DOL Proposes ERISA Exemptions for Restorative Payments to Blue Cross Blue Shield Following Allianz Losses

November 16, 2022
Hall Benefits Law, LLC

The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) has proposed individual exemptions to prohibited transaction restrictions under the Employee Retirement Income Security Act (ERISA). The proposed transaction exemptions would cover about $600 million in payments made by 11 benefit pension plans, sponsored by independent licensees of the Blue Cross Blue Shield Association (BCBSA). Without the exemptions, the payments would violate ERISA, which generally prohibits transactions between parties in interest to a benefit plan. 

These companies blame catastrophic investment losses due to stock market volatility at the start of the COVID-19 pandemic on the Structured Alpha investment strategy of investment manager Allianz Global Investors US LLC (Allianz). This investment strategy led to a scandal that involved an Allianz U.S. affiliate pleading guilty as part of a $6 million settlement with the U.S. Department of Justice. 

EBSA’s proposed exemptions would legitimize restorative payments already made to the benefits plans that ERISA otherwise would consider prohibited transactions. The exemptions also would validate future planned expedited payments by various licensee plan sponsors. The exemptions also would allow any settlement or litigation funds to be repaid to the BCBSA plan sponsors. The restorative payments affecting 11,598 participants are necessary due to the lawsuit that BCBSA’s benefits committee filed against Allianz and Aon Investments USA Inc. in September 2020. The case is Blue Cross Blue Shield Association National Employee Benefits Committee v. Allianz Global Investors US LLC et al., case number 1:20-cv-07606, U.S. District Court for the Southern District of New York.

In that lawsuit, BCBSA’s benefits committee alleged that Allianz had breached its fiduciary duty under ERISA by providing false and repeated assurances that it had protected its Structured Alpha investment strategy from risk. BCBSA claims that despite these reassurances, Allianz left options contracts exposed and failed to monitor those risks, which led to a meltdown in investment funds. As a result, BCBSA claims that it lost approximately 78% of its total assets, with six of its eleven plans having funding levels that dipped below 50%. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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