Insured welfare plans and fiduciary duties

P/OPINION 75-86

                                                        403(b)(1)

                         August 29, 1975

Dear              :

This is in reply to your letter dated July 11, 1975,
forwarding comments from          of
covering reporting requirements for insured welfare
plans under the Employee Retirement Income Security
Act of 1974 (ERISA). He is also concerned about the
liability of being a fiduciary under this Act.

The Department of Labor is making every effort to
reduce the reporting and disclosure burdens to the
extent feasible. For example, on August 15, 1975,
the Department published regulations in the Federal
Register whereunder employee welfare benefit plans
which cover fewer than 100 participants at all times
during a plan year are exempt from certain reporting
and disclosure provisions if the benefits are provided
solely from the general assets of the employer or employee
organization maintaining the plan or if the benefits
are provided exclusively through insurance contracts
or policies, the premiums for which are paid directly
by the employer or employee organization from its
general assets. This exemption also applies to plans
where employees (or members of labor organizations)
contribute to insurance premiums, but only if the
employee or member contributions are forwarded
to the insuring organization within three months
after they are made.

Regarding               's comment about "open ended"
liability of being a fiduciary, I think he is over-reacting
to the fiduciary provisions of ERISA. Health and life
insurance plans funded through insurance carriers are
relatively simple plans to operate within the fiduciary
provisions. ERISA section 403(b)(1) takes this into
account by providing an exemption from the requirement
of establishing a trust for any assets of a plan which
consist of insurance contracts or policies issued by
a state-regulated insurance company. A comment on
this provision is made in the Conference Report
(H.R. Report No. 93-1280) on ERISA at the bottom of
page 298 as follows:
2

P/OPINION 75-86


             Although these contracts need not
             be held in trust, nevertheless, the
             person who holds the contract is to
             be a fiduciary and is to act in
             accordance with the fiduciary rules
             of the substitute with respect to these
             contracts. For example, this person
             is to prudently take and keep exclusive
             control of the contracts, and is to use
             prudent care and skill to preserve this
             property.

Hopefully,                 's counsel will advise that
it is not reasonable to terminate the plan because
of ERISA.

Your correspondence is returned herewith.

Sincerely,