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October 2002
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On
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Multiple Employer Welfare Arrangements (MEWAs) provide health and
welfare benefits to employees of two or more unrelated employers who are not
parties to bona fide collective bargaining agreements. In concept, MEWAs are
designed to give small employers access to low cost health coverage on terms
similar to those available to large employers.
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For certain employers they
represent the only available option for providing employees with health care
because insurance companies often will not insure small employers who do not
fall within their desirable risk category.
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Although MEWAs can be provided through legitimate organizations, they
are sometimes marketed using attractive but actuarially unsound premium
structures which generate large administrative fees for the promoters. In
addition, certain promoters will set up arrangements which they claim are
established pursuant to a collective bargaining agreement and, therefore,
are not MEWAs but legitimate benefit plans free from state insurance
regulations. Often, however, these collective bargaining agreements are
nothing more than shams designed to avoid state insurance regulation.
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States and the federal government coordinate the regulation of MEWAs
pursuant to a 1982 amendment to ERISA. This dual jurisdiction gives states
primary responsibility for overseeing the financial soundness of MEWAs and
the licensing of MEWA operators. The Department of Labor enforces the
fiduciary provisions of the Employee Retirement Income Security Act (ERISA)
against MEWA operators to the extent a MEWA is an ERISA plan or is holding
plan assets. State insurance laws which set standards requiring specified
levels of reserves or contributions are applicable to MEWAs even if they are
also covered by ERISA.
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While no comprehensive data exists on how many MEWAs there are, a 1992
General Accounting Office report estimated over 2.5 million participants and
beneficiaries in 46 states were enrolled in MEWAs. However, in February
2000, the EBSA published the new Form M-1 Annual Report for Multiple
Employer Welfare Arrangements (MEWAs) and certain Entities Claiming
Exception (ECEs), which, over time, should establish a reliable database for
the number of MEWAs operating across the country.
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The Department has devoted significant resources to investigating and
litigating issues connected with abusive MEWAs created by unscrupulous
promoters who sell the promise of inexpensive health benefit insurance, but
default on their obligations. Particular emphasis has been put on
identifying ongoing abusive and fraudulent MEWAs, and working to shut down
such operations.
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In further recognition of the importance of aggressive enforcement in
the MEWA area, the Department affirmed MEWAs as one of the significant
issues in its Enforcement Strategy Implementation Plan (ESIP) in the1990s.
In EBSA’s Strategic Enforcement Plan (StEP), EBSA has identified MEWAs as
one of its longstanding national projects that it continues to aggressively
pursue.
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Initiated 522 civil and 90 criminal investigations affecting over
1.825 million participants and their beneficiaries and identifying
monetary violations of over $121.6 million. There are currently 90 civil
and 17 criminal investigations open.
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Filed 59 civil complaints.
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Indicted 84 individuals with 70 convictions.
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Published technical assistance materials, including a booklet
explaining federal and state regulation of MEWAs.
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Issued numerous advisory opinions to assist state prosecutors and
regulators to enforce state insurance laws against MEWAs.
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Convicted individuals have been sentenced total prison terms of
approximately 201 years. Most of these investigations have been jointly
investigated with other agencies, including the Department’s Division
of Labor Racketeering, the FBI, the U. S. Postal Inspection Service, and
the Internal Revenue Service’s Criminal Investigative Division.
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On February 1, 2002, the Department obtained a preliminary injunction
and order appointing an independent fiduciary to manage the plan. On
December 12, 2001, the Department filed a motion for a Temporary Restraining
Order to freeze the assets of Employers Mutual LLC and affiliated
associations. The judge signed the order on December 13th without a hearing.
Employers Mutual LLC is a multiple employer welfare arrangement (MEWA) that
provides health benefits to more than 23,000 participants and beneficiaries
in all 50 states. The Department’s investigation disclosed numerous
instances where monies were transferred from the MEWA to the MEWA’s
operators to pay excessive expenses rather than paying benefits for the
participants. The investigation also disclosed that the amount of unpaid
claims for the MEWA could exceed $6 million.
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On November 15, 2001, the Department filed a lawsuit against the
trustees, corporations and principals affiliated with Mutual Employees
Benefit Trust (MEBT) for diverting more than $2.2 million in assets of their
health and welfare plan to benefit sham labor unions and corporations. MEBT
is a MEWA that has provided group health and other benefits to as many as
1,912 participants. The relief requested required the defendants to restore
all diverted assets and losses with interest and be removed from their
position as fiduciaries. The Department also asked the court to appoint an
independent fiduciary to manage the plan. On May 4, 2002, the court approved
a preliminary injunction which appointed an independent fiduciary to manage
the plan, and barred the four plan trustees, the plan’s third party
administrator, its employer associations and several principals involved
from serving as fiduciaries to the plan.
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On July 12, 2001, the Department obtained a
temporary restraining order freezing the assets of U.S.
Alliance, Inc. and related companies. U.S. Alliance and
Alliance Administrators operated numerous membership
associations that marketed plans to employers on the East
Coast. The employers paid contributions to purchase benefits
provided by the various association plans. The health plan
sponsored by U.S. Alliance resulted in more than $2.8 million
of unpaid medical claims for at least 1,500 participants. Plan
officials and corporate executives diverted over $1 million of
plan assets for their personal use. The order also appoints an
independent fiduciary to manage the plan. A preliminary
injunction was subsequently issued which continued the
appointment of the independent fiduciary and froze the
defendant’s assets.
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