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PWBA: Benefit Plans Can Sell Life Policies To Trusts

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NU Online News Service, Sept. 3, 7:15 p.m. – The Pension Welfare Benefits Administration says employee benefit plans can sell individual life insurance policies and annuity contracts to trusts established for the sake of the participants and the participants’ relatives.

The amendment, which is effective Feb. 12, 1992, expands on earlier amendments that let plans sell life policies and annuities to participants and other parties.

Ivan Strasfeld, a PWBA official, describes the retroactive change Tuesday in the Federal Register, in an amendment to Prohibited Transaction Exemption 92-6.

Normally, Strasfeld writes, Section 406(a) of the Employee Retirement Income Security Act of 1974 prohibits benefit plans from selling property to a “party in interest.”

In most cases,” Strasfeld writes, “the participant will be a party in interest with respect to the plan.”

In 1977 and 1992, federal regulators granted exemptions to plans that sell life policies and annuities to plan participants, the participants’ beneficiaries, employers and other employee benefit plans.

Lawyers at Sonnenschein, Nath & Rosenthal, Chicago, filed an application on behalf of the General American Life Group, a unit of MetLife Inc., New York, asking the PWBA to add trusts to the list of parties that can buy plan participants’ life policies and annuities.

Strasfeld notes that the PWBA, an arm of the U.S. Department of Labor, believes the current amendment applies to life policies that cover a benefit plan participant’s spouse as well as the participant.

But the Labor Department does not have enough information about life policies that cover a participant and someone other than a spouse to know whether 92-6 would apply to such contracts, Strasfeld warns.

Strasfeld also warns that plans that sell life policies and annuity contracts to trusts could run into problems with the Internal Revenue Code and sections of ERISA other than those covered by the PTE 92-6 exemption.

Under Section 401(a) of the Internal Revenue Code, for example, an affected “plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries,” Strasfeld writes. Strasfeld emphasizes that the new amendment does nothing to weaken 401(a) or other sections of ERISA and the Internal Revenue Code.

The text of the amendment is on the Web at


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