Dear Ms. Moak:
This is in response to your request for an advisory
opinion under Title I of the Employee Retirement Income Security Act of
1974 (ERISA). Specifically, you request guidance as to the permissibility
of (1) amending the Trust for WSWA Sponsored Welfare Plans (Trust or Plan)
to permit its remaining assets to be transferred to an organization exempt
from tax under section 501(c)(3) of the Internal Revenue Code of 1986
(Code), as amended, and (2) subsequent to the termination of the Plan,
transferring such assets to such an organization that is not a party in
interest under section 3(14) of ERISA.
You represent that the Wine and Spirits Wholesalers of
America, Inc. (WSWA) originally established the Trust on May 19, 1975.
WSWA is the sponsor of the Trust, a multiple employer welfare arrangement
that provides health, hospital, disability, and death benefits to
employees of various employers in the wine and spirits wholesale industry.
The Insurance Committee is the named fiduciary of the Trust.
The Plan combined two existing plans, one that provided
life, medical, and hospital income (Health Plan),(1)
and a second that provided accidental death and dismemberment insurance
(AD&D Plan),(2) into one
document. The two plans remained distinct, however, and their assets were
held in separate accounts. Over the years, the insurance offered through
the Plan also included dental, vision, and long-term disability insurance.
You represent that participants were categorized into
classes, each of which was permitted to choose from insurance offered
under the Plan. Each participant paid a premium based on his or her class,
the types of insurance policies enrolled in, the amount of insurance
coverage, and the number of people insured. Administrative fees were also
charged and generally were based on the types of insurance policies
enrolled in, the amount of insurance coverage sought, and the number of
participants in a particular plan. Premiums and administrative fees were
primarily paid for by the participating employers. Levels of employee
contributions were determined by each employer.
You also represent that since the time the Health Plan
was established, participants have included thousands of employees from as
many as hundreds of different WSWA-member and affiliated companies. By
2004, however, there were approximately 38 participating employers and
1,064 participants. You represent that, effective May 1, 2004, the
insurance provider for the Health Plan cancelled the insurance policy
because it was not economical to continue the coverage and that the
AD&D Plan was terminated because the expense of maintaining the Plan
would have been disproportional to the premiums and coverage provided.
Thus, you represent that all insurance contracts under the Plan were
terminated and that all liabilities of the Plan have been satisfied. You
further represent that additional insurance contracts have not been
entered into and that no former participants or beneficiaries in the Plan
have a claim or right to a future benefit from either of the plans.
As of September 1, 2006, approximately $380,000
remained in the Trust, subject to ongoing interest earnings, ordinary
expenses, and the expense of requesting this advisory opinion and a
companion letter ruling from the Internal Revenue Service (IRS). You
represent that, of this amount, approximately $280,000 was in an account
of the Health Plan and was derived from an accumulation of administrative
fees and compound interest earned on those fees, as well as dividends from
experience-rated policies. In some years, policy ratings resulted in a
partial refund of premiums, which was placed in reserves to offset losses
incurred in other years. In late 2005, the insurance provider for the
Health Plan completed its final accounting and sent the Trust a check in
the amount of $25,044, the total amount remaining in the reserves after
payment of all outstanding claims. The approximately $100,000 in the
account of the AD&D Plan was derived from an accumulation of
administrative fees and the compound interest earned on those fees.
You represent that, due to the cost of maintaining the
Trust, the Insurance Committee has been considering how to liquidate it.
The Trust document provides that assets must be used for the exclusive
benefit of the participants (including their dependents and
beneficiaries). In addition, it provides that no asset of the Trust will
inure to the benefit of any employer and that assets of each account will
be held exclusively for the purpose of providing benefits to participants
and for defraying the reasonable expenses of administering the Trust. It
also provides that, in the event that a plan for which an account is
maintained under the Trust terminates, assets will be paid out by the
trustee in accordance with Trust provisions and, upon disbursement of all
of the assets, the Trust will terminate.
You explain that participants do not have an
expectation of any right to the corpus or income of the Trust because the
Trust precludes any person, including any participant, from having any
legal or equitable right in the corpus or income of the Trust unless
specifically provided for in a plan. You also assert that, even if the
Insurance Committee desired to provide participants with a portion of the
remaining assets, there is no equitable means by which to determine the
portion of assets that derived from the contributions of those
participants. You explain that calculating an equitable disbursement among
participants would require information that is not available because the
administrator’s records extend back no more than seven years and there
is no other source of the information, including the policies in which
each participant was enrolled, the employee class to which he or she
belonged, the amount of insurance the participant sought, the length of
their participation in each plan, and the administrative fees paid over
the years for the different classes and levels of insurance. Further, you
assert that, because the amount of reserves is small given the period of
time during which the Trust existed, the number of participating employers
and employees was large over time, the expense of allocating and
distributing the remaining assets would be prohibitive.
WSWA and the Insurance Committee propose to amend the
Trust to permit the trustee to transfer the assets remaining in the Plan
to an organization exempt from tax under Code section 501(c)(3),
specifically, an organization established by WSWA, after all the
liabilities of the Plan have been satisfied. You note that the Plan
document permits its amendment.
