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EBSA Notices

Notice of Proposed Exemption Involving Sharp HealthCare Located in San Diego, CA   [8/28/2012]
[PDF]
Federal Register, Volume 77 Issue 167 (Tuesday, August 28, 2012)
[Federal Register Volume 77, Number 167 (Tuesday, August 28, 2012)]
[Notices]
[Pages 52061-52066]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21158]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. L-11688]


Notice of Proposed Exemption Involving Sharp HealthCare Located 
in San Diego, CA

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains a notice of pendency (the Notice) 
before the Department of Labor (the Department) of a proposed 
individual exemption from certain prohibited transaction restrictions 
of the Employee Retirement Income Security Act of 1974 (the Act or 
ERISA). The transactions involve the Sharp HealthCare Health and Dental 
Plan (the Plan). The proposed exemption, if granted, would affect the 
Plan, its participants and beneficiaries, Sharp Healthcare (Sharp), and 
the Sharp Health Plan (the HMO).

[[Page 52062]]


DATES: Effective Date: The proposed exemption, if granted, will be 
effective as of August 1, 2006.

DATES: Written comments and requests for a public hearing on the 
proposed exemption should be submitted to the Department within 33 days 
from the date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the proposed 
exemption and the manner in which the person would be adversely 
affected by the exemption, if granted. A request for a hearing must 
also state the issues to be addressed and include a general description 
of the evidence to be presented at the hearing. All written comments 
and requests for a public hearing concerning the proposed exemption 
should be sent to the Office of Exemption Determinations, Employee 
Benefits Security Administration, Room N-5700, U.S. Department of 
Labor, 200 Constitution Avenue NW., Washington, DC 20210, Attention: 
Application No. L-11688. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via email or FAX. Any such 
comments or requests should be sent either by email to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The application for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue NW., 
Washington, DC 20210. Comments and hearing requests will also be 
available online at www.regulations.gov and www.dol.gov/ebsa, at no 
charge.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

FOR FURTHER INFORMATION CONTACT: Mr. Warren Blinder, Office of 
Exemption Determinations, Employee Benefits Security Administration, 
U.S. Department of Labor, telephone (202) 693-8553. (This is not a 
toll-free number.)

SUPPLEMENTARY INFORMATION: This document contains a notice of proposed 
exemption that, if granted, would provide exemptive relief from 
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the 
Act, effective August 1, 2006, for the purchase of health insurance by 
the Plan from the HMO, a non-profit health maintenance organization 
wholly owned by the Plan's sponsor, Sharp, through a 100% non-profit 
membership interest.

Summary of Facts and Representations \1\
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    \1\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect the views of the 
Department.
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1. Background

