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This booklet was
prepared by the Employee Benefits Security Administration of the U.S.
Department of Labor in an effort to address many of the questions that have been
raised concerning the effect of the Employee Retirement Income Security Act (ERISA)
on Federal and State regulation of “multiple employer welfare arrangements”
(MEWAs). It is the hope of the Department that the information contained
in this booklet will not only provide a better understanding of the scope and
effect of ERISA coverage, but also will serve to facilitate State regulatory and
enforcement efforts, as well as Federal-State coordination, in the MEWA area.
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For many years,
promoters and others have established and operated multiple employer welfare
arrangements (MEWAs), also described as “multiple employer trusts” or “METs,”
as vehicles for marketing health and welfare benefits to employers for their
employees.
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Promoters of MEWAs have typically represented to employers and
State regulators that the MEWA is an employee benefit plan covered by the
Employee Retirement Income Security Act (ERISA) and, therefore, exempt from
State insurance regulation under ERISA’s broad preemption provisions.
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By avoiding state
insurance reserve, contribution and other requirements applicable to insurance
companies, MEWAs are often able to market insurance coverage at rates
substantially below those of regulated insurance companies, thus, in concept,
making the MEWA an attractive alternative for those small businesses finding it
difficult to obtain affordable health care coverage for their employees.
In practice, however, a number of MEWAs have been unable to pay claims as a
result of insufficient funding and inadequate reserves. Or in the worst
situations, they were operated by individuals who drained the MEWA’s assets
through excessive administrative fees and outright embezzlement.
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Prior to 1983, a number
of states attempted to subject MEWAs to State insurance law requirements, but
were frustrated in their regulatory and enforcement efforts by MEWA-promoter
claims of ERISA-plan status and Federal preemption. In many instances
MEWAs, while operating as insurers, had the appearance of an ERISA-covered plan
— they provided the same benefits as ERISA-covered plans, benefits were
typically paid out of the same type of tax-exempt trust used by ERISA-covered
plans, and, in some cases, filings of ERISA-required documents were made to
further enhance the appearance of ERISA-plan status. MEWA-promoter claims
of ERISA-plan status and claims of ERISA preemption, coupled with the attributes
of an ERISA plan, too often served to impede State efforts to obtain compliance
by MEWAs with State insurance laws.
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Recognizing that it was
both appropriate and necessary for states to be able to establish, apply and
enforce State insurance laws with respect to MEWAs, the U.S. Congress amended
ERISA in 1983, as part of Public Law 97-473, to provide an exception to
ERISA’s broad preemption provisions for the regulation of MEWAs under State
insurance laws.
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While the 1983 ERISA
amendments were intended to remove Federal preemption as an impediment to State
regulation of MEWAs, it is clear that MEWA promoters and others have continued
to create confusion and uncertainty as to the ability of states to regulate
MEWAs by claiming ERISA coverage and protection from State regulation under
ERISA’s preemption provisions. Obviously, to the extent that such claims
have the effect of discouraging or delaying the application and enforcement of
State insurance laws, the MEWA promoters benefit and those dependent on the MEWA
for their health care coverage bear the risk.
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This booklet is
intended to assist State officials and others in addressing ERISA-related issues
involving MEWAs. The Employee Benefits Security Administration has
attempted in this booklet to provide a clear understanding of ERISA’s MEWA
provisions, and the effect of those provisions on the respective regulatory and
enforcement roles of the Department of Labor and the States in the MEWA area.
Such understanding should not only facilitate State regulation of MEWAs, but
should also enhance Federal-State coordination efforts with respect to MEWAs
and, in turn, ensure that employees of employers participating in MEWAs are
afforded the benefit of the safeguards intended under both ERISA and State
insurance laws.
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The first part of this
booklet, Regulation of Multiple Employer Welfare Arrangements under ERISA,
focuses on what constitutes an ERISA-covered plan and the regulatory and
enforcement authority of the Department of Labor over such plans. The
second part of the booklet, Regulation of Multiple Employer Welfare Arrangements
Under State Insurance Laws, focuses on what is and what is not a MEWA and the
extent to which states are permitted to regulate MEWAs that are also ERISA-covered
welfare benefit plans.
