the Claims and confirm that
the Plan receives its proper share of any litigation or settlement
proceeds received by the Trust in a timely manner;
(5) Ensure that any Repayment by the Plan to BCBS Tennessee for
legal expenses in connection with the Claims is limited to only
reasonable legal expenses that were paid by BCBS Tennessee to unrelated
third parties;
(6) Ensure that the conditions and definitions of this exemption
are met;
(7) Submit a written report to the Department's Office of Exemption
Determinations demonstrating and confirming that the terms and
conditions of the exemption were met within 90 days after the
Repayment; and
(8) Not enter into any agreement or instrument that violates ERISA
Section 410 or the Department's Regulations codified at 29 CFR 2509.75-
4.
(f) The Plan pays no interest in connection with the Restorative
Payment;
(g) The Plan does not pledge any Plan assets to secure any portion
of the Restorative Payment;
(h) The Plan does not incur any expenses, commissions, or
transaction costs in connection with the Restorative Payment. However,
if first approved by the Independent Fiduciary, the Plan may reimburse
BCBS Tennessee for Attorneys' Fees. For purposes of determining the
amount of Attorneys' Fees the Plan may reimburse to BCBS Tennessee
under this exemption, the amount of reasonable attorney fees paid by
BCBS Tennessee on behalf of the Plan in connection with the Claims must
be reduced by the amount of legal fees received by BCBS Tennessee in
connection with the Claims from any non-Plan party (i.e., pursuant to a
court award);
(i) The transactions do not involve any risk of loss to either the
Plan or the Plan's participants and beneficiaries;
(j) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party, in whole or in part, for
negligence and/or any violation of state or federal law that may be
attributable to the Independent Fiduciary in performing its duties to
the Plan with respect to the transactions. In addition, no contract or
instrument may purport to waive any liability under state or federal
law for any such violation.
(k) If an Independent Fiduciary resigns, is removed, or for any
reason is unable to serve as an Independent Fiduciary, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section II(e);
and (2) otherwise meets the qualification, independence, prudence and
diligence requirements set forth in this exemption. Further, any such
successor Independent Fiduciary must assume all of the duties of the
outgoing Independent Fiduciary. As soon as possible, including before
the appointment of a successor Independent Fiduciary, BCBS Tennessee
must notify the Department's Office of Exemption Determinations of the
change in Independent Fiduciary and such notification must contain all
material information regarding the successor Independent Fiduciary,
including the successor Independent Fiduciary's qualifications; and
(l) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate at all times.
Effective Date: This exemption is effective as of October 8, 2020.
For Further Information: Contact Ms. Blessed Chuksorji-Keefe of the
Department, telephone (202) 693-8567. (This is not a toll-free number.)
Midlands Management Corporation 401(k) Plan Oklahoma City, OK
[Prohibited Transaction Exemption 2023-11; Application No. D-12031]
Exemption
On March 9, 2022, the Department published a notice of proposed
exemption in the Federal Register \33\ that would permit: (1) the
December 18, 2018 Restorative payment of $8,292,189 to the Plan by
Safety National in exchange for the Plan's assignment to Midlands of
the Assigned Interests; and (2) the potential additional cash
payment(s) by Midlands to the Plan if the amount(s) Midlands receives
from the Assigned Interests exceeds $8,292,189, provided the conditions
described in the proposal were met.
---------------------------------------------------------------------------
\33\ 87 FR 13315 (March 9, 2022).
---------------------------------------------------------------------------
This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of ERISA expressly
stated herein.
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
Applicant. Absent these or similar conditions, the Department would not
have granted this exemption.
Background
As discussed in further detail in the proposed exemption, beginning
as early as 2013, and continuing through 2017, the Plan's former third
party administrator, Vantage Benefit Administrators (Vantage), caused
the unauthorized transfers of Plan assets directly to an account that
Vantage used to operate its own business. Vantage caused 180 such
unauthorized transfers that totaled in excess of $5.5 million. Midlands
Management Corporation (Midlands), the Plan sponsor, became aware of
the unauthorized withdrawals on October 25, 2017 and engaged an
unrelated party, Beasley & Company (Beasley), to investigate and assess
associated Plan losses. Beasley ultimately found that the Plan's losses
were $9,292,189.\34\
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\34\ Amount includes both principal amount and associated lost
interest.