    Sharp is an integrated health care delivery system located in San 
Diego County. Sharp was created in 1946 as a non-profit association to 
raise funds to build a hospital and in 1955, based on a lead donation 
from Thomas E. Sharp, a hospital was built on 12.5 acres in Kearney 
Mesa, California. From that hospital, Sharp HealthCare has grown into a 
countywide system comprised of five hospitals, multiple clinics, and 
two pharmacies.
    In 1992, Sharp established its own licensed HMO through a 
subsidiary corporation called ``Sharp Health Plan.'' The HMO is a 
501(c)(4) corporation and Sharp is its sole member, with appointment 
authority over 100% of the HMO's Board of Director positions. The HMO 
offers a provider network that consists of 5 Sharp-affiliated 
hospitals, 5 Sharp-affiliated urgent care clinics, 11 Sharp-affiliated 
pharmacies, and 347 Sharp-affiliated (or Sharp-contracted) physicians 
in 4 different medical groups. Additionally, the HMO offers access to 7 
non-Sharp affiliated hospitals, 25 non-Sharp affiliated urgent care 
clinics, approximately 360 non-Sharp affiliated pharmacies, and 570 
non-Sharp affiliated physicians comprised of 290 physicians in 4 
different medical groups, and 280 independent physicians. The HMO is 
licensed by the California Department of Managed Health Care and is 
offered to San Diego employers and individuals. The Applicant notes 
that the HMO and Sharp's facilities have a good reputation in San Diego 
County and have received numerous awards for quality over the years. 
Additionally, Sharp states that it has more licensed hospital beds than 
any other health care provider in San Diego County.
    Sharp provides health benefits to its employees under the Plan. As 
of March 2012, the Plan had 10,993 participants and provided benefits 
to approximately 24,339 individuals. In 1993, Sharp began providing its 
employees' medical and vision benefits under the HMO. As the HMO is the 
only available option under the Plan, all participants were covered 
under the HMO. Each year, Sharp establishes a flat employee 
contribution rate for different levels of coverage (e.g., employee-
only, employee plus-one, employee plus-family) and Sharp pays any 
remaining premiums based on the rates that it negotiates with the HMO. 
Between 2006 and 2010 Sharp paid approximately 85% of the premium cost 
of such coverage and employees paid the remaining 15% through pre-tax 
salary deferral contributions. Employee contributions are collected by 
Sharp, put into its general account and used as part of the premium 
payment to the HMO. The Applicant represents that all such plan assets 
are spent on premiums almost immediately upon being withheld from 
employees' paychecks. Employees also make co-payments directly to the 
actual providers of the medical care they receive, including Sharp, if 
the services have been provided in one of its facilities.
    The HMO sets premiums for Sharp employees based on the experience 
of the Sharp employee population, as is the case with its other 
employer clients. The Applicant notes that, as a non-profit, the HMO 
only retains sufficient earnings to maintain its legally required 
reserves. In addition, the Applicant states that the HMO reduces its 
claims administration costs and is able to get better capitated rates 
from providers by pooling all of the covered lives under the HMO, 
rather than negotiating separate claims administration and capitated 
rate negotiations for just the Sharp employee population. According to 
the Applicant, this reduces the overall cost of health benefits under 
the Plan, ultimately reducing the cost Sharp employees pay for their 
coverage.
    Sharp is designated as the plan administrator of the Sharp 
HealthCare Group Health and Welfare Plan.\2\ In the past, Sharp's Board 
of Directors had not appointed an administrative committee to act as 
the plan administrator on behalf of Sharp, but going forward, the Sharp 
Board of Directors will appoint a committee to act as the plan 
administrator for the Plan in place of

[[Page 52063]]

Sharp, which will be comprised of the: (1) Senior Vice President, 
General Counsel, (2) Senior Vice President/Chief Financial Officer, and 
(3) Vice President/Compensation and Benefits. The Applicant states that 
although each of these employees receives a portion of their 
compensation based on factors that include ``target net revenue,'' \3\ 
Sharp's use of the HMO for its employees has little, if any, impact on 
such compensation. The Applicant explains that the portion of target 
net revenue attributable to the Plan's use of the HMO for its employees 
is immaterial, and any premiums that are paid to the HMO are ultimately 
offset as a revenue item by fees the HMO pays to Sharp for medical and 
other services.
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    \2\ The Applicant states that Sharp, its Board of Directors, 
Anne Stephenson, Ann Pumpian and Carlisle Lewis, III, Esq., are all 
fiduciaries within the meaning of section 3(21) of the Act.
    \3\ According to the Applicant, target net revenue is made up of 
all Sharp revenue, except ``Medi-Cal'' hospital fee program 
receipts, reduced by bad debt.
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    Sharp's Vice President of Compensation and Benefits conducts an 
annual review to determine the reasonableness of total premiums paid by 
Sharp employees for coverage under the HMO. Sharp's Vice President of 
Compensation and Benefits also reviews the ``employee share'' rates to 
make sure that they are competitive when compared to the rates their 
peer employers are charging. The Applicant notes that the Vice 
President of Compensation and Benefits has used the services of outside 
vendors, such as Keenan & Associates and SDH Consultants to assist her 
in this comparison, and based on these surveys, Sharp has concluded 
that the premiums paid, as well as the employees' share of such 
premiums, for coverage under the HMO were reasonable.

