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Employee Benefits Security Administration

Fact Sheet

MEWA Enforcement

October 2002

Background

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.

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.

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.

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.

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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EBSA Enforcement Efforts

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.

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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Enforcement Efforts to Date

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.

Filed 59 civil complaints.

Indicted 84 individuals with 70 convictions.

Published technical assistance materials, including a booklet explaining federal and state regulation of MEWAs.

Issued numerous advisory opinions to assist state prosecutors and regulators to enforce state insurance laws against MEWAs.

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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Recent Litigation Cases

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.

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.

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.