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A1508
ASSEMBLY, No. 1508
STATE OF NEW JERSEY
222nd LEGISLATURE
�
PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION
Sponsored by:
Assemblyman� ROY FREIMAN
District 16 (Hunterdon, Mercer, Middlesex and Somerset)
SYNOPSIS
���� Permits dental service corporations to establish
nonprofit parent corporations.
CURRENT VERSION OF TEXT
���� As introduced.
��
An Act
concerning dental service corporations and
supplementing Title 17 of the Revised Statutes.
����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:
���� 1.��� The Legislature finds
and declares that:
���� a.���� It is in the interest
of the subscribers of a dental service corporation and the State of New Jersey
that the dental service corporation, under appropriate circumstances, be
afforded the ability to modernize its corporate structure, subject to
appropriate standards and approval, to meet the evolving oral health care needs
of its subscribers, while continuing its current statutory purposes, and at all
times maintaining its status as a charitable and benevolent institution as
declared in section 32 of P.L.1968, c.305 (C.17:48C-32).
���� b.��� Ensuring that the dental
service corporation statutes provide the opportunity for a dental service
corporation to form a nonprofit parent corporation and make certain
distributions to its nonprofit parent corporation in a manner authorized by this
act will facilitate increased utilization of 21st century technologies and
tools to better address current challenges, improving both the State's health care
infrastructure and its readiness to promote oral health. �Formation of a
nonprofit parent corporation by a dental service corporation, if undertaken,
approved, and completed consistent with the provisions of this act, will also
promote vital investments and growth in oral health services and diversified
businesses for the benefit of its subscribers and the State.
���� c.���� Current State law
governing dental service corporations does not prescribe a clear path for a
dental service corporation to update and improve its corporate structure for
the benefit of its subscribers and the State while, at the same time,
maintaining its nonprofit status, continuing to adhere to its statutory
purposes to provide dental care and promote oral health to meet the needs of
its subscribers, and fulfilling the obligations of a dental service
corporation.
���� d.��� Other states have
authorized similarly situated nonprofit dental service corporations to
modernize their corporate structures while maintaining their nonprofit legal
status and the statutorily prescribed purposes of the entities for the benefit
of their subscribers and respective oral health care marketplaces.
���� e.���� Because formation of a
nonprofit parent corporation authorized pursuant to this act does not
constitute a conversion pursuant to section 3 of P.L.1968, c.305 (C.17:48C-3),
the existing statutory purposes of the dental service corporation to provide
dental care and promote oral health to meet the needs of its subscribers shall
continue unabated if the dental service corporation forms a nonprofit parent
corporation in the manner authorized by this act.
���� f.���� It is also in the
interest of the subscribers of a dental service corporation and the State of
New Jersey that the important statutory objects and purposes of the dental
service corporation continue to be upheld following the formation of a
nonprofit parent corporation pursuant to this act; provided, however, that it
is appropriate to expand and modernize the objects and purposes of the parent
corporation to encourage further innovation as well as improvement and
diversification of services.
���� 2.��� As used in this act:
���� �Application� means the
submission and supporting documentation requesting approval of the formation of
a parent corporation filed with the commissioner pursuant to
subsection a. of section 3 of this act.
���� �Board� or �board of trustees�
means the board of trustees of the dental service corporation.
���� �Commissioner� means the
Commissioner of Banking and Insurance.
���� �Dental service corporation�
means a corporation organized pursuant to
subsection a.
of section 2 of P.L. 1968, c.305 (C.
17:48C-2).
���� �Enterprise risk� means any
activity, circumstance, event, or series of events involving one or more
affiliates of a dental service corporation that, if not remedied promptly, is
likely to have a material adverse effect, as determined by the commissioner,
upon the financial condition or liquidity of the dental service corporation or
its parent corporation and its subsidiaries taken as a whole.
