[Federal Register Volume 67, Number 170 (Tuesday, September 3, 2002)]
[Notices]
[Pages 56313-56315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22376]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application Number D-10786]
Amendment to Prohibited Transaction Exemption 92-6 (PTE 92-6)
Involving the Transfer of Individual Life Insurance Contracts and
Annuities from Employee Benefit Plans to Plan Participants, Certain
Beneficiaries of Plan Participants, Personal Trusts, Employers and
Other Employee Benefit Plans
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of
Labor.
ACTION: Adoption of Amendment to PTE 92-6.
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SUMMARY: This document amends PTE 92-6, a class exemption that enables
an employee benefit plan to sell individual life insurance contracts
and annuities to: (1) A plan participant insured under such policies;
(2) a relative of such insured participant who is the beneficiary under
the contract; (3) an employer any of whose employees are covered by the
plan; or (4) another employee benefit plan, for the cash surrender
value of the contract, provided certain conditions are met. The
amendment affects, among others, certain participants, beneficiaries
and
[[Page 56314]]
fiduciaries of plans engaged in the described transactions.
DATES: The amendment is effective February 12, 1992.
FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz, Office of
Exemption Determinations, Pension and Welfare Benefits Administration,
U.S. Department of Labor, (202) 693-8540. (This is not a toll-free
number).
SUPPLEMENTARY INFORMATION: On May 10, 2002, notice was published in the
Federal Register (67 FR 31835) of the pendency before the Department of
a proposed amendment to PTE 92-6 (57 FR 5189, February 12, 1992), which
amended Prohibited Transaction Exemption 77-8 (PTE 77-8)(42 FR 31574,
June 21, 1977). PTE 92-6 provides an exemption from the restrictions of
section 406(a) and 406(b)(1) and (b)(2) of the Employee Retirement
Income Security Act of 1974 (ERISA or the Act) and from the taxes
imposed by section 4975(a) and (b) of the Internal Revenue Code of 1986
(the Code), by reason of section 4975(c)(1)(A) through (E) of the Code.
The amendment to PTE 92-6 adopted by this notice was requested in
an exemption application filed by the Chicago, Illinois law firm of
Sonnenschein, Nath & Rosenthal on behalf of the General American Life
Group (the Applicant). The Department is adopting the amendment
pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Code,
and in accordance with the procedures set forth in 29 CFR Part 2570,
Subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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\1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5
U.S.C. App. 1 [1996]) generally transferred the authority of the
Secretary of the Treasury to issue administrative exemptions under
section 4975 of the Code to the Secretary of Labor.
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For the sake of convenience, the entire text of PTE 92-6, as
amended, has been reprinted with this notice.
A. Description of the Exemption
Section I of PTE 92-6 permits the sale of an individual life
insurance or annuity contract by an employee benefit plan to: (1) A
plan participant; (2) a relative of such insured participant who is the
beneficiary under the contract; (3) an employer any of whose employees
are covered by the plan; or (4) another employee benefit plan, if: (a)
such participant is the insured under the contract; (b) such relative
is a ``relative'' as defined in section 3(15) of the Act (or a ``member
of the family'' as defined in section 4975(e)(6) of the Code), or is a
brother or sister of the insured (or a spouse of such brother or
sister), and the beneficiary under the contract; (c) the contract
would, but for the sale, be surrendered by the plan; (d) with respect
to sales of the policy to the employer, a relative of the insured or
another plan, the participant insured under the policy is first
informed of the proposed sale and is given the opportunity to purchase
such contract from the plan, and delivers a written document to the
plan stating that he or she elects not to purchase the policy and
consents to the sale by the plan of such policy to such employer,
relative or other plan; (e) the amount received by the plan as
consideration for the sale is at least equal to the amount necessary to
put the plan in the same cash position as it would have been had it
retained the contract, surrendered it, and made any distribution owing
to the participant on his vested interest under the plan; and (f) with
regard to any plan which is an employee welfare benefit plan, such plan
must not, with respect to such sale, discriminate in form or in
operation in favor of plan participants who are officers, shareholders
or highly compensated employees. Section II of PTE 92-6 amended PTE 77-
8 to provide that the relief for transactions described in part I would
be available, effective October 22, 1986, for plan participants who are
owner-employees (as defined in section 401(c)(3) of the Code) or
shareholder-employees (as defined in section 1379 of the Internal
Revenue Code of 1954 as in effect on the day before the date of
enactment of the Subchapter S Revision Act of 1982), if the conditions
set forth in part I are met.