2. Request for Relief

    The Applicant represents that for 18 years, Sharp has provided its 
employees with health insurance through the HMO, under the mistaken 
belief that this coverage was permissible under Prohibited Transaction 
Exemption (PTE) 79-41, 44 FR 46365 (August 7, 1979). The Applicant 
relates that, on April 5, 2011, the Los Angeles Regional Office of the 
Department of Labor (the Department) concluded an audit of the Plan and 
determined that the Plan's provision of coverage under the HMO did not 
meet the requirements of Section II(a)(1) of PTE 79-41, as described 
below.
    PTE 79-41 provides that the restrictions of sections 406(a), 
406(b)(1) and (2), and 407(a) of the Act and the taxes imposed by 
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) 
through (E) of the Code, shall not apply to the sale, in any taxable 
year, by an insurance company which is a party in interest or 
disqualified person with respect to an employee benefit plan, of life 
insurance, health insurance, and annuities if certain conditions are 
met.
    Section II(a) of PTE 79-41 provides that the insurance company 
making the sale must:

    (1) [Be] a party in interest or disqualified person with respect 
to the plan by reason of a stock or partnership (including a joint 
venture) affiliation with the employer establishing or maintaining 
the plan that is described in section 3(14)(E) or (G) of the Act* * 
*,
    (2) [Be] licensed to sell insurance in at least one of the 
United States or in the District of Columbia,
    (3) [Have] obtained a Certificate of Compliance from the 
insurance commissioner of its domiciliary state within the 18 months 
prior to the date when the transaction is entered into or when such 
certificates were last made available by the domiciliary state, if 
earlier, and
    (4)(i) [Have] undergone a financial examination (within the 
meaning of the law of its domiciliary state) by the insurance 
commissioner of such state within 5 years prior to the end of the 
year preceding the year in which the sale occurred, or
    (ii) [Have] undergone an examination by an independent certified 
public accountant for its last completed taxable year.

    The Applicant states that Section II(a)(1) has not been complied 
with because Sharp does not have a stock or partnership interest in the 
HMO, but instead is the sole member of the HMO, and as such, has the 
power to appoint 100% of the HMO's Board of Directors. Nevertheless, 
the Applicant contends that Sharp's control of the HMO is no less 
complete than it would be if Sharp's ownership interest was denominated 
in the form of stock or a partnership interest.\4\
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    \4\ The Applicant maintains that the DOL and the IRS are of the 
view that, in the context of a non-profit corporation, control may 
be exercised through appointment power over the Board of Directors 
rather than stock or partnership interests. See ERISA Opinion Letter 
82-48A (September 16, 1982), and Treasury Regulation 1.414(c)-5(b). 
The Department expresses no opinion herein as to the applicability 
of the aforementioned authorities to the covered transactions.
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    The Applicant maintains that the general premise undergirding PTE 
79-41 is no less applicable in the case of a non-profit health care 
system whose ownership is through membership rather than a shareholder 
interest. In this regard, the Applicant states that health systems that 
maintain their own HMO or insurance policies invariably use those 
policies to provide health insurance benefits to their own employees. 
Thus, according to the Applicant, it would be ``contrary to ordinary 
business practices, and unnecessarily restrictive, to require'' an 
employer who is in the business of selling health insurance to purchase 
such health insurance for its employees from a competitor.
    Furthermore, Sharp contends that its control of the HMO via a non-
profit membership interest presents a non-substantive, technical 
violation of the class exemption that has no bearing on the relief 
afforded to the Plan and its parties in interest, or the protection of 
the interests of the Plan and its participants and beneficiaries. The 
Applicant states that the relationship between Sharp and the HMO 
reflects the ``qualities'' behind PTE 79-41's affiliation requirement. 
In this regard, the Applicant observes that Sharp and the HMO are part 
of a closely connected system that have a common mission and integrated 
operations, and that Sharp could not find an independent carrier that 
would be as responsive to employer and participant needs as the HMO. 
According to the Applicant, the fact that Sharp and the HMO are non-
profit corporations and do not have stock or partnership interests, 
and, therefore, exercise control through Sharp's Board of Directors' 
appointment authority, does not in any way diminish Sharp's control 
over and comprehensive integration with the HMO. Thus, the Applicant 
submits that Sharp's failure to meet the affiliation condition of PTE 
79-41, as described herein, is merely technical in nature and not 
meaningful to the Department's granting of relief under PTE 79-41.
    The Applicant is therefore requesting a retroactive exemption from 
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1) and 406(b)(2) of the Act 
for the Plan's purchase of health care coverage from the HMO, which 
Sharp wholly-owns through a non-profit membership interest, effective 
August 1, 2006 through and until the date of publication of a final 
grant of exemption in the Federal Register. Furthermore, the Applicant 
is requesting a prospective exemption from sections 406(a)(1)(A), 
406(a)(1)(D), 406(b)(1) and 406(b)(2) of the Act for the Plan's 
continued purchase of health care coverage from the HMO, which Sharp 
wholly-owns through a non-profit membership interest, effective as of 
the date of publication of a final grant of exemption in the Federal 
Register.\5\
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    \5\ The Applicant represents that Sharp provides certain 
services to the HMO in connection with the operation of its 
integrated health care delivery system. The Applicant states that 
Sharp is of the view that these services are within the scope of 
exemptive relief provided by section 408(b)(2) of ERISA. The 
Department is expressing no opinion herein regarding whether the 
provision of a service by Sharp to the HMO in connection with the 
operation of its integrated health care delivery system is within 
the scope of relief provided by that statutory exemption.

