Momentum appears to have returned to the application process for companies wanting to use their captive to reinsure employee benefits under the United States’ Employee Retirement Income Security Act (ERISA).
While using a captive to reinsure international employee benefits is becoming increasingly common, in the US approval is required to include covers such as life and accidental death and dismemberment.
Companies must also use a US-domiciled captive to reinsure the fronting partner.
The Department of Labor (DoL), which is responsible for administering and approving ERISA exemptions, had been beset with a high rate of staff turnover during President Donald Trump’s 2017 – 2021 administration, but two approvals in 2022 suggests a more efficient system is returning.
Captive Intelligence is aware of at least one company that gave up on an ERISA application for their captive during this period, but Phillips 66 and Comcast Corporation both achieved final approvals in early 2022.
“There’s a couple of companies we’re working with now who’ve got applications in with the DoL and there’s traction,” said Paul McNiff, global pensions & employee benefits consultant at WTW.
“They’re also answering questions and there’s activity as opposed to nothing, so it’s a positive outlook.”
During President Trump’s administration there were four different heads of the DoL, which caused significant disruption and made the application process more challenging.
Prior to Comcast and Phillips 66’s successful applications, the last approval was for Hyatt Hotels in 2017.
Hyatt was also able to make use of the ExPro regime, which allows the applicant to cite a previous “substantially similar transaction” to expedite the exemption request.
It remains to be seen whether the ExPro regime will be brought back, although there is hope that the Phillips 66 and Comcast exemptions could be used as part of future applications.
Sources highlighted a renewed sense of optimism for others wanting to go through the process, but McNiff said companies would likely still need around 12 months to get the exemption from the DoL if ExPro is not available.
“This means you’re going to have the project sitting on your list for a 12-month period, and there’ll be times when there’s a lot of work to do and there’ll be times when it goes quiet, and not everyone wants to sign up for that,” McNiff said.
“However, for some companies, the potential savings will be too high to ignore.”
Captive Intelligence will publish a long read on the pros and cons of seeking Department of Labor approval to write ERISA benefits on Thursday, 2 February.