The Department, at the request of the Applicant, has amended PTE
92-6 in order to expand the coverage of the exemption to include the
sale by an employee benefit plan (the Plan) of an individual life
insurance or annuity contract to a personal or private trust (the
Trust) established by or for the benefit of an individual who is a
participant in the Plan and the insured under the policy, or by or for
the benefit of one or more relatives (as defined in Section I(2) of PTE
92-6) of the participant.\2\ The amendment is effective February 12,
1992.
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\2\ Section 406(a)(1)(A) of the Act prohibits a direct or
indirect sale or exchange of any property between a Plan and a party
in interest. Section 406(a)(1)(D) of the Act prohibits a transfer
to, or use by or for the benefit of, a party in interest, of any
assets of the Plan. In most cases, the participant will be a party
in interest with respect to the Plan under section 3(14)(H) of the
Act, as an employee of an employer any of whose employees are
covered by the Plan. In some cases, the participant or relative will
also be a party in interest under section 3(14)(A) or (E) as a
fiduciary of the Plan, or as an owner of 50% or more of the employer
maintaining the Plan. The Trust would be a party in interest under
section 3(14)(G) of the Act if 50% or more of the beneficial
interest of such Trust is owned or held by persons described in
section 3(14)(A) or (E) of the Act.
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B. Written Comments and Hearing Requests
The notice of pendency gave interested persons an opportunity to
comment or to request a hearing on the proposed amendment. No requests
for a hearing were received.
The Department received one comment letter with respect to the
notice of proposed amendment. The comment letter strongly supported the
Department's amendment to PTE 92-6, but also requested that the
Department clarify two points with respect to PTE 92-6.
The comment letter first requested that the Department confirm the
commentator's interpretation that, in a participant directed defined
contribution plan, when a life insurance policy is sold at the
participant's direction, the requirement of condition I(3) has been
satisfied that ``the contract would, but for the sale, be surrendered
by the plan.'' The Department agrees that, in the case of a participant
in a defined contribution plan that provides for participant direction,
if the participant has discretion and control of his/her account in the
plan, and has exercised that authority, without being subject to any
undue influence, in accordance with plan provisions for individually-
directed investment of participant accounts, to sell a life insurance
contract in compliance with the conditions of PTE 92-6, the requirement
of condition I(3) of the exemption would be satisfied.
The comment letter also requested that the Department confirm its
interpretation set out in Advisory Opinion 98-07A (issued September 24,
1998) to the effect that PTE 92-6 applies to a policy that insures both
the participant's life and the life of another individual in whom the
participant has an insurable interest. In Advisory Opinion 98-07A, the
Department concluded that, to the extent state law and pertinent plan
provisions permit the acquisition and holding of an individual life
insurance contract covering the life of the participant and the
participant's spouse, that such a contract would constitute ``an
individual life insurance contract'' for purposes of PTE 92-6. The
Department confirms that PTE 92-6 applies to life insurance contracts
that cover the life of the participant and the participant's spouse.
However, since the Department does not have sufficient information
concerning contracts covering the life of the participant and the life
of another individual in whom the participant has
[[Page 56315]]
an insurable interest, other than the participant's spouse, it is
unable to conclude that PTE 92-6 would apply to such contracts.