---------------------------------------------------------------------------
The Plan and Midlands filed suit against Vantage and its
principals, Jeffrey and Wendy Richie, and on March 18, 2018, obtained a
$10,170,452.00 final judgment. On April 19, 2018, an involuntary
Chapter 7 bankruptcy petition was filed against Vantage. The Plan and
Midlands have filed a creditor claim against the Vantage bankruptcy
estate. The Plan has also received a $1,000,000 insurance settlement
payment in connection with the unauthorized transfers.\35\
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\35\ This settlement payment came via the Plan's crime policy
with Federal Insurance Company and was subsequently allocated to
participant accounts and reported as ``other contributions'' in the
Plan's statement of changes in net assets available for benefits for
the year ended December 31, 2018.
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In addition to the Claims against Vantage and the Richies, the Plan
and Midlands filed Claims against Matrix Trust Company, the Plan's
custodian, and RSM and Cole & Reed, P.C., the Plan's former auditors.
Collectively, the claims against these parties, as well as against
Vantage and the Richies are hereinafter referred to as the
``Lawsuits.'' The Applicant estimates that it anticipates recovering up
to $4 million total, or approximately 49 percent of the Restorative
Payment amount.
On December 18, 2018, Midlands was acquired by Safety National
Casualty Corporation. In connection with the acquisition, Safety
National made an $8,292,189 restorative payment to the Plan to restore
losses caused by the unauthorized withdrawals (the Restorative
Payment). The Applicant represents that the Restorative Payment
addresses the $9,292,189 in aggregate losses incurred by the Plan,
minus the $1,000,000 settlement payment that the
[[Page 11697]]
Plan received from Federal Insurance Company.
In exchange for the Restorative Payment, the Plan transferred the
Assigned Interests to Midlands pursuant to a Recovery Rights Agreement.
As discussed throughout the proposed exemption, the Assigned Interests
represent the Plan's rights to receive proceeds from the Lawsuits.
On March 9, 2022, the Department proposed an exemption that would
permit the Restorative Payment of $8,292,189 to the Plan in exchange
for the Plan's assignment to Midlands of the Plan's right to proceeds
from the Lawsuits and the potential additional cash payment(s) by
Midlands to the Plan if the amount(s) Midlands recovers from the
Assigned Interests exceeds $8,292,189 (the Transactions). Absent an
exemption, the Transactions would violate ERISA Sections 406(a)(1)(A)
and (D).\36\
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\36\ ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from
causing the plan to engage in a transaction if the fiduciary knows
or should know that such transaction constitutes a direct or
indirect sale or exchange of any property between the plan and a
party-in-interest. ERISA Section 406(a)(1)(D) prohibits a plan
fiduciary from causing a plan to engage in a transaction if the
fiduciary knows or should know that the transaction constitutes a
direct or an indirect transfer to, or use by or for the benefit of,
a party-in-interest, of the income or assets of the plan.
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This exemption requires a prudently appointed and qualified
independent fiduciary, Prudent Fiduciary Services, LLC (PFS), to
protect and promote the interests of Plan participants and
beneficiaries for all purposes with respect to the Transactions. This
exemption also requires that, in entering into the Recovery Rights
Agreement, the Plan did not release any claims, demands, and/or causes
of action against any fiduciary of the Plan or Midlands, and that the
Plan has not and will not incur any expenses or bear any costs in
connection with the assignment of its rights under the Recovery Rights
Agreement, the Lawsuits, or this exemption.
As required under this exemption, if Midlands recovers more than
the $8,292,189 Restorative Payment amount from the Assigned Interests,
Midlands would be required to immediately transfer any such excess
directly to the Plan. Conversely, if Midlands recovers less than
$8,292,189 from the Assigned Interests, the Plan would not be required
to repay any amount of the Restorative Payment back to Midlands, and
Midlands would be solely responsible for all costs and expenses
associated with pursuing the Assigned Interests.
