DOL O.Ks 2nd Employee Benefits Captive

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By Caroline McDonald

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NU Online News Service, March 11, 4:15 p.m. EST,Orlando?The long wait for the Department of Labor'sapproval of a second test case for writing employee benefits in acaptive is over, an executive of Captive Insurance CompaniesAssociation revealed here.

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On March 3, the Department of Labor issued for public comment aproposed exemption from the prohibited transaction restrictions ofthe Employee Retirement Income Security Act of 1974, according toCICA Chairman Richard H. Hamilton. The exemption would allow ArcherDaniels Midland Co. to use its captive for employee benefits.

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"Archer Daniels Midland has proposed that its captive be used toreinsure life insurance benefits, which is a bit different thanwhat was being done by the Columbia Energy Group," said Mr.Hamilton, referring to the first approval of a benefits'captive.

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Mr. Hamilton, who is also president and general manager of CSXInsurance Company, a single parent captive of CSX Corporation inBurlington, Vt., noted that Columbia Energy's captive "was to beused for disability."

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Columbia Energy Group's captive, which is domiciled in Bermudaand has a branch in Vermont, was approved by the Department ofLabor in August 2001.

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ADM's captive, Agrinational, is also domiciled in Vermont, Mr.Hamilton said.

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It took more than a year for ADM to be approved by thedepartment, he said, because the department takes the position thatit's not their obligation to act quickly, but instead "to protectthe interest of the planned participants and beneficiaries."

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What is interesting, he said, is that "to the extent thatsomeone else would step forward and paint a fact pattern that ismaterially the same as what Columbia Energy Group and now ADM havedone, they'll be able to qualify for a fast-track review."

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This would mean the Department of Labor would have only "45 daysto make a determination as to whether they will propose anexemption," he said.

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A request must include provisions similar to those alreadyapproved by the department, Mr. Hamilton said. In other words, anentity making the request must be a licensed insurance company, ithas to have been in existence for five years, it has to have had anexamination within the past five years in its domiciliary state,and it must be domiciled in a U.S. state or territory.

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Going beyond that, he said, the employer?the parent of thecaptive? would have to offer some additional benefit to theparticipants, an inducement for the arrangement.

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An example would be "an increase in the level of disabilitybenefit, in the one case [Columbia Energy] that had not beenprovided before," he said.

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To satisfy this requirement, ADM will offer employees accidentaldeath benefits through its captive, adding those death benefits tolife insurance policies at ADM's expense.

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"The difficulty we have, as risk managers, is in understandingwhat goes beyond nominal improvement. Certainly, we're looking forsomething substantive, but not outrageously costly," he said.

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He added that the right balance seems to have been struck by theDepartment of Labor in both of these cases.

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"The other element that is different," he said, is that anindependent fiduciary must "step forward and opine as to theappropriate cost, the appropriate benefit and the appropriateadministration of the program going forward. In this case it isMilliman [USA, formerly known as Milliman & Robertson,] hastaken that role."

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In the future, he added, "the fiduciary enables the Departmentof Labor to step back their regulatory role"--to make thedetermination that an exemption is allowed "and then to let thebusiness process roll out with considerable flexibility."

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