(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 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 posibility of less
than an arm's length business relationship between the plan and the
agent, broker, surety or other company since the objectivity of either
the plan or the agent, broker or surety may be influenced by the ``party
in interest''.
(c) The application of the principles discussed in this section is
illustrated by the following examples:
Example (1). B, a broker, renders actuarial and consultant service
to plan P. B has also procured a group life insurance policy for plan P.
B may also place a bond for P with surety company S, provided that
neither B nor P has any significant control or financial interest,
direct or indirect, in S and provided that neither P nor any other
``party in interest'' in P, e.g., an officer of the plan, has any
significant control or financial interest, direct or indirect, in B or
S.
Example (2). I, a life insurance company, has provided a group life
insurance policy for plan P. I is affiliated with S, a surety company,
and has a significant financial interest or control in S. P is not
prohibited from obtaining a bond from S since I's affiliation with S
does not ordinarily, in and of itself, affect the objectivity of P in
procuring the bond or the objectivity of S in bonding P's personnel.
However, if any other ``party in interest'' as defined in section 3(13)
of the Act, such as the employer whose employees
are covered by P, should have a significant financial interest or
control in S, S could not write the bond for P, since the employer's
interest affects the objectivity of P and S.
