Insurance general account policies as plan assets

P/OPINION 75-79


                                                                 404


                        February 7, 1975


Dear              :

In response to your letter of January 24, 1975, enclosing
a letter dated January 13, 1975 from            of The
                Life Company, I am pleased to be able to give
the following guidance:

Our latest interpretative bulletin, ERISA IB 75-2, a copy
of which is enclosed herewith, makes clear that when a
plan purchases a policy or policies on an insurance company's
general assets account, the plan assets consist of the
policy, and not the underlying assets of the insurance
company. If all the plan assets consist of such policies,
the responsibility of plan fiduciaries to exercise the
section 404(a) requirements of the Employee Retirement
Income Security Act of 1974 (ERISA) in the selection of the
insurance company and the policies purchased would be the
major responsibility which could give rise to liability
(assuming that section 406 does not apply to the transaction
with the particular insurance company).

As for the section 404(a)(1)(C) requirement of diversification
if 100% of the plan assets are in policies written on the
general asset account, the Conference Report states "generally
a plan may be invested wholly in insurance or annuity contracts
without violating the diversification rules, since generally
an insurance company's assets are to be invested in a diversified
manner."

With respect to the question of comparing liability in the
insurance situation to those of other modes of investment,
much would depend on the individual situation. As to the
need for fiduciary liability insurance, as you know,
section 410(b) of the Act allows such insurance, but does
not require it. The question of whether such insurance is
necessary in any particular case is a matter for consideration
by the fiduciary and his adviser.

Sincerely,