(2) The petitioner's capacity or function with respect to the plan or plans, or otherwise a statement of the petitioner's interest in obtaining the exemption requested.

(3) The nature of the exemption requested, and the reasons why such exemption is desired.

(4) Arrangements for a trust company, bank, insurance carrier or other financial institution to manage the funds of the plan, together with a résumé of the control and authority delegated to such trust company, bank, insurance carrier or other financial institution, and the control or authority retained by the plan administrator or trustees.

(5) Whether the plan has suffered any losses within the past 5 years attributable to dishonesty, theft, fraud, embezzlement, or other criminal acts; the amount of the loss; the circumstances; and whether prosecution resulted therefrom.

(6) Whether coverage under any prior bond has been canceled or revoked by a surety with respect to any administrator, officer, or employee, the reasons therefor, and whether, to the best of the petitioner's knowledge, any administrator, officer, or employee of the fund has been indicted for, or convicted of, any felony by the United States, any State or any foreign country.

(7) Details of any civil actions brought by or in the interest of creditors, participants or beneficiaries against the plan within the past 5 years other than litigation resulting from interpretation of the provisions of the plan in connection with the granting or denial of benefits.

(8) If the petition requests an exemption which will not require a bond, a statement concerning the nature and details of the protection afforded the participants or beneficiaries of the fund.

(b) If it is contemplated that a bonding arrangement which would not satisfy the specific terms of the Act is to be obtained, the petitioner shall, in addition to the requirements of paragraph (a) of this section, state:

(1) The name of the bonding company or association, State(s) where licensed to operate, and place of incorporation (if a corporate surety) or home office. (2) Whether any cash bond or escrow arrangement is contemplated. If so, the amount of such bond or fund, and the terms and details of the arrangement shall be stated. A copy of any instrument creating the bond or arrangement shall accompany the petition.

(3) Petitioners contemplating procurement of a bond other than of a type stipulated in the Act shall attach a copy of the bond and all riders thereto, or other instrument, completely filled out. § 465.5 Petitions concerning a class of plans.

If a petition concerns a class of plans, or plans of a certain type, such petition shall be submitted in writing accompanied by three copies, and shall set out in detail:

(a) A description of the type or class of plans involved, a description of the administration of such plans and the petitioner's interest in obtaining the exemption requested.

(b) If it is not contemplated that a bond is to be obtained, evidence and a description of the protection (other than a bond) provided for such plans which would assure adequate protection for the participants and beneficiaries.

(c) If it is contemplated that a bonding arrangement which would not satisfy the terms of the Act is to be obtained, the petitioner shall identify the name of the bonding company or association, State(s) where licensed to operate, corporate structure (e.g., corporation, group of individual underwriters, or other association), place of incorporation (if a corporate surety) or home office. A copy of the bond form(s) proposed to be employed shall accompany such petition. § 465.6 Review of petition—informal conferences.

Petitions described in §§ 465.4 and 465.5 shall be reviewed by the Director for adequacy of the protection to be afforded participants and beneficiaries of employee welfare or pension benefit plans consistent with the intent of the Act. Notice of receipt of a petition may be afforded other interested persons, such as participants or beneficiaries, as is deemed appropriate. The petitioner and other interested persons may be requested to confer informally regarding the petition, and the petitioner may be required to submit additional information concerning the petition.

§ 465.7 Consolidation.

Upon motion and good cause shown or upon his own initiative, the Director may at any stage in the consideration of a petition or petitions, as set out in this part, contemporaneously consider or consolidate for conference or hearing, or

Upon consideration of the facts and reasons stated in a petition, the Director may, without further proceedings or after such other proceedings as are provided for in this part, grant or deny in whole or in part a petition. A peti

tion may be denied on the ground that it fails to allege facts entitling the petitioner to the exemption requested, or on such other grounds as shall be stated in notice given to the petitioner. An exemption from bonding may be granted with certain stated qualifications. No exemption from the bonding requirements of the Act shall be deemed effective until after express grant by the Director following filing of a petition. § 465.9

Hearings.

(a) Administrators shall notify the Director immediately upon cancellation or termination of a bond permitted or procured pursuant to an exemption granted under this part, or on other failure of, or material change in the nature and details of the protection afforded participants or beneficiaries, unless contemporaneously with or prior to such cancellation, termination, failure or change, a new bond or bonds or other protection meeting the requirements of the Act shall have been provided.

(b) A copy of such substitute bond or a résumé of the current protection afforded the participants or beneficiaries of the fund shall be provided to the Director within 20 days following such cancellation, termination, failure, or change.

rector, or after such request has been granted, the administrator or person or organization acting on his behalf shall immediately notify the Director in writing, detailing the nature of the change. At any time following granting of an exemption, the Director may request information concerning the administration of an employee welfare or pension benefit plan. An exemption previously granted under section 13 of the Act and this part may be suspended, withdrawn, or revoked after facts or conduct which may warrant such action shall have been called to the attention of the administrator of a plan by the Director in writing, and the administrator shall have been afforded opportunity to demonstrate or achieve compliance with the requirements of the Act as expressed by the Office of Labor-Management and Welfare-Pension Reports. No such prior notice shall be given if the administrator's conduct is considered willful.