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[[Page 52064]]

    After considering the Applicant's request, the Department has 
determined to propose an individual prohibited transaction exemption. 
The proposed exemption has been requested in an application filed by 
Sharp pursuant to section 408(a) of ERISA and in accordance with the 
procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836, August 10, 
1990).

3. Compliance With Conditions of PTE 79-41

    The Applicant urges the Department to propose exemptive relief, 
because, according to the Applicant, all of the conditions of relief 
required under PTE 79-41 have been satisfied with respect to the Sharp 
arrangement described herein, except the condition in Section II(a)(1), 
requiring that Sharp control the HMO via a stock or partnership 
ownership interest. In this regard, the Applicant represents that the 
HMO: Is licensed as an HMO in California by the Department of Managed 
Healthcare; has been certified by the California Department of Managed 
Healthcare as being in compliance with the requirements for a licensed 
HMO within the last 18 months; and has undergone a financial 
examination by the California Department of Managed Healthcare within 
the last five years and is audited by an independent certified public 
accountant each year, including its last completed taxable year. 
Therefore, the Applicant maintains that Sharp has satisfied the 
conditions set forth in Sections II(a)(2), (3), and (4) of PTE 79-41. 
The Applicant also represents that the amount the Plan pays to Sharp 
for HMO coverage is reasonable and does not exceed the amount that 
would be paid for similar services in an arm's length transaction 
between unrelated parties, thereby satisfying Section II(b) of PTE 79-
41. The Applicant also represents that no commissions are paid by the 
Plan for the insurance coverage purchased from the HMO, thereby 
satisfying Section II(c) of PTE 79-41. Finally, the Applicant states 
that the total HMO premiums collected for participants in the Plan 
(including employee and employer payments) have always, during the 
period covered by this application, been less than 50% of total 
premiums collected by the HMO. Therefore, the Applicant maintains that 
the condition contained in Section II(d) of PTE 79-41 is satisfied.