With regard to this exemption, the Department finds that the
favorable terms of the Transactions together with the protective
conditions included therein are appropriately protective of, and in the
interest of the Plan and its participants and beneficiaries. In this
regard, the Department notes that the Restorative Payment immediately
provided the Plan with $8,292,189 in cash. If the Plan did not receive
the immediate Restorative Payment, the individual account balances of
Plan participants would have remained underfunded in the aggregate by
$8,292,189 until the Lawsuits were resolved.
Written Comments
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 notice of proposed exemption. All comments and
requests for a hearing were due to the Department by April 22, 2022.
The Department received no written comments and did not receive any
requests for a public hearing.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption described below.
The complete application file (D-12031) 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 March 9, 2022, at 87 FR 13315.
Exemption
Section I. Definitions
(a) The term ``Assigned Interests'' means the Plan's right to
proceeds from the Lawsuits, which were transferred to Midlands in
return for the Restorative Payment.
(b) The term ``Independent Fiduciary'' means Prudent Fiduciary
Services, LLC (PFS), or a successor Independent Fiduciary, to the
extent PFS or the successor Independent Fiduciary continues to serve in
such capacity, and who:
(1) Is not an affiliate of Midlands and does not hold an ownership
interest in Midlands or affiliates of Midlands;
(2) Was not a fiduciary with respect to the Plan before its
appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) Is a fiduciary with respect to the Plan and has agreed not to
participate in any decision regarding any transaction in which it has
an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform
the services contemplated by the exemption;
(4) Has not entered into any agreement or instrument that violates
the prohibitions on exculpatory provisions in ERISA Section 410 or the
Department's regulation relating to indemnification of fiduciaries at
29 CFR 2509.75-4;
(5) Has not received gross income from Midlands or affiliates of
Midlands for that fiscal year in an amount that exceeds two percent
(2%) of the Independent Fiduciary's gross income from all sources for
the prior fiscal year. This provision also applies to a partnership or
corporation of which the Independent Fiduciary is an officer, director,
or 10 percent (10%) or more partner or shareholder, and includes as
gross income amounts received as compensation for services provided as
an independent fiduciary under any prohibited transaction exemption
granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary,
and no partnership or corporation of which such organization or
individual is an officer, director, or ten percent (10%) or more
partner or shareholder, may acquire any property from, sell any
property to, or borrow any funds from Midlands or from affiliates of
Midlands while serving as an Independent Fiduciary. This prohibition
will continue for a period of six months after the party ceases to be
an Independent Fiduciary and/or the Independent Fiduciary negotiates
any transaction on behalf of the Plan during the period that the
organization or individual serves as Independent Fiduciary.
(c) The term ``Lawsuits'' means the lawsuit filed by the Plan and
Midlands against Vantage and its principals, Jeffrey and Wendy Richie
in Case No.: 3:17-cv-03459, the bankruptcy claims filed against the
Chapter 7 Estate of Vantage, and the claims filed against Matrix Trust,
RSM, and Cole & Reed, for misrepresentation, breach of contract, breach
of fiduciary duties, violations of state law, aiding and abetting,
failure to supervise, and common law fraud.
(d) The term ``Midlands'' includes the following entities: (i)
Midlands
[[Page 11698]]
Management Corporation, (ii) the CAP Shareholders, and (iii) Cap
Managers, LLC.
(e) The term ``Recovery Rights Agreement'' means the written
agreement under which the Plan agreed to transfer its rights to the
Assigned Interests in exchange for the Restorative Payment.
(f) The term ``Restorative Payment'' means the $8,292,189 payment
that was remitted to the Plan by Safety National as part of Safety
National's acquisition of Midlands.
