Bond procurement through interested insurance agents

P/OPINION 75-121


                                                              412

                             July 1, 1975

Dear             :

This is in response to your inquiry of December 30, 1974,
which was addressed to
and which has been referred to this Office for reply.

You state that          Insurance Agency, Inc. has obtained
bonding from either the           Life and Casualty Company
or The           Insurance Company for the fiduciaries of
qualified profit sharing and pension plans administered
by           Insurance Planning Agency, the partners
of which are the principal shareholders of the insurance
agency.

You request an exemption under section 412(e) of the
Employee Retirement Income Security Act of 1974 (ERISA) in
the event the Department of Labor determines that the above
bonding arrangement is prohibited under the provisions of
section 412(c).

Section 412(c) provides as follows:

       "It shall be unlawful for any person to procure
       any bond required by subsection (a) from any surety
       or other company or through any agent or broker in
       whose business operations such plan or any party in
       interest in such plan has any control or significant
       financial interest, direct or indirect."

Congress definitely found danger of harmful results in the
situations described in section 412(c) so much so that it
forbade bonds contracted for under such circumstances.
Accordingly, an exemption may not be granted under section
412(a) from the prohibitions contained in section 412(c).

The Secretary has issued a temporary regulation (29 CFR
2555) which, pending issuance of a permanent bonding regulation
under section 412 of ERISA, incorporates by reference most
of the bonding regulations issued under the Welfare and
Pension Plans Disclosure Act (WPPDA) and makes them applicable
to plan officials under ERISA.

Pending the issuance of permanent regulations with respect
to Section 412, a fiduciary is not required to be bonded
unless he handles funds or other property of an employee
benefit plan. "Handling" occurs whenever the duties or
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P/OPINION 75-121


activities of a plan official are such that there is
a risk that such funds or other property could be lost
in the event of fraud or dishonesty on the part of
such person, acting either alone or in collusion with
others.

Enclosed herewith is a compilation of regulations and
interpretive bulletins issued under the WPPDA. In
the absence of specific details concerning the relationship
between           Insurance Planning Agency and the various
plans it administers it is not possible to state that a
violation of section 412(c) does not exist. However, your
attention is directed to 29 CFR 485 of the enclosure,
particularly Example 1 under 485.4, which may have direct
application to your inquiry.

Sincerely,