Subpart B-Exemptions BONDS PLACED WITH CERTAIN REINSURING COMPANIES

§ 465.15 Exemption.

An exemption from the bonding requirements of the Welfare and Pension Plans Disclosure Act is granted by this section whereby bonding arrangements (which otherwise comply with the requirements of section 13 of the Act and the regulations issued thereunder) with companies authorized by the Secretary of the Treasury as acceptable reinsurers on Federal bonds will satisfy the bonding requirements of the Act.

§ 465.16 Conditions of exemption.

(a) This exemption obtains only with respect to the requirement of section 13(a) of the Act that all bonds required thereunder shall have as surety thereon, a corporate surety company, which is an acceptable surety on Federal bonds under authority granted by the Secretary of the Treasury pursuant to the Act of July 30, 1947 (6 U.S.C. 6–13).

(b) The exemption is granted upon the condition that if for any reason the authority of any such company to act as an acceptable reinsuring company is terminated, the administrator of a plan insured with such company, shall, upon knowledge of such fact, be responsible for securing a new bond with a company acceptable under the Act and the exemptions issued thereunder.

§ 465.18

Conditions of exemption.

(a) This exemption obtains only with respect to the requirements of section 13(a) of the Act that all bonds required thereunder shall have as surety thereon, a corporate surety company, which is an acceptable surety on Federal bonds under authority granted by the Secretary of the Treasury, pursuant to the Act of July 30, 1947 (6 U.S.C. 6-13).

(b) This exemption is granted on the following conditions:

(1) Underwriters at Lloyds, London shall continue to be licensed in a state of the United States to enter into bonding arrangements of the type required by the Act.

(2) Underwriters at Lloyds, London, shall file with the Office of LaborManagement and Welfare-Pension Reports two (2) copies of each annual statement required to be made to the Commissioner of Insurance of those states in which Underwriters at Lloyds, London are licensed. Copies of annual statements shall be filed with the Office of Labor-Management and WelfarePension Reports within the same period required by the respective states.

(3) All bonding arrangements entered into by Underwriters at Lloyds, London under section 13 of the Act shall contain a "Service of Suit Clause" in substantial conformity with that set forth in the petition for exemption.

An exemption from the bonding requirements of subsections 13 (a) and (b) of the Welfare and Pension Plans Disclosure Act is granted whereby savings and loan associations (including building and loan associations, cooperative banks and homestead associations) specified in § 465.22 are not required to comply with subsections 13 (a) and (b) of the Act, with respect to welfare and pension benefit plans covered by the Act for the benefit of their own employees, where such a savings and loan association is the administrator of such plans. [32 F.R. 6840, May 4, 1967]

§ 465.22 Conditions of exemption.

This exemption applies only to those savings and loan associations (including building and loan associations, cooperative banks and homestead associations) subject to regulation and examination by the Federal Home Loan Bank Board. [32 F.R. 6840, May 4, 1967]

INSURANCE CARRIERS, SERVICE AND OTHER SIMILAR ORGANIZATIONS

AUTHORITY: The provisions of this Part 485 issued under sec. 13, 76 Stat. 39, 29 U.S.C. 308d; Secretary's Order No. 24-63 (28 F.R. 9172) and Secretary's Order No. 25-63 (28 F.R. 9173).

SOURCE: The provisions of this Part 485 appear at 28 F.R. 14412, Dec. 27, 1963, unless otherwise noted.

§ 485.1 Introductory statement.

(a) This part discusses the meaning and scope of section 13(c) of the Welfare and Pension Plans Disclosure Act of 1958 (76 Stat. 39, 29 U.S.C. 308d (c)) (hereinafter referred to as the Act). This provision makes it unlawful "for any person to procure any bond [required by the Act] 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 significant control or financial interest, direct or indirect." Because the prohibition contained in this provision is broadly stated, it becomes a matter of importance to determine more specifically the types of arrangements intended to be prohibited.