Section II. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A) and (D) shall not
apply to: (1) the December 18, 2018 Restorative payment of $8,292,189
to the Plan by Safety National in exchange for the Plan's assignment to
Midlands of the Assigned Interests; and (2) the potential additional
cash payment(s) by Midlands to the Plan if the amount(s) Midlands
receives from the Assigned Interests exceeds $8,292,189. In order to
receive such relief, the conditions in Section III must be met in
conformance with the definitions set forth in Section I.
Section III. Conditions
(a) The Restorative Payment and any Excess Recovery Amount payment,
described below, are properly allocated to the Plan participants'
accounts;
(b) If Midlands receives more than $8,292,189 from the Assigned
Interests, Midlands must immediately transfer to the Plan the Excess
Recovery Amount, which is the difference between the amount of Assigned
Interest proceeds and $8,292,189. Midlands may reduce the Excess
Recovery Amount (but not the Restorative Payment amount) paid to the
Plan only by the amount of reasonable attorney's fees that Midlands
incurred in pursuing the Assigned Interests if the fees were paid to
unrelated third parties;
(c) If Midlands receives less than $8,292,189 from the Assigned
Interests, then Midlands must automatically forgive any unrecovered
shortfall amount, with no Plan assets transferred to Midlands;
(d) In connection with its receipt of the Restorative Payment, the
Plan has not and will not release any claims, demands and/or causes of
action it may have against: (1) any fiduciary of the Plan; (2)
Midlands; and/or (3) any person or entity related to a person or entity
identified in (1)-(2) of this paragraph;
(e) A qualified independent fiduciary (the Independent Fiduciary)
that is unrelated to Midlands and/or its affiliates and is acting
solely on behalf of the Plan in full accordance with its obligations of
prudence and loyalty under ERISA Sections 404(a)(1)(A) and (B):
(1) Reviewed the terms and conditions of the Restorative Payment
and the Recovery Rights Agreement and the proposed and final
exemptions;
(2) Determined that the Covered Transactions were prudent, in the
interest of, and protective of the Plan and its participants and
beneficiaries;
(3) Confirmed that the Restorative Payment amount was properly made
to the Plan and appropriately allocated;
(4) Monitors the Plan's Assigned Interests on an ongoing basis to
ensure that all recovery amounts due the Plan are immediately and
properly remitted to the Plan, and appropriately allocated to
participant accounts;
(5) Monitors and ensures that legal fees paid in connection with
the Assigned Interests and the Lawsuits are limited to reasonable
attorney's fees paid to unrelated third parties that Midlands incurred
in pursuing recoveries from the Assigned Interests and the Lawsuits;
(6) Has not entered into any agreement or instrument that violates
ERISA Section 410 or Department's Regulations codified at 29 CFR
2509.75-4;
(f) No party associated with this exemption has or will indemnify
the Independent Fiduciary and the Independent Fiduciary will not
request indemnification from any party associated with this exemption,
in whole or in part, for negligence and/or any violation of state or
federal law that may be attributable to the Independent Fiduciary in
performing its duties to the Plan with respect to the Proposed
Transactions. In addition, no contract or instrument may purport to
waive any liability under state or federal law for any such violation;
(g) Not later than 90 days after the resolution of Midlands'
collection efforts with respect to the Assigned Interests, the
Independent Fiduciary must submit a written statement to the Department
confirming and demonstrating that all of the requirements of the
exemption have been met;
(h) If an Independent Fiduciary resigns, is removed, or is unable
to serve as an Independent Fiduciary for any reason, the Independent
Fiduciary must be replaced by a successor entity that: (1) meets the
definition of Independent Fiduciary detailed above in Section I(b); and
(2) otherwise meets all of the qualification, independence, prudence
and diligence requirements set forth in this exemption. Further, any
such successor Independent Fiduciary must assume all of the duties of
the outgoing Independent Fiduciary. As soon as possible before the
appointment of a successor Independent Fiduciary, the Applicant must
notify the Department's Office of Exemption Determinations of the
change in Independent Fiduciary and such notification must contain all
material information including the qualifications of the successor
