SECTION 87.21. Remedies

(a) Remedies for violations of the sections in this chapter.

(1) The plan administrator may cancel a product contract, change agreement, participation agreement, exercise any available remedy under applicable law, or combination of the preceding when a prior plan vendor uses methods that violate the sections in this chapter to obtain investments in the prior plan vendor's qualified investment products.

(2) The plan administrator may expel a prior plan vendor from the plan or suspend its right to receive new deferrals and investment income when the prior plan vendor or revised plan vendor violates the sections in this chapter.

(3) The plan administrator may prohibit an employee of a prior plan vendor or a vendor representative from further solicitation or acceptance of deferred compensation business when the employee or representative violates the sections in this chapter.

(4) If a prior plan vendor does not notify the plan administrator by no later than the 30th day after a change in vendor status, the plan administrator shall expel the prior plan vendor. For the purpose of this paragraph, the term "change in vendor status" means the events covered by §87.7(e) of this title (relating to prior plan vendor participation).

(5) The plan administrator may expel a prior plan vendor that does not file reports with and remit all fees it owes to the plan administrator for any two quarters in a 12-month period.

(6) The plan administrator may expel a non-filer that files two or more reports or remits two or more fee payments to the plan administrator after the due date specified within §87.19(d)(1) of this title (relating to Reporting and Record Keeping by prior plan vendors) within a 12-month period.

(7) The plan administrator may expel a prior plan vendor who fails to comply with the DCP quarterly reporting specifications and rules on reporting for any two quarters within a 12-month period.

(8) The plan administrator may expel a prior plan vendor whose failure to comply with the requirements in §87.7(i) or (j) of this title (relating to prior plan vendor participation) and to §87.17 of this title (relating to Distributions) was:

(A) intentional;

(B) caused by a reckless disregard of the requirements;

(C) due to gross negligence; or

(D) due to negligence.

(9) For violations not specifically mentioned in this subsection, the plan administrator may reprimand, suspend, expel, or otherwise discipline a prior plan vendor, employee of a prior plan vendor, or vendor representative.

(10) The plan administrator may suspend or expel a prior plan vendor who fails to remit to the plan administrator plan fees by the due date.

(11) The plan administrator may determine the effective date of an expulsion, termination, prohibition, or cancellation when the plan administrator:

(A) expels a prior plan vendor or terminates a prior plan vendor's participation in the plan;

(B) prohibits a vendor representative or an employee of a prior plan vendor from further solicitation or acceptance of deferred compensation business; or

(C) cancels a product contract, change agreement, participation agreement, or combination of the preceding.

(12) When the plan administrator suspends a prior plan vendor's participation in the plan, the plan administrator may determine the effective date and termination date of the suspension.

(b) Transfers from prior plan vendors that violate the sections in this chapter.

(1) If the plan administrator expels a prior plan vendor from the plan, the plan administrator shall initiate a transfer of all deferrals and investment income from the prior plan vendor in accordance with §87.15(c) and (d) of this title (relating to Transfers).

(2) If the plan administrator cancels a product contract, change agreement, participation agreement, or combination of the preceding, the plan administrator shall take the action specified in paragraph (1) of this subsection except the transfers must be limited to the deferrals and investment income governed by the contracts or agreements.

(3) If the plan administrator suspends a prior plan vendor from participation in the plan, the plan administrator may take the actions specified in paragraph (1) of this subsection. Whether the plan administrator takes those actions or not, the prior plan vendor shall continue to file the reports and pay fees required by the sections in this chapter. The plan administrator shall order the expulsion of a suspended vendor that does not file the required reports or pay the required fees.

(4) If a prior plan vendor is expelled from the plan, the prior plan vendor may not apply for reinstatement in the plan.

(5) If the plan administrator suspends a prior plan vendor, an employee of a prior plan vendor, or a vendor representative, the suspension shall last for at least 24 months after the effective date of the suspension.

(6) If the plan administrator expels a prior plan vendor for violating the provisions of this chapter, the expelled vendor may not charge or permit to be charged a fee or penalty to participants, the plan or plan administrator for transfers made after the notice of termination.

(c) Continuation of life insurance coverage.

(1) This subsection applies when the plan administrator terminates the participation in the plan of a life insurance company or life insurance product.

(2) In this subsection, the term "terminated life insurance product" means a life insurance product that is no longer a qualified investment product because of a termination specified in paragraph (1) of this subsection.

(3) A participant whose deferrals and investment income were invested in a terminated life insurance product may continue life insurance coverage with the insurance company offering the terminated life insurance product.

(4) If an insurance company has not been terminated from participation in the plan, this paragraph applies. The company must offer continuing life insurance coverage to each participant whose deferrals and investment income were invested in a terminated life insurance product offered by the company. The insurance company shall offer continuing coverage in:

(A) an existing qualified investment product that is comparable to the terminated life insurance product; and

(B) a life insurance product that is not a qualified investment product but is comparable to the terminated life insurance product.

