Benefits captives fast-track approval process suspendedReprints
A regulatory procedure that employers have long used to try to win quick Labor Department approval of corporate plans to fund employee benefits through their captive insurance companies is on hold.
Under that procedure, known as ExPro, the Labor Department must act with 45 days of a company's request for an arrangement, such as funding employee benefits through its captive, that would normally be prohibited by the Employee Retirement Income Security Act.
By contrast, the Labor Department is not under a deadline to respond to ERISA-exemption employee benefits-related requests that that do not qualify for ExPro. Non-ExPro requests often take at least several months — in some cases a year or even longer — before the Labor Department issues a ruling.
Without ExPro, Labor Department action can vary, but the wait time is “conservatively, six months,” said Brian Tiemann, a partner with McDermott, Will & Emery LLP in Chicago
By contrast, with ExPro, “everything can be done in three months,” said Kathleen Waslov, principal-consulting for Willis Towers Watson PLC’s global captive practice in Boston.
To qualify for ExPro, an applicant must cite two substantially similar individual exemptions approved by the Department of Labor in the past 10 years, or one similar exemption and one approved through ExPro within the past five years.
Numerous well-known employers, including Archer-Daniels Midland Co., Dow Corning Corp., Google Inc., and, most recently — late last year — Hyatt Hotels Corp., have used the ExPro approach to win quick Labor Department approval of their applications to fund employee benefit risks through their captives.
But that approach is on hold, experts say. It isn't clear when the Labor Department put ExPro on hold, but captive benefit experts say the suspension may have started earlier this year. A Labor Department spokesman declined to comment.
“This has been a very slow review. Everyone had hoped for a faster review,” said Karin Landry, a Boston-based managing partner with Spring Consulting Group, a unit of Alera Group.
It’s been close to a year since the Labor Department last approved an employer’s captive benefits funding application using ExPro. In October 2017, the Labor Department approved Hyatt Hotels’ application to use its Arizona-based captive, Xenia Assurance Co. Inc., to reinsure Hyatt life insurance and short-term and long-term disability benefits written by Metropolitan Life Insurance Co.
At the end of July, Dot Foods Inc., a Mount Sterling, Illinois-based privately based food industry redistributor, sought Labor Department approval via ExPro to use MTS Insurance Co., its Utah-based captive insurer, to reinsure voluntary accident and critical coverages offered to employees. The Labor Department has not acted on Dot Foods’ request.
Experts say the Department of Labor’s temporary halt of ExPro is driven by regulators’ desire to revamp provisions in current requirements that employers must beef up benefits they offer employees to win regulatory approval to fund employee benefits through their captives.
Regulators are “concerned they don’t have a good feel on the actual cost of the enhancement to the employer or the value of the enhancement to the employee,” said Nancy Gerrie, a partner in Chicago with Winston & Strawn LLP and co-chair of the law firm’s employee benefits and executive compensation group.
The Department of Labor wants employers to be more explicit about benefit enhancements, said Rich Fuerstenberg, a senior partner with Mercer LLC in New York.
No one knows if and when the Labor Department will revamp regulatory requirements for employers to fund employee benefits through their captives and, if there are revisions, what those changes will be.
“It is not known when the Labor Department will address new requirements for issuance of prohibited transaction exemptions with respect to transactions in which an employer-owned captive can reinsure employee benefits in their captives or what specifically such new requirements might be,” said Bruce Wright, a partner with Eversheds Sutherland (US) LLP in New York.
While there are no signs on what regulators’ thoughts are, there is optimism that the current suspension of ExPro eventually will be lifted.
“There is an expectation that this will end and there will be more explicit rules” involving benefit enhancements, Mr. Fuerstenberg said.
The issue, though, does not affect the growing number of employers who are using their captives to fund medical stop-loss coverage. That is because stop-loss is not considered an employee benefit and, as a result, it is not subject to ERISA rules.