Independent Fiduciary;
(i) Neither the Independent Fiduciary, nor any parties related to
the Independent Fiduciary, have performed any prior work on behalf of
Midlands or any party related to Midlands;
(j) Neither the Independent Fiduciary, nor any parties related to
the Independent Fiduciary, have any financial interest with respect to
the Independent Fiduciary's work as Independent Fiduciary, apart from
the express fees and reimbursement for reasonable expenses paid to the
Independent Fiduciary to represent the Plan with respect to the Covered
Transactions that are the subject of this exemption;
(k) Neither the Independent Fiduciary, nor any parties related to
the Independent Fiduciary, have received any compensation or entered
into any financial or compensation arrangements with Midlands or any
parties related to Midlands;
(l) The Plan pays no interest in connection with the Restorative
Payment;
(m) No Plan assets are pledged to secure the Restorative Payment;
(n) The Covered Transactions do not involve any risk of loss to
either the Plan or its participants and beneficiaries;
(o) The Plan has no liability for the Restorative Payment, even in
the event that the amount recovered by Midlands with respect to the
Assigned Interests is less than $8,292,189;
(p) The Plan does not incur any expenses, commissions or
transaction costs in connection with the Covered Transactions and this
exemption;
(q) Midlands may not receive or retain any proceeds from the
Lawsuits other than from the Assigned Interests;
(r) All terms of the Covered Transactions are and will remain at
least as favorable to the Plan as the terms and conditions the Plan
could obtain in a similar transaction negotiated at arm's-length with
unrelated third parties; and
(s) All of the material facts and representations set forth in the
Summary of Facts and Representation are true and accurate, at all
times.
Effective Date: This exemption is effective as of December 18,
2018.
[[Page 11699]]
For Further Information: Contact Mr. Joseph Brennan of the
Department, telephone (202) 693-8456. (This is not a toll-free number.)
DISH Network Corporation 401(k) Plan and the EchoStar 401(k) Plan
(Collectively, the Plans) Located in Englewood, CO
[Prohibited Transaction Exemption 2023-12; Exemption Application No. D-
12012]
Exemption
On March 9, 2022, the Department published a notice of proposed
exemption in the Federal Register at 87 FR 13320, regarding the
acquisition and holding by the DISH Network Corporation 401(k) Plan
(the DISH Plan) and the EchoStar 401(k) Plan (the EchoStar Plan) of
subscription rights (the Rights) that were issued during the period
November 26-29, 2019, by the DISH Network Corporation (DISH or the
Applicant), a party in interest with respect to the Plans.\37\
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\37\ For purposes of this exemption, references to the
provisions of Title I of ERISA, unless otherwise specified, should
be read to refer as well to the corresponding provisions of Code
Section 4975.
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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 of 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 Applicant. Absent these or similar conditions, the Department
would not have granted this exemption.
Background
As discussed in greater detail in the proposed exemption, on
November 7, 2019, DISH announced its intent to conduct a rights
offering (the Offering) for general corporate purposes, including
investments in DISH's wireless business. The DISH Chairman and
controlling shareholder is Charles W. Ergen.
Mr. Ergen also beneficially owns more than 50% of the total
combined voting power of EchoStar Corporation (EchoStar), a global
provider of satellite communications solutions.
Under the Offering, all holders of record of DISH's Class A (the
Class A Stock) and DISH's Class B common stock (the Class B Stock), or
collectively, the ``DISH Stock''), and outstanding convertible notes
automatically received certain rights (the Rights), at no charge. Among
the holders of the DISH Stock were the DISH Plan and the EchoStar Plan,
which are sponsored by DISH and EchoStar, respectively.
Under the terms of the Offering, each holder received one Right for
every 18.475 shares of DISH Class A or B Common Stock, or a Class A
Common Stock equivalent (as applicable). Fractional Rights were not
issued. A total of 29,834,992 Rights to purchase 29,834,992 DISH Class
A Common Stock were issued in the Offering. Each Right entitled the
holder to purchase one share of DISH Class A Common Stock for $33.52
per whole share of Class A Common Stock.