���� �Entity� means a corporation,
limited liability company, partnership, association, joint stock company,
business trust, unincorporated organization, or any similar entity.
���� �Parent corporation� means a
New Jersey nonprofit corporation which is the direct or indirect owner of all
of the membership interests of a dental service corporation. �A parent
corporation shall not be qualified as an insurance producer licensed to issue
insurance policies, insurance contracts, or dental service subscriptions.
���� �Subscriber� means the same as
defined in subsection b. of section 2 of P.L.1968, c.305 (C.17:48C-2).
���� �Subsidiary� means an entity
of the dental service corporation of which at least 20 percent or more of the
ownership interests of the entity are owned, or controlled, directly or
indirectly through one or more intermediaries of the parent corporation of the
dental service corporation.
���� �Transaction� means the
formation of a parent corporation by a dental service corporation pursuant to this
act and any other transactions set forth in the application and approved by the
commissioner.
���� 3.��� a.� A dental service
corporation shall not be established as a corporation organized for pecuniary
profit and shall maintain its designations as a charitable and benevolent
institution pursuant to section 32 of P.L.1968, c.305 (C.17:48C-32). A dental
service corporation may form a parent corporation by:
���� (1) (a) adopting one or more
resolutions authorizing the formation of a parent corporation by the
affirmative vote of the majority of the votes cast by the board of trustees; and
���� (b)�� including within the
resolution or resolutions a plan for
formation of a
parent corporation
and the other steps in the transaction, including a
proposed amended certificate of incorporation, proposed amended and restated
bylaws of the dental service corporation, and a proposed certificate of
incorporation and bylaws of the parent corporation. �The plan shall include:
���� (i)��� the reasons for the
formation of a parent corporation; and
���� (ii)�� the effect, if any, of
formation of a parent corporation on existing subscriber contracts issued by
the dental service corporation; and
���� (2)�� filing, within 30 days
of the board�s adoption of the resolutions, an application with the commissioner,
which shall contain:
���� (a)� a true and complete copy
of the plan for the transaction and of the minutes of the meeting at which the
board approved the transaction;
���� (b)�� the name and address of
the parent corporation, and its certificate of incorporation and bylaws, each
as then in effect;
���� (c)�� an informative
description of the business intended to be done by the parent corporation and
the proposed transaction;
���� (d)�� diagrams of the current
structure of the dental service corporation and its subsidiaries and the
proposed structure of the parent corporation and its subsidiaries immediately
following completion of the transaction;
���� (e)�� a list of all
individuals who are or who have been selected to become directors or executive
officers of the parent corporation upon consummation of the transaction, or who
perform or will perform functions appropriate to the positions. The list shall,
for each individual selected to become a director or executive officer of the parent
corporation upon consummation of the transaction, include the principal
occupation and all offices and positions held by the selected individual during
the past five years, and any conviction of crimes other than minor traffic
violations during the past 10 years;
���� (f)�� any plans or proposals
contemplated by the parent corporation to make any material change in the
dental service corporation�s business, corporate structure or management;
���� (g)�� information sufficient
to demonstrate that the financial condition of the dental service corporation
shall meet the solvency requirements pursuant to applicable laws and rules of
the State of New Jersey relating to dental service corporations upon consummation
of the transaction;
���� (h) any plans or proposals of
the dental service corporation to make any distribution to the parent
corporation, including distribution to the parent corporation of the ownership
interests of subsidiaries of the dental service corporation; and
���� (i)��� a certification that,
immediately following the consummation of the transaction, the terms and
conditions of subscriber coverage shall remain in full force and effect.
���� b.��� If, prior to the
approval of an application filed pursuant to paragraph (2) of subsection a. of
this section, any change occurs in the facts set forth in the application filed
with the commissioner, an amendment setting forth the change, together with
copies of all documents and other materials relevant to the change, shall be
filed with the commissioner within two business days after the dental service
corporation learns of the change.
