3988 / What is the PTE that permits certain insurance agents or brokers who are employers (or related) maintaining a plan to sell insurance or annuity contracts to the plan and receive commission?

Prohibited Transaction Exemption 79-60¹ permits an insurance agent or broker who is the employer (or related, in certain ways listed below, to the employer) maintaining a plan to sell an insurance or annuity contract (including a contract providing only for the provision of administrative services) to the plan and receive a commission. A general agent who is the employer (or related to the employer in one of the listed ways) may receive override commissions on such sales by another agent.

The following three conditions must be met for a transaction to come within this exemption.

First, the agent or broker must be:

(1)  an employer with employees covered by the plan (including a sole proprietor who is the only plan participant);

(2)  a 10 percent or more partner of such an employer;

(3)  an employee, officer, or director (or an individual having powers or responsibilities similar to those of officers or directors), or a 10 percent or more stockholder of such an employer;

(4)  a 50 percent or more owner of the employer; or

(5)  a corporation or partnership that is 50 percent or more owned by a plan fiduciary, a person providing services to the plan, the employer, a 50 percent owner of the employer, or an employee organization with members covered under the plan.

Second, the plan may pay no more than adequate consideration for the policy or contract.

Finally, the total commissions received in each taxable year of the agent or broker as a result of sales under this exemption must not exceed 5 percent of the total insurance commission income received by the agent or broker in that taxable year. There are no record-keeping requirements.