4. Additional Protections

    According to the Applicant, the HMO, as a licensed HMO in 
California, employs an underwriter and contracts with an actuary to 
calculate the appropriate premiums that it charges to employers who 
purchase group HMO contracts from the HMO. According to the Applicant, 
this analysis involves a study of industry trends and also the 
particular demographics of the employer's workforce and, for a 
continuing employer, such as Sharp, a review of the historic experience 
that the HMO has had with the employer's population. Based on this 
underwriting analysis, premiums are set for a contract year.\6\
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    \6\ The Applicant also notes that Sharp has historically paid a 
majority of the Plan's premiums that are paid to the HMO and 
employee contributions have always constituted less than half of the 
cost of coverage.
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    In addition, the Applicant states that it also conducts its own 
survey of premiums that are being paid for HMO coverage by other San 
Diego area hospitals, using the services of third-party benefit 
consultants to conduct these surveys.\7\ The Applicant explains that, 
under these third party surveys, each of the large hospitals in San 
Diego County are anonymously surveyed as to the COBRA rates they are 
charging.\8\ The Applicant maintains that the premiums that have been 
paid by Sharp to the HMO are within the market price paid by similarly 
situated employers in San Diego County. Based on these two separate 
methodologies, Sharp and its individual fiduciaries have concluded that 
the amount the Plan pays to Sharp for HMO coverage is reasonable and 
does not exceed the amount that would be paid for similar services in 
an arm's length transaction between unrelated parties.
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    \7\ As stated above, Sharp has previously employed the firms of 
Keenan and Associates and SDH Consultants to conduct these surveys.
    \8\ Sharp officials believe that surveying COBRA premiums 
charged by other large hospitals in the San Diego County area will 
give an ``apples-to-apples'' comparison of premiums that are 
actually being paid by employers with similar demographics to Sharp, 
since, under COBRA, the ``applicable premium'' is the cost or 102% 
of the cost actually paid by the employer for such coverage.
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    The Applicant notes that Sharp will continue with these efforts, 
going forward, and will commit to hiring an independent third-party 
consultant each year to issue a formal report. According to the 
Applicant, the consultant will determine whether the amount employees 
and/or their dependents pay for coverage is reasonable and does not 
exceed the amount that would have been paid for similar services in an 
arm's length transaction between unrelated parties. This amount will 
include the cost of co-payments and other out-of-pocket expenses for 
such coverage borne by participants and/or their dependents, and copies 
of the certification will be distributed to Plan participants along 
with summaries of health care costs for similar, competing health care 
providers.
    The Applicant states that if the proposed exemption is granted, the 
Board of Directors of Sharp will appoint a committee (the Plan 
Committee) consisting of the Senior Vice President and General Counsel, 
the Senior Vice President and Chief Financial Officer, and the Vice 
President, Compensation and Benefits, and such other representatives as 
the Board may deem appropriate, which will annually ascertain and 
certify in writing that the above requirements of this proposed 
exemption, if granted, continue to be met.

5. Merits of the Covered Transactions

    The Applicant states that the covered transactions are in the 
interest of the Plan and its participants and beneficiaries. The 
Applicant maintains that the covered transactions allow the Plan to 
provide quality medical coverage to its participants at a lower price 
and in a manner that harmonizes with the business practices of 
employers who are in the insurance and health care industry. Sharp 
maintains that participants in the Plan pay for less than half of the 
Plan's cost for coverage under the HMO and by electing coverage under 
the HMO, participants have access to a wide range of high quality Sharp 
and non-Sharp affiliated health care providers.\9\ Furthermore, if the 
exemption is denied, the Applicant maintains that the Plan and its 
participants and beneficiaries will lose their coverage under the HMO 
and will no longer be able to use Sharp providers, creating a hardship 
for the many Sharp employees who have demonstrated a preference for 
being treated in Sharp's health care system.
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    \9\ The Applicant notes that Plan participants in the HMO are 
able to select any health care provider in the HMO's network, 
regardless of whether they are affiliated with Sharp, but in an HMO 
(rather than a Preferred Provider Organization) participants are not 
allowed to select health care providers outside the HMO's network, 
except in case of emergency.
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    The Applicant represents that the savings garnered from the HMO's 
efficiencies of scale, and the lack of need for commissions, redounds 
to the benefit of Plan participants. In this regard, the Applicant 
explains that there