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The U.S. Department of
Labor, through the Employee Benefits Security Administration (EBSA), is
responsible for the administration and enforcement of the provisions of Title I
of ERISA (29 U.S.C. §1001 et seq.). In general, ERISA prescribes minimum
participation, vesting and funding standards for private-sector pension benefit
plans and reporting and disclosure, claims procedure, bonding and other
requirements which apply to both private-sector pension plans and private-sector
welfare benefit plans. ERISA also prescribes standards of fiduciary
conduct which apply to persons responsible for the administration and management
of the assets of employee benefit plans subject to ERISA.
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ERISA covers only those
plans, funds or arrangements that constitute an “employee welfare benefit
plan,” as defined in ERISA Section 3(1), or an “employee pension benefit
plan,” as defined in ERISA Section 3(2). By definition, MEWAs do not
provide pension benefits; therefore, only those MEWAs that constitute
“employee welfare benefit plans” are subject to ERISA’s provisions
governing employee benefit plans.
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Prior to 1983, if a
MEWA was determined to be an ERISA-covered plan, State regulation of the
arrangement would have been precluded by ERISA’s preemption provisions.
On the other hand, if the MEWA was not an ERISA-covered plan, which was
generally the case, ERISA’s preemption provisions did not apply and states
were free to regulate the entity in accordance with applicable State law.
As a result of the 1983 MEWA amendments to ERISA, discussed in detail later in
this booklet, states are now free to regulate MEWAs whether or not the MEWA may
also be an ERISA-covered employee welfare benefit plan.
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Under current law, a
MEWA that constitutes an ERISA-covered plan is required to comply with the
provisions of Title I of ERISA applicable to employee welfare benefit plans, in
addition to any State insurance laws that may be applicable to the MEWA.
If a MEWA is determined not to be an ERISA-covered plan, the persons who operate
or manage the MEWA may nonetheless be subject to ERISA’s fiduciary
responsibility provisions if such persons are responsible for, or exercise
control over, the assets of ERISA-covered plans. In both situations, the
Department of Labor would have concurrent jurisdiction with the state(s) over
the MEWA.
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The following
discussion provides a general overview of the factors considered by the
Department of Labor in determining whether an arrangement is an “employee
welfare benefit plan” covered by ERISA, the requirements applicable to welfare
plans under Title I of ERISA, and the regulation of persons who administer and
operate MEWAs as fiduciaries to ERISA-covered welfare plans.
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The term “employee
welfare benefit plan” (or welfare plan) is defined in Section 3(1) of ERISA,
29 U.S.C. §1002(1), as follows:
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any plan, fund, or
program which was heretofore or is hereafter established or maintained by an
employer or by an employee organization, or by both, to the extent that such
plan, fund, or program was established or is maintained for the purpose of
providing for its participants or their beneficiaries, through the purchase of
insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death or unemployment,
or vacation benefits, apprenticeship or other training programs, or day care
centers, scholarship funds, or prepaid legal services, or (B) any benefit
described in section 302(c) of the Labor Management Relations Act, 1947 (other
than pensions on retirement or death, and insurance to provide such pensions).
(Emphasis supplied.)
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A
determination as to whether a particular arrangement meets the statutory
definition of “welfare plan,” typically involves a two-step analysis.
The first part of the analysis involves a determination as to whether the
benefit being provided is a benefit described in Section 3(1). The second
part of the analysis involves a determination as to whether the benefit
arrangement is established or maintained by an “employer” or an “employee
organization.” Each of these steps is discussed below.
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Is there a plan, fund
or program providing a benefit described in Section 3(1)?
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A
plan, fund or program will be considered an ERISA-covered welfare plan only to
the extent it provides one or more of the benefits described in Section 3(1).
