Recent US rulings


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When an employer wishes to use their captive for benefits subject to the Employee Retirement Income Security Act (ERISA) in the US, the Department of Labor (DOL) needs to allow an exemption for what would otherwise be a prohibited transaction under ERISA. The basic requirements for an individual prohibited transaction exemption (PTE) are as follows:

  • The employer must hire an Independent Fiduciary to protect the interests of the plan participants. The Independent Fiduciary prepares an annual report certifying that the transaction continues to meet the DOL requirements. As part of the process, the Independent Fiduciary must review the benefits pricing and the reserves established by the captive.
  • There must be a “party in interest” relationship between the plan sponsor and the captive.
  • The captive must be licensed in the US or have a US branch that is used for the employee benefits transaction. Further restrictions apply with respect to audit requirements and state licensing requirements.
  • The cost of benefits being insured (or reinsured) into the captive must be in line with typical market costs for those benefits.
  • In the first year of the transaction, the plan participants must gain via increased benefits or reduced employee contributions.
  • No commissions can be paid by the employee benefit plans with respect to the insurance or reinsurance transaction.
  • The fronting insurer must have an AM Best rating of A or better.