Labor Department Final Rule To Protect Plan Investments In Insurance Products

Archived News Release — Caution: Information may be out of date.

Employee benefit plans which invest in certain insurance policies will receive better information in order to evaluate those investments under a final rule announced today by the U.S. Department of Labor.

Federal pension law generally does not consider assets of insurance company general accounts as including plan assets subject to the Employee Retirement Income Security Act (ERISA). However, the 1993 Supreme Court ruling in the Harris Trust case concluded that plan investments in certain insurance contracts could result in an insurer holding plan assets. In such cases, insurance companies become fiduciaries subject to ERISA’s rules.

On July 12, 1995, the Labor Department granted a class exemption giving insurance companies conditional relief for transactions between their general account and companies which had preexisting relationships with investing plans. This class exemption will continue to provide limited relief for insurers who choose not to comply with the final rule.

The final rule provides a broad safe harbor by stating that insurance companies would not be deemed fiduciaries under ERISA by virtue of plan investments in certain general account policies which were issued by an insurer on or before Dec. 31, 1998.

To come within the safe harbor, insurance companies must:

• disclose to plan clients the method by which expenses and income are allocated to the contract;
• allow plans to terminate or discontinue a policy upon 90 days’ notice to the insurer and to elect either a lump sum payout without penalty or annual installment payments over a ten-year period with interest; and
• give plans written notice of certain amendments 60 days prior to their taking effect.

U.S. Department of Labor news releases are accessible on the Internet. The information in this news release will be made available in alternate format upon request (large print, Braille, audio tape or disc) from the Central Office for Assistive Services and Technology. Please specify which news release when placing your request. Call 202.693.7773 or TTY 202.693.7775.

Archived News Release — Caution: Information may be out of date.