(b) The provisions of section 13 of the Act, including 13(c) are subject to the general investigatory authority of

the Director, Office of Labor-Management and Welfare-Pension Reports, embodied in section 9 of the Act. The correctness of an interpretation of these provisions can be determined finally and authoritatively only by the courts. It is necessary, however, for the LaborManagement Services Administrator to reach informed conclusions as to the meaning of the law to enable him to carry out his statutory duties of administration and enforcement. The interpretations of the Labor-Management Services Administrator contained in this part, which are issued upon the advice of the Solicitor of Labor, indicate the construction of the law which will guide the Labor-Management Services Administrator in performing his duties unless and until he is directed otherwise by authoritative ruling of the courts or unless and until he subsequently decides that his prior interpretation is incorrect. Under section 12 of the Act, the interpretations contained in this part, if relied upon in good faith, will constitute a defense in any action or proceeding based on any Act or omission in alleged violation of section 13(c) of the Act. The omission, however, to discuss a particular problem in this part, or in interpretations supplementing it, should not be taken to indicate the adoption of any position by the Labor-Management Services Administrator with respect to such problem or to constitute an administrative interpretation or practice. Interpretations of the Labor-Management Services Administrator with respect to 13 (c) are set forth in this part to provide those affected by the provisions of the Act with "a practical guide * * as to how the office representing the public interest in its enforcement will seek to apply it" (Skidmore v. Swift & Co., 323 U.S. 134, 138).

(c) To the extent that prior opinions and interpretations relating to 13(c) are inconsistent with the principles stated in this part, they are hereby rescinded and withdrawn.

§ 485.2 General.

The purpose of section 13 (c), as shown by its legislative history, is similar to a closely related provision contained in section 502(a) of the Labor-Management Reporting and Disclosure Act of 1959 (73 Stat. 536; 29 U.S.C. 502(a)). The fundamental purpose of Congress under 13(c) is to insure against potential abuses arising from significant financial

or other influential interests affecting the objectivity of the plan or parties in interest in the plan and agents, brokers, or surety or other companies, in securing and providing the bond specified in section 13(a). As will be explained more fully below, this prohibition, however, was not intended to preclude the placing of bonds through or with certain parties in interest in plans which provide a variety of services to the plan, one of which is a bonding service.

§ 485.3 Disqualification of agents, brokers and sureties.

Since 13(c) is to be construed as disqualifying any agent, broker, surety or other company from having a bond placed through or with it, if the plan or any party in interest in the plan has a significant financial interest or control in such agent, broker, surety or other company, a question of fact will necessarily arise in many cases as to whether the financial interest or control held is sufficiently significant to disqualify the agent, broker or surety. Although no rule of guidance can be established to govern each and every case in which this question arises, in general, the essential test is whether the existing financial interest or control held is incompatible with an unbiased exercise of judgment in regard to procuring the bond or bonding the plan's personnel. In regard to the foregoing, it is also to be pointed out that lack of knowledge or consent on the part of persons responsible for procuring bonds with respect to the existence of a significant financial interest or control rendering the bonding arrangement unlawful will not be deemed a mitigating factor where such persons have failed to make a reasonable examination into the pertinent circumstances affecting the procuring of the bond.

§ 485.4

Application of 13(c) to “party in interest".

(a) Under 13(c), an agent, broker or surety or other company is disqualified from having a bond placed through or with it if a "party in interest" in the plan has any significant control or financial interest in such agent, broker, surety or other company. Section 3(13) of the Act defines the term "party in interest" to mean "any administrator, officer, trustee, custodian, counsel, or employee of any employee welfare benefit plan or employee pension benefit plan or a person providing benefit plan services to any such plan, or an employer any of whose

employees are covered by such a plan or officer or employee or agent of such employer, or an officer or agent or employee of an employee organization having members covered by such plan."

(b) A basic question presented is whether the effect of 13(c) is to prohibit persons from placing a bond through or with any "party in interest” in the plan. The language used in 13(c) appears to indicate that in this connection the intent of Congress was to eliminate those instances where the existing financial interest or control held by the "party in interest" in the agent, broker, surety or other company is incompatible with an unbiased exercise of judgment in regard to procuring the bond or bonding the plan's personnel. Accordingly, not all parties in interest are disqualified from procuring or providing bonds for the plan. Thus where a "party in interest" or its affiliate provides multiple benefit plan services to plans, persons are not prohibited from availing themselves of the bonding services provided by the "party in interest" or its affiliate merely because the plan has already availed itself, or will avail itself, of other services provided by the "party in interest." In this case, it is inherent in the nature of the "party in interest" or its affiliate as an individual or organization providing multiple benefit plan services, one of which is a bonding service, that the existing financial interest or control held is not, in and of itself, incompatible with an unbiased exercise of judgment in regard to procuring the bond or bonding the plan's personnel. In short, there is no distinction between this type of relationship and the ordinary arm's length business relationship which may be established between a plan-customer and an agent, broker or surety company, a relationship which Congress could not have intended to disturb. On the other hand. where a "party in interest" in the plan or an affiliate does not provide a bonding service as part of its general business operations, 13(c) would prohibit any person from procuring the bond through or with any agent, broker, surety or other company, with respect to which the "party in interest" has any significant control or financial interest, direct or indirect. In this case, the failure of the "party in interest" or its affiliate to provide a bonding service as part of its general business operations raises the possibility of less than an arm's length business relationship between the plan