���� c.���� During the 30 days
following receipt of the application, the commissioner shall review the
application for completeness. �If the application is found to be incomplete,
the commissioner shall notify the dental service corporation in writing of the
specific information required to make the application complete. �Additionally,
the commissioner may request clarification or explanation of any aspect of the
application as necessary to fully evaluate the application. �The commissioner
shall notify the dental service corporation when the application is deemed to
be complete and shall, in the commissioner�s sole discretion, approve or
disapprove the application within 120 days from the date the application is
deemed complete. �The dental service corporation shall have 30 days from a
notification of an incomplete application to file the information identified by
the commissioner to make the application complete. �The commissioner shall have
30 days, from the date on which the dental service corporation makes the responsive
filing, to review the supplemental information.
���� d.��� The commissioner shall
approve an application unless the commissioner finds the application:
���� (1)�� is contrary to law;
���� (2)�� would be detrimental to
the safety or soundness of the dental service corporation; or
���� (3)��
would
substantially reduce the
services to be rendered to subscribers of the
dental service corporation.
���� e.���� In the event of a
disapproval of the application, the commissioner shall inform the dental
service corporation of the specific reasons for the disapproval of the
application and provide the dental service corporation with an opportunity to
cure any deficiencies. �Any disapproval shall be subject to judicial review as
a final decision of a State administrative agency.
���� 4. a.� A parent corporation
established pursuant to the provisions of this act shall maintain the dental
service corporation�s statutorily prescribed purposes while supplementing those
purposes to promote innovation and delivery of diversified services. The
purposes of a parent corporation shall be to:
���� (1)�� provide affordable and
accessible oral health care;
���� (2)�� promote the integration
of the oral health care system to meet the needs of consumers;
���� (3)�� promote innovation and
delivery of solutions and diversified services for the benefit of consumers;
and
���� (4)�� enhance competition in
the delivery of oral health care and related products or services.
���� b.��� A parent corporation
established pursuant to the provisions of this act which owns a dental service
corporation shall not be established as a company organized for pecuniary
profit and is hereby declared to be a charitable and benevolent institution,
and its funds and property shall be exempt from taxation by the State or any
political subdivision thereof.
���� c.���� The parent corporation
of a dental service corporation shall be expressly excluded from accounting,
reporting, investing, and other provisions enumerated in P.L.1968, c.305
(C.17:48C-1 et seq.) and P.L.1970, c.22 (C.17:27A-1 et seq.), except to the
extent that this act expressly provides otherwise.
���� d.��� A parent corporation may
pursue businesses, assets, or operations through one or more of its insurance
subsidiaries and non-insurance subsidiaries.� The subsidiaries of the parent
corporation shall be permitted to pay dividends or distributions to the parent
corporation, a subsidiary thereof, or both. �Distributions from the dental
service corporation shall be subject to the applicable provisions of section 5
of this act.
���� e.���� No parent corporation
shall:
���� (1)�� merge or consolidate
with another entity resulting in the parent corporation becoming a for-profit
entity;
���� (2)�� redomesticate to another
state;
���� (3)�� transact business in
this State as a dental service corporation or other risk-bearing entity;
���� (4)�� convert into a
corporation organized for pecuniary profit; or
���� (5)�� underwrite or
participate in the underwriting of an offering of securities of the parent
corporation.
���� 5.��� a. Notwithstanding the
provisions contained in the �New Jersey Nonprofit Corporation Act,� P.L.1983,
c.127 (C.15A:1-1 et seq.), a dental service corporation may from time to time
pay one or more distributions to its parent corporation, which may include the
distribution to its parent corporation of ownership interests of subsidiaries
of the dental service corporation, consistent with the provisions of subsection
c. of section 4 of P.L.1970, c. 22 (C.17:27A-4) and this section.
