2023 California Code › Insurance Code - INS › DIVISION 1 - GENERAL RULES GOVERNING INSURANCE › PART 2 - THE BUSINESS OF INSURANCE › CHAPTER 1 - General Regulations › ARTICLE 4.7 - Multiple Employer Welfare Arrangements › Section 742.245.

742.245. (a) A self-funded or partially self-funded multiple employer welfare arrangement shall maintain at least 25 percent of the surplus required by subdivision (n) of Section 742.24 in investments specified in Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1 and in Section 1192.5.
(b) The balance of the assets of a self-funded or partially self-funded multiple employer welfare arrangement may be invested in the following:
(1) An open-ended diversified management company, as defined in the federal Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), that meets all of the following requirements:
(A) It is registered with, and reports to, the Securities and Exchange Commission.
(B) It is domiciled in the United States.
(C)  Substantially all of its investments consist of investment grade debt instruments and cash.
(D) All of its assets are held in the United States by a bank, trust company, or other custodian chartered by the United States, its states, or territories.
(2) An amount not to exceed 75 percent of any excess of invested assets over the sum of the reserves and related actuarial items held in support of policies and contracts, plus the surplus required by subdivision (n) of Section 742.24, may be invested in the following:
(A) An open-ended diversified management company, as defined in the federal Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), that meets all of the following requirements:
(i) It is registered with, and reports to, the Securities and Exchange Commission.
(ii) It is domiciled in the United States.
(iii) Its investments consist of common and preferred stocks and cash.
(iv) All of its assets are held in the United States by a bank, trust company, or other custodian chartered by the United States, its states, or territories.
(B) Corporate notes, bonds, and preferred stocks that meet all of the following requirements:
(i) The issuer is domiciled in the United States or Canada.
(ii) The investments are rated investment grade or better by at least two of the following rating agencies, or their successors:
(I) Standard & Poor’s.
(II) Moody’s.
(III) Fitch.
(iii) The investments are exchange-traded. “Exchange-traded” as used in this clause means listed and traded on the National Market System of the NASDAQ Stock Market or on a securities exchange subject to regulation, supervision, or control under a statute of the United States and acceptable to the commissioner.
(C) An investment in a single issuer made pursuant to subparagraph (B) shall not exceed in the aggregate 10 percent of the multiple employer welfare arrangement’s funds described in this paragraph.
(3) An investment made pursuant to paragraph (1) or subparagraph (A) of paragraph (2) shall be made in, at minimum, three of the companies described in those provisions.
(4) An office building or buildings that will be used for the multiple employer welfare arrangement’s principal operations and business if both of the following requirements are met:
(A) The multiple employer welfare arrangement obtains prior written approval from the commissioner.
(B) The office building or buildings are treated on the financial statements filed with the commissioner pursuant to Section 742.31 as nonadmitted assets.
(c) The commissioner may, in his or her discretion and after a hearing, require by written order disposal of an investment made either in violation of, or no longer in compliance with, this section. The commissioner may also, after a hearing, require the disposal of any investment made pursuant to paragraph (2) of subdivision (b) if the multiple employer welfare arrangement has failed to maintain cash or liquid assets sufficient to meet its claims and any other contractual obligations. The commissioner may also for good cause and after a hearing, by written order require the disposal of an investment described in subdivision (b).
(Amended by Stats. 2008, Ch. 428, Sec. 1. Effective January 1, 2009.)