The DISH Plan received 180,084 Rights and the EchoStar Plan
received 9,073 rights in connection with the Offering. The Applicant
represents that Newport Trust Company (Newport), a qualified
independent fiduciary acting solely in the interest of the Plans'
participants, made all decisions regarding the holding and disposition
of the Rights by each Plan in accordance with the Plans' provisions.
The Applicant requested an exemption to permit the acquisition and
holding by the Plans of the Rights that were issued by DISH, a party in
interest with respect to the Plans, from November 26 through November
29, 2019. An exemption is necessary because the acquisition and holding
of the Rights by the Plans is prohibited under ERISA and the Code.
On March 9, 2022, the Department published a notice of proposed
exemption in the Federal Register at 87 FR 13320 that would permit the
Plans' acquisition and holding of the Rights. The exemption requires
Newport to protect and promote the interests of the Plans' participants
in the transactions. The exemption's protective conditions include a
requirement that Newport represent the Plans' interests for all
purposes with respect to the acquisition and holding of the Rights, and
that no brokerage fees, commissions, subscription fees, or other
charges were paid by the Plans with respect to the acquisition and
holding of the Rights. In addition, Newport's responsibilities included
determining whether and when to exercise or sell each Right held by the
Plans.
As discussed below, with regard to this exemption, the Department
finds that the favorable terms of the acquisition and holding of the
Rights by the Plans, combined with the protective conditions included
therein, are appropriately protective and in the interest of the Plans
and their participants to support the granting of this exemption.
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 April 25, 2022. During the
comment period, the Department received one written comment from the
Applicant, which requested several clarifications to the proposed
exemption in the areas discussed below. The Department also received 12
comments from Plan participants (eight in writing and four by phone)
regarding whether the exemption would affect their benefits, and in
response, the Department explained the proposed exemption to each
commenter.
Applicant's Comments
1. No ERISA Section 406(b) Exemptive Relief
The Applicant notes that the proposed exemption does not include
the same scope of exemptive relief as prior rights offering exemptions.
While some prior exemptions involving rights offerings provide relief
from ERISA Sections 406(b)(1) and 406(b)(2),\38\ this exemption does
not. The Applicant requests clarification that exemptive relief from
Section 406(b)(1) and (2) is not necessary. Alternatively, the
Applicant requests that this exemption provide relief from ERISA
Sections 406(b)(1) and (2).
---------------------------------------------------------------------------
\38\ ERISA Section 406(b)(1) prohibits a plan fiduciary from
dealing with the assets of a plan in his own interest or own
account. ERISA Section 406(b)(2) prohibits a plan fiduciary in his
individual or in any other capacity from acting in any transaction
involving the plan on behalf of a party, or representing a party
whose interests are adverse to the interests of the plan or the
interests its participants or beneficiaries of the plan.
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Department's Response: The Department understands the following
based on the Applicant's representations:
<bullet> DISH conducted the Rights Offering for its own general
corporate purposes;
<bullet> All holders of record of DISH's Class A and B Common Stock
received the Rights automatically at no charge;
<bullet> As required by this exemption, all decisions regarding the
holding and disposition of the Rights by each Plan were made in
accordance with the Plan provisions by a qualified independent
[[Page 11700]]
fiduciary acting solely in the interest of Plan participants.
Based on these representations, the Department has determined that
ERISA Section 406(b)(1) or (2) is not implicated with respect to the
transactions covered herein. Accordingly, any act of self-dealing or
conflict of interest by a Plan fiduciary is not covered by this
exemption.
2. Rights Described as Issued to Individually-Directed Participant
Accounts
Section I of the proposed exemption describes the covered
transactions as including the issuance of the Rights ``to the
individually-directed accounts of participants'' in the Plans. The
Applicant states it would be more accurate to state that the Rights
were issued to the Plans. The Applicant also notes that for both of the
DISH Network Corporation 401(k) Plan and the EchoStar Corporation
401(k) Plan, the proceeds from the sale of rights were allocated pro
rata to the plan accounts of participants invested in DISH Stock, based
on their plan account holdings on the November 17, 2019 record date of
the rights offering.
