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Captive benefit funding requests back on the fast track

Captive benefit funding requests back on the fast track

The U.S. Labor Department's final authorization of a health care service firm's application to fund benefit risks through its captive insurance company affirms that the door again is open to employers to seek fast regulatory review of their captive benefit funding proposals.

Last week, the Labor Department publicly disclosed that it has given final approval of an application filed by Healthcare Services Group Inc., a Bensalem, Pennsylvania-based provider of management and other services to health care companies, to fund voluntary medical, life and short-term disability benefits through its New Jersey-based captive insurance company.

Under the arrangement, the policies will be written by Companion Life Insurance Co. and will be 100% reinsured by HCSG Insurance Corp., the company's 1-year-old captive insurer.

Healthcare Services is the first employer to receive final approval for a captive benefits funding arrangement under a regulatory approach known as ExPro since the Labor Department in 2012 suspended ExPro to review criteria for the process. The review was completed in late 2013, which restored ExPro.

In restoring ExPro, benefit experts say the Labor Department didn't impose new criteria, but has placed greater emphasis on a prior requirement: employers demonstrating how they have enhanced employees' benefits.

The key advantage for employers to use the ExPro approach is regulatory speed. Under ExPro, the Labor Department must act within 45 days of a company's request for an arrangement that would normally be barred by the Employee Retirement Income Security Act.

By contrast, the Labor Department is not under a deadline to respond for requests for ERISA-exemptions that do not qualify for ExPro. Non-ExPro requests often take at least several months before the Labor Department issues a ruling.

To qualify for ExPro, an applicant has to cite two substantially similar individual exemptions approved in the past 10 years, or one similar exemption and one approved through ExPro within the past five years. Healthcare Services cited individual exemptions the Labor Department provided in 2013 to The Coca-Cola Co. and last year to Intel Corp. for those two companies to use their captives to fund various benefit risks.

Currently, one other employer — Sealed Air Corp., a Charlotte, North Carolina-based packing manufacturer — is awaiting final approval for its application to fund several benefit risks through its Vermont captive.

In all, more than two dozen employers, including such well-known companies as Alcoa Inc., Archer-Daniels Midland Co., Coca-Cola Co. and United Technologies Corp., have, over the last 15 years, received Labor Department approval to fund benefit risks through their captives.

Advantages of the approach, experts say, include, cutting insurance costs and diversifying captives' risk portfolio.

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