���� b.��� In determining whether a
dental service corporation�s surplus is reasonable in relation to the dental
service corporation�s outstanding liabilities and adequate for its financial
needs, the following factors shall be considered:
���� (1)�� the number of
subscribers of the dental service corporation;
���� (2)�� the nature and extent of
the dental service corporation�s reinsurance program, if any;
���� (3)�� the quality,
diversification, and liquidity of the dental service corporation�s investment
portfolio;
���� (4)�� the adequacy of the
dental service corporation�s surplus and reserves; and
���� (5)�� the quality of the
dental service corporation�s earnings and the extent to which the reported
earnings include extraordinary items.
���� c.���� No dental service
corporation shall pay any extraordinary distribution to its parent corporation
until:
���� (1)�� 30 days after the
commissioner has received notice of the declaration thereof and has not within the
period disapproved the payment; or
���� (2)�� the commissioner has
approved the payment within the 30-day period. A dental service corporation may
declare an extraordinary distribution, provided that payment of the
extraordinary distribution is subject to this subsection. �For purposes of this
section, an extraordinary distribution includes any distribution of cash or
other property, whose fair market value together with that of other
distributions made within the preceding 12 months exceeds the greater of 15
percent of the dental service corporation's surplus as of December 31 next
preceding, or the net income from operations of the dental service corporation,
not including realized capital gains, for the 12-month period ending December
31 next preceding.
���� d.��� Except for extraordinary
distributions paid pursuant to subsection c. of this section, all distributions
to its parent corporation shall be declared or paid by a dental service
corporation only from earned surplus. �For purposes of this subsection, �earned
surplus� means unassigned funds, as reported on the dental service
corporation�s annual statement as of December 31 next preceding, less
unrealized capital gains and revaluation of assets.
���� 6.��� a.� The parent
corporation shall file an annual enterprise risk report by April 1 of each
year. �The report shall, to the best of the parent corporation�s knowledge and
belief, identify the material risks among the parent corporation and its
subsidiaries that could pose enterprise risk to the dental service corporation.
���� b.��� In addition to the
powers which the commissioner has under section 28 of P.L.1968, c.305
(C.17:48C-28) relating to the examination of a dental service corporation, the commissioner
shall have the power to examine any dental service corporation and its
affiliates to ascertain the financial condition of the dental service
corporation, including the enterprise risk to the dental services corporation
by the parent corporation, or by any entity or combination of entities which
are subsidiaries of the parent corporation, or by the parent corporation on a
consolidated basis.
���� c.���� The commissioner shall
also have the power to order any dental service corporation to produce the
records, books, or other information papers in the possession of the dental
service corporation or its affiliates as shall be necessary to ascertain the
financial condition of the dental service corporation or to determine
compliance with subsection a. of this section. �In the event the dental service
corporation fails to comply with the order, the commissioner shall have the
power to examine the affiliates to obtain the information. �In addition, to
determine compliance with this section, the commissioner may order any dental
service corporation to produce information not in the possession of the dental
service corporation if the dental service corporation can obtain access to that
information pursuant to contractual relationships, statutory obligations, or
other methods. �In the event the dental service corporation cannot obtain the
information requested by the commissioner, the dental service corporation shall
provide to the commissioner a detailed explanation of the reason that the
dental service corporation cannot obtain the information and the identity of
the holder of the information.
���� 7.��� Upon any dissolution of
a parent corporation in accordance with N.J.S.15A:12-2 through N.J.S.15A:12-7,
the parent corporation shall adopt a plan of dissolution in accordance with
N.J.S.15A:12-8. The plan shall provide that any assets of the parent
corporation remaining after the discharge of all liabilities and obligations,
if any, shall be distributed also in accordance with N.J.S.15A:12-8.
