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ExPro fast-track captive benefits funding procedure could restart soon

Posted On: Dec. 1, 2013 12:00 AM CST

ExPro fast-track captive benefits funding procedure could restart soon

The door may be reopening on a decade-old procedure suspended last year that gave employers fast regulatory review of requests to fund employee benefits through their captive insurers.

Under the procedure known as ExPro, the Labor Department must act within 45 days on a request for an exemption for arrangements that normally would be considered a prohibited transaction under the Employee Retirement Income Security Act. Including a comment period for plan participants, the entire regulatory process under ExPro takes about 21/2 months, less than half the time often needed for exemptions that do not qualify for ExPro.

ExPro generally was available to captive benefit funding applicants that could cite two substantially similar individual exemptions granted in the past five years, or one substantially similar individual exemption approved in the last 10 years and one approved through ExPro within the past five years.

More than a year ago, though, the Labor Department suspended the use of ExPro for captive benefit funding arrangements while regulators reviewed the criteria employers had to satisfy.

As a practical matter, the availability of ExPro was ending as the 10-year mark neared on individual exemptions, such as the 2003 exemption granted to Decatur, Ill.-based agribusiness giant Archer Daniels Midland Co. Employers seeking ExPro approval frequently cited the ADM approach, in which the company used its Vermont captive, Agrinational Insurance Co., to reinsure life insurance benefits written by Minnesota Life Insurance Co. Under the arrangement, ADM, among other things, agreed to boost plan participants' benefits and to use an independent fiduciary to ensure that all conditions of exemption were met.

Even though the speedier ExPro process was put on hold for more than a year, employers still could seek individual exemptions to fund employee benefit risks through their captives.


In March, Atlanta-based The Coca-Cola Co. won final approval of an individual exemption to use its South Carolina captive, Red Re Inc., to reinsure group term life insurance and accidental death and dismemberment policies written by Metropolitan Life Insurance Co.

In November, the Labor Department proposed an individual exemption to allow Santa Clara, Calif.-based computer chip manufacturer Intel Corp. to use its Hawaii captive, Technology Assurance Ltd., to reinsure life insurance and AD&D policies written by Minnesota Life Insurance Co. Final approval is expected.

Signaling the return of ExPro, a Labor Department spokesman said employers seeking ExPro for captive benefits funding arrangements “should review the criteria set forth in the Coca-Cola individual exemption and the Intel individual exemption.”

The spokesman also noted last month that in reviewing captive benefit funding arrangements, “new conditions to protect plans and their participants and beneficiaries” were developed.

Benefit experts say the conditions are not so much new, but that certain requirements, such as enhancement of benefits for plan participants, will receive greater regulatory analysis.

Karin Landry, a managing partner at Spring Consulting Group L.L.C. in Boston, which filed Intel's application, noted that the Department of Labor has always required benefit enhancements for plan participants under ExPro arrangements. Now, regulators “seem to be focused on making sure that enhanced benefits not only are offered broadly to participants, but that they also are lasting enhancements.”

Other conditions, including the use of a highly rated commercial insurer to issue policies, remain in place to win ExPro approval.


Once the Intel application receives final approval, as is almost certain, ExPro once again will be available, experts predict.

“I'm delighted to hear that the DOL has opened the door for future transactions. Going forward, it will be easier for employers to understand the rules,” Ms. Landry said.

“This is very good news. We should expect more activity as a result of the Labor Department's willingness to say how you should go about the process,” said George O'Donnell, technical director of global risk consulting at Aon Risk Solutions in Somerset, N.J.

Since the first employer, International Paper Co., received ExPro approval in 2003 to fund benefit risks through its captive, more than 20 other companies have followed suit, reducing the time, effort and legal fees that would have been required in seeking an individual exemption, experts say. The group includes H.J. Heinz Co., Google Inc. and Microsoft Corp.

“You have a much better sense of the timing” with ExPro, said Debbie Liebeskind, a senior actuarial consultant with Towers Watson & Co. in Parsippany, N.J.

Instead of the roughly 21/2 months for ExPro approval, individual approval can easily take three to four times longer.

The reasons driving corporate interest in captive benefit funding have not changed, experts say.

Those factors include reduced costs compared with purchasing commercial insurance as well as diversifying their captives' book of business.

“You can get better coverage at a lower cost compared to the commercial market,” Ms. Liebeskind said.

“The corporate interest continues to be there,” Mr. O'Donnell said.