State-regulated retirement association as insurer for trust rule

P/OPINION 75-146

                                                             403(b)

                        February 2, 1975



Dear

The Assistant Secretary has asked me to reply to your
letter of October 30, 1974, requesting an opinion that the
(named) Association, Inc., although not technically an
insurance company, may be deemed to be an insurance
company for the purposes of section 403(b) of the Employee
Retirement Income Security Act of 1974 (ERISA).

The requirements of section 403 of the ERISA that all
assets of an employee benefit plan be held in trust by one
or more trustees does not apply to assets of a plan which
consist of insurance contracts or policies issued by an
insurance company qualified to do business in a state, or
to assets of such an insurance company or any assets of a
plan which are held by such an insurance company (there
are certain other exceptions not relevant to the question
at issue). There is evidence in the statute and the
legislative history that the term "insurance company" may
include insurance service and insurance organizations
which are not technically insurance companies. [See
section 401(b)(2) of the Act and page 297 of the Joint
Explanatory Statement of the Conference Committee.]

The Association is a nonprofit association incorporated
and licensed as a retirement system under section 200 of
the (State) Insurance Law. Under its Constitution and
bylaws, membership in the Association is limited to
nonprofit organizations in the United States and Canada
devoted to charitable health or welfare work. The
purpose, as set forth in its Constitution, is to provide
pension benefits to employees of its members and to
itself.
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P/OPINION 75-146

As a retirement system incorporated and licensed under
section 200 of the (State) Insurance Law, the Association
is subject to regulation which in most respects closely
resembles the regulation of domestic life insurance
companies. In particular, subsection 8 of section 200 of
the (State) Insurance Law imposes limitations on invest-
ments by a retirement system such as the Association. These
limitations are in most respects identical to those
to which domestic life insurance companies are subject
under the (State) Insurance Law. For example, section 79
requires a domestic life insurance company, and, by virtue
of subsection 8 of section 200, a retirement system to
invest a specified amount of its assets only in govern-
ment and municipal bonds and in obligations secured by
real property. Section 81 requires domestic life
insurance companies and retirement systems to invest
assets in excess of the amount specified in section 79
primarily in fixed income, rather than equity, securities.

In addition, the Association is closely supervised by the
(State) Insurance Department: for example, contracts
issued by the Association must be approved by the
Insurance Department; the Association must file an annual
statement with the Insurance Department which the Depart-
ment audits; and the Association must submit to a thorough
examination by the Insurance Department at least once
every five years.

Under the various types of annuity contracts which the
Association writes to provide pension benefits for
employees of its members, the Association bears the risks
of group experience. Under subsection 6 of section 200 of
the (State) Insurance Law, a retirement system such as the
Association, except to the extent of reinsurance, must
maintain reserves which are "calculated to be adequate to
cover the liabilities on account of benefits payable under
its contracts…" on the basis of experience tables
approved by the (State) Superintendent of Insurance and of
statutory interest assumptions.
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P/OPINION 75-146

It is represented that there are approximately 3,600
charitable organizations which are members the Association
and that the reserves for the pension benefits provided
through the Association are supported by approximately
$150,000,000 in assets held by the Association, and by an
additional $300,000,000 held by the (named) Insurance
Company under a reinsurance agreement.

For these reasons and on the basis of the representations
made in our letter of October 30, 1974, and its enclo-
sures, we have been advised by the Solicitor of Labor that
the Association may be deemed to be an insurance company
for the purposes of section 403(b) of the ERISA and this
letter.

No opinion is expressed whether the Association
constitutes an insurance company for the purposes of any
other section of the ERISA.

Sincerely,