Department's Response: The Department has revised Section I of the
exemption to reflect the Applicant's requested change that the Rights
were issued to the Plans rather than to the participants' accounts in
the Plans.
3. Proposed Exemption Preamble States That DISH and EchoStar
Participants Were Treated the Same
The Applicant notes that preamble to the proposed exemption states
that ``[t]he acquisition and holding of the Rights occurred as a result
of the Rights Offering, which was approved by the DISH Board of
Directors, in which all shareholders of DISH and EchoStar, including
their Plans, were treated exactly the same . . .'' [emphasis added].
The Applicant also notes that ownership of shares of EchoStar
Corporation stock did not provide any entitlement to the Rights.
Department's Response: The Department accepts this clarification to
the proposed exemption preamble.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the exemption described below. The Department
has also added clarifying language to certain conditions of the
exemption.
The complete application file (D-12012) 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, refer to the proposed exemption.\39\
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\39\ 87 FR 13320 (3/9/2022).
---------------------------------------------------------------------------
Exemption
Section I. Covered Transactions
The restrictions of ERISA Sections 406(a)(1)(A), 406(a)(1)(E),
406(a)(2), and 407(a)(1)(A), and Code Sections 4975(c)(l)(A) and (E),
by reason of Code Section 4975(c)(1), will not apply to the past
acquisition and holding by the DISH Network Corporation 401(k) Plan
(the DISH Plan) and the EchoStar 401(k) Plan (the EchoStar Plan;
collectively, the Plans) of certain subscription rights (the Rights)
that were issued by the DISH Network Corporation (DISH or the
Applicant) to Plans during a rights offering (the Rights Offering) that
occurred from November 26 through November 29, 2019, if the conditions
described in Section II below have been met.
Section II. Conditions
(a) The Plans acquired the Rights as a result of an independent act
of DISH as a corporate entity without any action by the Plans;
(b) The acquisition and holding of the Rights occurred as a result
of a rights offering approved by the DISH board of directors that
treated all DISH shareholders the same, including the Plans;
(c) The acquisition of the Rights by the Plans occurred on the same
terms made available to other eligible holders of DISH Stock and
convertible notes, and the Plans received the same proportionate number
of Rights as such other eligible holders;
(d) The Plans did not pay any fees or commission in connection with
the acquisition or holding of the Rights. The Plans paid commissions
and SEC fees to third parties solely in connection with the sale of the
Rights;
(e) All decisions regarding the holding and disposition of the
Rights by the Plans were made by Newport Trust Company (Newport),
acting prudently and solely in the interest of the participants of the
Plans, in accordance with the provisions of the Plans as the qualified
independent fiduciary (the Independent Fiduciary);
(f) As the Independent Fiduciary, Newport:
(1) Has not been indemnified, in whole or in part, for negligence
of any kind or for any violation of state or federal law in performing
its duties and responsibilities to the Plans under the terms of this
exemption, and there is no cap or limitation on its liability for
negligence of any kind arising from the performance of its duties as
the Plans' Independent Fiduciary;
(2) Has not entered into any agreement or instrument that violates
ERISA Section 410 or the Department's regulations at 29 CFR 2509.75-4
by purporting to relieve Newport from responsibility or liability for
any responsibility, obligation or duty imposed on it under Part 1 of
Title I of ERISA; and
(3) Has acknowledged that there is no instrument or contractual
arrangement that purports to waive or release it from liability for any
violation of state or federal law.
Effective Date: This exemption is effective from November 26, 2019,
the date the Plans received the Rights, until November 29, 2019, the
last date the Rights were sold by the Plans on the NASDAQ Global Select
Market.
For Further Information: Contact Mrs. Blessed Chuksorji-Keefe of
the Department at (202) 693-8567. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
[[Page 11701]]
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-03632 Filed 2-22-23; 8:45 am]
BILLING CODE 4510-29-P
</pre></body>
</html>Indexed from Federal Register on February 23, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.