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 ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary, or other party in interest or disqualified
person with respect to a plan, from certain other provisions of ERISA
and the Code, including any prohibited transaction provisions to which
the exemption does not apply and the general fiduciary responsibility
provisions of section 404 of ERISA which require, among other things,
that a fiduciary discharge his or her duties respecting the plan solely
in the interests of the participants and beneficiaries of the plan; nor
does it affect the requirement of section 401(a) of the Code that the
plan must operate for the exclusive benefit of the employees of the
employer maintaining the plan and their beneficiaries;
(2) This exemption does not extend to transactions prohibited under
section 406(b)(3) of the Act or section 4975(c)(1)(F) of the Code;
(3) In accordance with section 408(a) of ERISA and 4975(c)(2) of
the Code, the Department makes the following determinations:
(i) The amendment set forth herein is administratively feasible;
(ii) The amendment set forth herein is in the interests of plans
and of their participants and beneficiaries; and
(iii) The amendment set forth herein is protective of the rights of
participants and beneficiaries of plans;
(4) The amendment is applicable to a particular transaction only if
the transaction satisfies the conditions specified in the exemption;
and
(5) The amendment is supplemental to, and not in derogation of, any
other provisions of ERISA and the Code, including statutory or
administrative exemptions and transitional rules. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction.
Exemption
Accordingly, PTE 92-6 is amended under the authority of section
408(a) of the Act and section 4975(c)(2) of the Code and in accordance
with the procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836,
32847, August 10, 1990), as set forth below:
I(a). Effective January 1, 1975, the restrictions of sections
406(a), 406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A)
through (E) of the Code, shall not apply to the sale of an individual
life insurance or annuity contract by an employee benefit plan to: (1)
A participant under such plan; (2) a relative of a participant under
such plan; (3) an employer any of whose employees are covered by the
plan; or (4) another employee benefit plan, provided that the
conditions in section II are met.
I(b). Effective February 12, 1992, the restrictions of sections
406(a), 406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A)
through (E) of the Code, shall not apply to the sale of an individual
life insurance or annuity contract by an employee benefit plan to a
trust established by or for the benefit of one or more of the persons
described in (1) or (2) of section I(a) above, provided that the
conditions in section II are met.
II. (a) Such participant is the insured under the contract;
(b) such relative is a ``relative'' as defined in section 3(15) of
the Act (or a ``member of the family'' as defined in section 4975(e)(6)
of the Code), or is a brother or sister of the insured (or a spouse of
such brother or sister), and such relative or trust is the beneficiary
under the contract;
(c) the contract would, but for the sale, be surrendered by the
plan;
(d) with respect to sales of the policy to the employer, a relative
of the insured, a trust, or another plan, the participant insured under
the policy is first informed of the proposed sale and is given the
opportunity to purchase such contract from the plan, and delivers a
written document to the plan stating that he or she elects not to
purchase the policy and consents to the sale by the plan of such policy
to such employer, relative, trust or other plan;
(e) the amount received by the plan as consideration for the sale
is at least equal to the amount necessary to put the plan in the same
cash position as it would have been had it retained the contract,
surrendered it, and made any distribution owing to the participant on
his vested interest under the plan; and
(f) with regard to any plan which is an employee welfare benefit
plan, such plan must not, with respect to such sale, discriminate in
form or in operation in favor of plan participants who are officers,
shareholders or highly compensated employees.
III. Effective October 22, 1986, the exemption provided for
transactions described in part I is available for plan participants who
are owner-employees (as defined in section 401(c)(3) of the Code) or
shareholder-employees as defined in section 1379 of the Internal
Revenue Code of 1954 as in effect on the day before the date of
enactment of the Subchapter S Revision Act of 1982) if the conditions
set forth in part II are met.
Signed at Washington, DC, this 28th day of August, 2002.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Pension and Welfare
Benefits Administration, Department of Labor.
[FR Doc. 02-22376 Filed 8-30-02; 8:45 am]
BILLING CODE 4510-29-P