[[Page 52065]]

is no need to retain a broker and pay a commission for the retention of 
the Plan's HMO coverage. Additionally, since the HMO also covers the 
health plans of other employers, Sharp is able to achieve economies of 
scale on its risk, claims processing, administration and health care 
provider capitation costs that further drive down the overall cost of 
Plan medical benefits for employees under the Plan.
    Moreover, the Applicant represents that an exemption, if granted, 
would be administratively feasible because the covered transactions are 
standard for employers who are in the insurance and health care 
industry. The Applicant also observes that, because the HMO is a fully 
licensed HMO carrier whose claims processing activities are subject to 
regulation and periodic review by the California Department of Managed 
Health Care, no third party audit of its claims processing is 
necessary.\10\ Finally, the Applicant states that Sharp has complied 
with, and will continue to comply with the conditions of PTE 79-41 
(with the exception of the affiliation requirement).
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    \10\ The Applicant notes that the Department of Managed Health 
Care also reviews and approves all HMO provisions for compliance 
with its rules and regulations.
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Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons in the manner agreed upon by the Applicant and the Department 
within 3 days of the date of publication in the Federal Register. Such 
notice will contain a copy of the notice of proposed exemption, as 
published in the Federal Register, and a supplemental statement, as 
required pursuant to 29 CFR 2570.43(b)(2). The supplemental statement 
will inform interested persons of their right to comment on and to 
request a hearing with respect to the pending exemption. Written 
comments and hearing requests are due within 33 days of the publication 
of the notice of proposed exemption in the Federal Register.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of ERISA does not relieve a fiduciary or other 
party in interest from certain other provisions of ERISA, including any 
prohibited transaction provisions to which the exemption does not apply 
and the general fiduciary responsibility provisions of section 404 of 
ERISA, which, among other things, require a fiduciary to discharge his 
duties respecting the plan solely in the interest of the participants 
and beneficiaries of the plan and in a prudent fashion in accordance 
with section 404(a)(1)(b) of ERISA;
    (2) Before an exemption may be granted under section 408(a) of 
ERISA, the Department must find that the exemption is administratively 
feasible, in the interests of the plan and of its participants and 
beneficiaries, and protective of the rights of participants and 
beneficiaries of the plan;
    (3) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of ERISA, including 
statutory or administrative exemptions and transitional rules. 
Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemption, if granted, will be subject to the 
express condition that the material facts and representations contained 
in the application are true and complete, and that the application 
accurately describes all material terms of the transaction which is the 
subject of the proposed exemption.

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting the requested 
exemption under the authority of section 408(a) of the Act and in 
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B 
(55 FR 32836, 32847, August 10, 1990), as follows:

Section I. Covered Transactions

    A. If the proposed exemption is granted, the restrictions of 
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the 
Act shall not apply, effective August 1, 2006 through and until the 
date of publication in the Federal Register of a final grant of 
exemption, to the purchase of health insurance by the Sharp HealthCare 
Health and Dental Plan (the Plan) from the Sharp Health Plan (the HMO), 
provided that the conditions of Section II have been met.
    B. If the proposed exemption is granted, the restrictions of 
sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1), and 406(b)(2) of the 
Act shall not apply, effective as of the date of publication in the 
Federal Register of a final grant of exemption, to the purchase of 
health insurance by the Plan from the HMO, provided that the conditions 
of Section II and Section III are met.

