Sunday, September 8, 2024

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DoL considers ERISA exemption for pension captive transaction

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The US Department of Labour (DoL) has tentatively authorised an Employee Retirement Income Security Act (ERISA) exemption for the New York-based Memorial Sloan Kettering Cancer Centre (MSKCC), concerning a pension risk transfer to its captive.

The DoL requires that a US-domiciled captive is used to reinsure ERISA-governed benefits such as life and accidental death and dismemberment.

MSKCC is a cancer centre that is committed to patient care, research, and educational programmes, and has approximately 21,000 employees.

If approved, MSKCC is expected to receive a financial benefit from the exemption that will equal approximately $126,444,000.

Captive Intelligence understands MSKCC has worked closely with Spring Consulting, an Alera Group Company, on the transaction design and execution and would be among the first of its kind in the US.

This exemption would require MSKCC to ensure that plan participants and beneficiaries will receive the majority of the derived benefit in the form of a percentage increase to the monthly retirement benefit of all participants and beneficiaries.

Currently, the Department expects that MSKCC would implement a 5.37% increase in each participant’s and beneficiary’s monthly annuity payment.

Under the proposed exemption, the MSKCC Pension Plan would enter into an insurance contract with a fronting carrier who would be selected by an independent fiduciary.

The Fronting Insurer would then enter into a reinsurance contract with MSKCC’s Vermont-domiciled captive, MSK Insurance US, which would reinsure 100% of the plan’s risks.

Captive Intelligence published a long read in February 2023 analysing the DoL’s approach to successful captive exemption applications, whether there was likely to be greater activity following successful submissions from Phillips 66 and Comcast in 2022.