You represent that WSWA established the WSWA
Educational Foundation, Inc. (Foundation) in March 2006 to pursue
educational and charitable activities on behalf of the United States wine
and spirits distribution industry. The Foundation is a tax exempt
organization within the meaning of section 501(c)(3) of the Internal
Revenue Code. The activities of the Foundation include increasing public
knowledge of the role of the wine and spirits distributor on a local and
national level, educating the public about the responsible consumption and
distribution of alcohol, sponsoring studies and promoting public awareness
regarding the deregulation of alcohol, and supporting communities to stop
underage alcohol consumption, none of which, according to your
representations, constitute employee welfare benefit plans. You represent
that the Foundation is not a party in interest under section 3(14) of
ERISA. You also indicate that the IRS determined that the Foundation is
exempt from tax under Code section 501(c)(3).
You have requested an advisory opinion with regard to
the following questions:
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Whether it is permissible under section 403(d)(2) of
ERISA, to amend the Trust and for the trustee to transfer the remaining
assets (less certain administrative fees) to the Foundation.
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Whether transferring the Plan remaining assets
subsequent to the termination of the Plan to the Foundation is a
prohibited transaction involving either a party in interest or a fiduciary
within the meaning of sections 406(a)(1)(D), 406(b)(1) or (2) of ERISA.
The Department ordinarily will not issue advisory
opinions regarding sections 403(c)(1) and 404(a)(1) of ERISA. See ERISA
Advisory Opinion Procedure 76-1, sec. 5.02(n) and (o). We note, however,
that section 403(c)(1) of ERISA provides that except as provided in
section 403(d), the assets of a plan shall never inure to the benefit of
any employer and shall be held for the exclusive purposes of providing
benefits to participants in the plan and their beneficiaries and defraying
reasonable expenses of administering the plan. In addition, section
404(a)(1) of ERISA provides, in part, that subject to sections 403(c) and
(d), a fiduciary shall discharge his or her duties with respect to a plan
solely in the interest of the participants and beneficiaries and for the
exclusive purpose of providing benefits to the participants and
beneficiaries.
Section 403(d)(2) provides that the assets of an
employee welfare benefit plan that terminates shall be distributed in
accordance with the terms of the plan, except as otherwise provided in
regulations of the Secretary of Labor. Although no regulations have been
issued under section 403(d)(2), Conference Report No. 93-1280, 93rd
Congress, 2d Session, at page 303, states in part that it is intended that
the terms of the welfare plan will govern distribution or transfer of
assets upon termination of the plan, except to the extent that
implementation of the terms of the plan or agreement would unduly impair
the accrued benefits of the plan participants. See Advisory Opinions
2003-08A (June 26, 2003) and 93-14A (May 5, 1993).
Section 403(d)(2) of ERISA does not preclude the
amendment of the Trust as described to permit the transfer of surplus
assets to an unrelated tax-exempt foundation after termination of the Plan
and satisfaction of all liabilities.
With regard to your second question, section 406(a)
prohibits various types of transactions between a plan and persons who are
parties in interest with respect to the plan. In particular, section
406(a)(1)(D) prohibits a fiduciary from engaging in a transaction if the
fiduciary knows or should know that the transaction is a direct or
indirect transfer to, or use by or for the benefit of any party in
interest, of the assets of the plan. Further, section 406(b)(1) of ERISA
prohibits a fiduciary from dealing with plan assets in his or her own
interest or for his or her own account and section 406(b)(2) provides that
a fiduciary with respect to a plan shall not in his or her individual or
in any other capacity act in any transaction involving the plan on behalf
of a party (or represent a party) whose interests are adverse to the
interests of the plan or the interests of its participants or
beneficiaries. If the Trust has properly been terminated and all claims
have been either paid or properly forfeited, the proposed subsequent
transfer of surplus funds by the trustees of that Trust would not violate
ERISA sections 406(a)(1)(D), 406(b)(1) or (2).
This letter constitutes an advisory opinion under ERISA
Procedure 76-1. Accordingly, it is subject to the provisions of that
procedure, including section 10 thereof relating to the effect of advisory
opinions.
Sincerely,
Louis Campagna
Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations
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The WSWA Insurance Fund was established on June 2, 1958, to provide group life insurance for certain employees of WSWA, WSWA's members, and related state trade associations. Medical insurance and hospital income were added in approximately 1972. For the purposes of this letter, we rely on your representation that the WSWA is a cognizable, bona fide group or association of employers within the meaning of section 3(5) of ERISA. We note, however, that if the WSWA in fact consists of unrelated employers that have executed participation agreements or similar documents merely as a means to fund benefits, in the absence of any genuine organizational relationship between the employers, no employer association would be recognized, and the Plan would not be a plan within the meaning of section 3(1) of ERISA. See Advisory Opinion 2001-04A (Mar. 22, 2001).
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WSWA enrolled in the accidental death and dismemberment insurance plan on July 1,1965.
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