���� 8.��� a.� Documents, materials,
or other information in the possession or control of the Department of Banking
and Insurance that are obtained by or disclosed to the commissioner or any
other person in the course of an examination or investigation in connection
with this act, and all information reported pursuant to sections 3, 5, and 6 of
this act shall:
���� (1)�� be proprietary and contain
trade secrets;
���� (2)�� be confidential by law
and privileged;
���� (3)�� not be subject to
P.L.1963, c.73 (C.47:1A-1 et seq.);
���� (4)�� not be subject to
subpoena; and
���� (5)�� not be subject to
discovery or admissible in evidence in any private civil action.
���� The commissioner is authorized
to use the documents, materials or other information in furtherance of any
regulatory or legal action brought as a part of the commissioner�s official
duties. �The commissioner shall not otherwise make the documents, materials or
other information public without the prior written consent of the dental
service corporation or parent corporation to which it pertains unless the commissioner,
after giving the dental service corporation and its affiliates who would be
affected thereby notice and opportunity to be heard, determines that the
interest of the subscribers or the public will be served by the publication
thereof, in which event the commissioner may publish all or any part in a
manner as may be deemed appropriate.
���� b.��� Neither the commissioner
nor any person who received documents, materials or other information while
acting under the authority of the commissioner or with whom the documents,
materials or other information are shared in connection with this act shall be
permitted or required to testify in any private civil action concerning any
confidential documents, materials, or information subject to subsection a. of
this section.
���� 9.��� a.� The provisions of this
act shall be severable; and if any phrase, clause, sentence, or provision is
deemed unenforceable, the remaining provisions of this act shall be
enforceable.
���� b.� The provisions of this act
shall be liberally construed to effectuate its purposes.
���� 10.� This act shall take
effect immediately.
STATEMENT
���� This bill permits dental
service corporations to establish nonprofit parent corporations.
���� Current law does not provide a
mechanism for a dental service corporation (DSC) to update its corporate
structure.
�
Other states
with similar laws have supplemented their statutes to enable DSCs to reorganize
in this manner. �It is the sponsor�s intent to supplement the �Dental Service
Corporation Act of 1968� to ensure that a DSC can continue to provide
affordable dental care to its subscribers and promote competition in the dental
service market that has evolved significantly since the act�s passage in 1968,
in a manner which provides transparency and consumer protection. The bill
continues to impose all statutory requirements on a DSC under the act, while
also facilitating and increasing the DSC�s utilization of modern technologies
and tools to better address current challenges to the State's oral health
infrastructure.
���� The bill stipulates that a DSC
seeking to form a nonprofit parent corporation must make an application to the
Commissioner of the Department of Banking and Insurance which shall include a
plan for the formation of the nonprofit parent corporation, including
resolutions, diagrams of the proposed structure, a list of the directors or
executive officers, plans or proposals to make material changes to the DSC�s
business, documentation demonstrating compliance with all solvency
requirements, and plans or proposals to make any distributions. �The bill
requires the commissioner �to review the application for completeness and, if
found complete, the commissioner has the sole discretion to approve or disprove
the application within 120 days. �The bill provides for procedures in the event
of a disapproval, including the opportunity to cure deficiencies and seek
judicial review.
���� Under the bill, the parent
corporation is required to maintain the DSC�s statutorily prescribed purposes.
The parent corporation�s purpose is to provide affordable and accessible oral
health care, promote the integration of the oral health care system to meet the
needs of consumers, promote the innovation and delivery of solutions and
diversified services for the benefit of consumers, and enhance competition in
the delivery of oral health care and related products and services. The parent
corporation is prohibited from being organized for pecuniary profit and is
required to be a charitable and benevolent institution. Although the parent
corporation may have subsidiaries, from the bill prohibits conversion to a
for-profit entity, re-domestication in another state, the transaction of business
in this State as a risk-bearing entity, including as a DSC, and the
underwriting of an offering of securities.
���� Lastly, the bill allows a DSC
to make distributions to the parent company consistent with provisions of
existing law. It further imposes specific requirements on the DSC and parent
corporation related to enterprise risk reporting to identify material risks
within the insurance holding company system that could adversely affect the
DSC.