Section II. General Conditions

    (a) Sharp is the sole member of the HMO, and more than 50% of the 
appointment power for the HMO's Board of Directors is held by Sharp.
    (b) Sharp is licensed to sell HMO coverage in the State of 
California.
    (c) The HMO is certified by the California Department of Managed 
Health Care as being in compliance with the requirements for a licensed 
HMO within the last 18 months.
    (d) The HMO has undergone a financial examination by the California 
Department of Managed Health Care within the past 5 years and will 
continue to undergo such financial examinations at least once every 
five years.
    (e) The HMO has been, and will continue to be, examined by an 
independent certified public accountant annually.
    (f) The amount the Plan pays to Sharp for HMO coverage is 
reasonable and does not exceed the amount the Plan would have paid for 
similar services in an arm's length transaction between unrelated 
parties.
    (g) All HMO-offered health care providers meet all applicable 
licensure requirements and certifications.
    (h) The HMO offers a sufficient number of non-Sharp affiliated 
health care providers to effectively allow Plan participants the 
opportunity to receive health care services from either Sharp or non-
Sharp affiliated health care providers.
    (i) No commissions are paid by the Plan with respect to the sale of 
HMO coverage.
    (j)(i) With respect to the relief provided in section I. A., for 
each taxable year of the HMO, the gross premiums received in that 
taxable year by the HMO from the Plan did not exceed 50% of the gross 
premiums received by the HMO for all HMO coverage issued in that 
taxable year; or (ii) with respect to the relief provided in section I. 
B., for each taxable year of the HMO, the gross premiums received in 
that taxable year by the HMO from the Plan will not exceed 50% of the 
gross premiums received by the HMO for all HMO coverage issued in that 
taxable year.
    (k) Sharp maintains or causes to be maintained for a period of six 
years from the date of any covered transaction hereunder such records 
as are necessary to enable the persons described in paragraph (l)(i) 
below to determine whether the conditions of this proposed exemption, 
if granted, have been met, provided that (i) a separate prohibited 
transaction will not be considered to

[[Page 52066]]

have occurred if, due to circumstances beyond the control of Sharp, the 
records are lost or destroyed prior to the end of the six-year period, 
and (ii) no party in interest other than Sharp shall be subject to a 
civil penalty that may be assessed under section 502(i) of the Act, if 
such records are not maintained, or are not available for examination 
as required by paragraph (l)(i) below.
    (l)(i) Except as provided below in paragraph (l)(ii), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department,
    (B) Any duly authorized representative of the California Department 
of Managed Health Care or any State or Federal governmental body 
responsible for regulatory oversight of Sharp or the HMO, and
    (C) Any fiduciary of the Plan or the Plan's authorized 
representative; and
    (ii) None of the persons described above in paragraph (l)(i)(C) 
shall be authorized to examine trade secrets of Sharp, or commercial or 
financial information which is privileged or confidential, and should 
Sharp refuse to disclose information on the basis that such information 
is exempt from disclosure, Sharp shall, by the close of the thirtieth 
(30th) day following the request, provide a written notice advising 
that person of the reasons for the refusal and that the Department may 
request such information.

Section III. Prospective Conditions

    (a) Sharp retains annually the services of an independent third-
party consultant to determine whether the amount employees and/or their 
dependents pay for coverage is reasonable and does not exceed the 
amount that would be paid for similar services in an arm's length 
transaction between unrelated parties, which amount includes the cost 
of co-payments and other out-of-pocket expenses for such coverage borne 
by participants and/or their dependents, and written copies of such 
determination are distributed to Plan participants along with summaries 
of health care costs for similar, competing health care providers.
    (b) The Board of Directors of Sharp appoints a committee (the Plan 
Committee) consisting of the Senior Vice President and General Counsel, 
the Senior Vice President and Chief Financial Officer, the Vice 
President, Compensation and Benefits, and such other representatives as 
the Board of Directors may deem appropriate. The Plan Committee will 
annually ascertain and certify in writing that the above requirements 
of this proposed exemption, if granted, continue to be met.

    Signed at Washington, DC, this 17th day of August, 2012.
Lyssa E. Hall,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2012-21158 Filed 8-27-12; 8:45 am]
BILLING CODE 4510-29-P