Meta applies for ERISA exemption to use captive

The US Department of Justice (DoJ) is considering granting an exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974 (ERISA), to technology company Meta that could allow them to use a captive.

The proposed exemption would allow the Meta Platforms Inc. Health and Welfare Benefit Plan, which is sponsored by Meta Platforms (Meta) to enter into an insurance contract with Prudential Life Insurance Company of America, an unrelated A-rated insurance company, which then would enter into a reinsurance contract with Ekahi Insurance Company, a captive insurer that is owned by Meta.

Under the reinsurance arrangement, Ekahi would reinsure the Plan's risks related to providing group term life insurance benefits, accidental death and dismemberment (AD&D) benefits, and survivor income benefits. Importantly, the fronting insurer (or any successor fronting insurer) would remain fully responsible for these risks in the event that Ekahi does not fulfil its contractual obligations to the fronting insurer.

Meta, through its ownership of Ekahi, is expected to receive a benefit from the reinsurance arrangement. To ensure that most of the financial benefits from the arrangement are passed through to the Plan and its participants and beneficiaries, this proposed exemption would require Meta to fund certain new plan benefit enhancements. Specifically, the financial benefit that Ekahi or a related party (including Meta) receives directly or indirectly from the reinsurance arrangement must be less than the value of the enhanced financial benefits to the Plan and its participants and beneficiaries. Accordingly, for every dollar of financial benefits that the reinsurance arrangement is expected to generate, the Plan, its participants and beneficiaries must receive at least 51 cents on the dollar and, Ekahi and related parties may not receive more than 49 cents. Furthermore, Ekahi and related parties may not offset the enhanced financial benefits, directly or indirectly, by reducing other plan benefits or other compensation to the Plan's participants or beneficiaries.

This proposed exemption also would require Meta to delegate fiduciary oversight of the reinsurance arrangement to a qualified fiduciary that is independent of Meta and its affiliates. The Independent Fiduciary would be required to approve the reinsurance arrangement in advance, ensure that the reinsurance arrangement is in the interest and protective of the plan and its participants and beneficiaries at all times, submit annual and five-year “look-back” reports to the Department, and ensure that all of exemption's conditions are met.

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