(5) If an insurance company has been terminated from participation in the plan, this paragraph applies. The company shall offer continuing life insurance coverage to each participant whose deferrals and investment income were invested in a terminated life insurance product offered by the company. The insurance company must offer continuing coverage in a life insurance product that is comparable to the terminated life insurance product in which the participant's deferrals and investment income were invested.

(6) If a participant continues life insurance coverage in a life insurance product that is not a qualified investment product, the participant must pay the premiums for the product directly to the insurance company. The premiums may not be paid with deferrals or investment income.

(7) A participant may exercise the participant's right to continue life insurance coverage only if the participant mails to the prior plan vendor written notice of intention to continue the coverage. The written notice must be postmarked no later than the 60th day after the effective date of the termination of participation in the plan. However, an insurance company may increase the 60-day time limit for a participant or for all participants.

(8) When a participant elects to continue life insurance coverage, the life insurance company offering the product via which the participant is continuing coverage may not:

(A) refuse to continue the life insurance;

(B) require a postponement or an interruption in coverage for any length of time;

(C) require the participant to provide evidence of insurability;

(D) require the participant to apply for coverage;

(E) discriminate in any manner against the participant because the plan administrator terminated the participation in the plan of the company or its life insurance product;

(F) treat the participant differently than the company would treat a non-participant with the same life insurance coverage; or

(G) increase the premiums charged to the participant solely because the participant elected to continue coverage.

(9) An insurance company must ensure that each participant entitled to continue life insurance coverage under this subsection receives written notice of the participant's right by no later than the 30th day after the plan administrator mails notice to the company of a termination described in paragraph (1) of this subsection.

(10) If an insurance company does not comply with paragraph (9) of this subsection, then a participant may exercise the participant's right to continue life insurance coverage up to the 60th day after the insurance company actually mails written notice to the participant containing a full explanation of the participant's rights.

(d) Disciplinary procedures.

(1) The plan administrator may act without a prior hearing when necessary to remedy or protect either the plan or participants from an imminent or actual violation of the sections in this chapter.

(2) The plan administrator may refer violations of the sections in this chapter or noncompliance with a prior plan vendor's contractual obligations to the attorney general for appropriate action.

(e) A prior plan vendor's failure to act.

(1) A prior plan vendor shall reimburse the State of Texas, or effective January 1, 1999, the trust, for a financial loss that results from the vendor's failure to process a request for a transfer in a reasonable time, not to exceed 30 days.

(2) A prior plan vendor shall reimburse a participant for a financial loss that results from the prior plan vendor's failure to process a distribution or transfer in a reasonable time, not to exceed 30 days.

(f) Misrepresentations of qualified investment products.

(1) A prior plan vendor is responsible for an intentional or unintentional misrepresentation or misstatement of any attribute of the vendor's qualified investment products by an employee of the prior plan vendor or by a vendor representative. This paragraph applies even if the prior plan vendor did not authorize the misrepresentation or misstatement.

(2) The plan administrator may bind a prior plan vendor to a misrepresentation or misstatement by the prior plan vendor's employees or representatives of an attribute of the prior plan vendor's qualified investment products if the attribute as misrepresented or misstated is more advantageous to the participant than the attribute would be if it had been accurately depicted.

(g) Alternative action by the plan administrator.

(1) This subsection applies when a section in this chapter requires or permits the plan administrator to terminate a prior plan vendor's participation in the plan or expel a prior plan vendor from the plan.

(2) In lieu of imposing the termination or expulsion, the plan administrator may:

(A) prohibit a prior plan vendor from receiving additional deferrals and investment income;

(B) discipline a prior plan vendor;

(C) impose special requirements on a prior plan vendor;

(D) take other appropriate action; or

(E) perform a combination of the actions listed in subparagraphs (A)-(D) of this paragraph.

(3) Paragraph (2) of this subsection applies only if the plan administrator determines that alternative action is in the best interests of the plan.

(h) Violations of state insurance or securities laws. The plan administrator shall refer possible violations of state insurance or securities laws or regulations to the Texas Department of Insurance or the State Securities Board for appropriate action.

Source Note: The provisions of this §87.21 adopted to be effective March 28, 1991, 16 TexReg 1560; amended to be effective January 10, 1992, 16 TexReg 7743; amended to be effective November 23, 1992, 17 TexReg 7911; amended to be effective September 19, 1995, 20 TexReg 6932; amended to be effective January 5, 1996, 20 TexReg 11022; amended to be effective September 10, 1998, 23 TexReg 9067; amended to be effective January 5, 2003, 27 TexReg 12370; amended to be effective September 11, 2003, 28 TexReg 7785; amended to be effective September 30, 2004, 29 TexReg 9204