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As
reflected in the definition of “welfare plan,” the benefits included as
welfare plan benefits are broadly described and wide ranging in nature. By
regulation, the Department of Labor has provided additional clarifications as to
what are and are not benefits described in Section 3(1) (See: 29 CFR §2510.3-1).
In most instances, however, it will be fairly clear from the facts whether a
benefit described in Section 3(1) is being provided to participants.
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For
example, the provision of virtually any type of health, medical, sickness or
disability benefit will be the provision of a benefit described in Section 3(1).
Where there is an employer or employee organization providing one or more of the
described benefits, the Department has generally held that there is a
“plan,” regardless of whether the program of benefits is written or
informal, funded (i.e., with benefits provided through a trust or insurance) or
unfunded (i.e., with benefits provided from the general assets of the employer
or employee organization), offered on a routine or ad hoc basis, or is limited
to a single employee-participant.
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If
it is determined that a Section 3(1) benefit is being provided, a determination
then must be made as to whether the benefit is being provided by a plan
“established or maintained by an employer or by an employee
organization, or by both.” Under Section 3(1), a plan, even though it
provides a benefit described in Section 3(1), will not be deemed to be an ERISA-covered
employee welfare benefit plan unless it is established or maintained by an
employer (as defined in ERISA Section 3(5)), or by an employee organization (as
defined in ERISA Section 3(4)), or by both an employer and employee
organization.
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For
example, MEWAs provide benefits described in Section 3(1) (e.g., medical and
hospital benefits), but MEWAs generally are not established or maintained by
either an employer or employee organization and, for that reason, do not
constitute ERISA-covered plans.
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The
term “employer” is defined in Section 3(5) of ERISA, 29 U.S.C. §1002(5), to
mean:
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any person acting
directly as an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan; and includes a group or association of
employers acting for an employer in such capacity.
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Under
the definition of “employer,” an employee welfare benefit plan might be
established by a single employer or by a group or association of employers
acting on behalf of its employer-members with respect to the plan. “Employer” status is rarely an issue where only a single employer is
involved in the provision of welfare benefits to employees. However,
questions frequently are raised as to whether a particular group or association
constitutes an “employer” for purposes of Section 3(5).
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In
order for a group or association to constitute an “employer” within the
meaning of Section 3(5), there must be a bona fide group or association of
employers acting in the interest of its employer-members to provide benefits for
their employees. In this regard, the Department has expressed the view
that where several unrelated employers merely execute identically worded trust
agreements or similar documents as a means to fund or provide benefits, in the
absence of any genuine organizational relationship between the employers, no
employer group or association exists for purposes of Section 3(5).
Similarly, where membership in a group or association is open to anyone engaged
in a particular trade or profession regardless of their status as employers
(i.e., the group or association members include persons who are not employers)
or where control of the group or association is not vested solely in employer
members, the group or association is not a bona fide group or association of
employers for purposes of Section 3(5).
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The
following factors are considered in determining whether a bona fide group or
association of employers exists for purposes of ERISA: how members are
solicited; who is entitled to participate and who actually participates in the
association; the process by which the association was formed; the purposes for
which it was formed and what, if any, were the pre-existing relationships of its
members; the powers, rights and privileges of employer-members; and who actually
controls and directs the activities and operations of the benefit program.
In addition, employer-members of the group or association that participate in
the benefit program must, either directly or indirectly, exercise control over
that program, both in form and in substance, in order to act as a bona fide
employer group or association with respect to the benefit program. It
should be noted that whether employer-members of a particular group or
association exercise control in substance over a benefit program is an
inherently factual issue on which the Department generally will not rule.
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Where
no bona fide group or association of employers exists, the benefit program
sponsored by the group or association would not itself constitute an ERISA-covered
welfare plan; however, the Department would view each of the employer-members
that utilizes the group or association benefit program to provide welfare
benefits to its employees as having established separate, single-employer
welfare benefit plans subject to ERISA. In effect, the arrangement
sponsored by the group or association would, under such circumstances, be viewed
merely as a vehicle for funding the provision of benefits (like an insurance
company) to a number of individual ERISA-covered plans.
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If
a benefit program is not maintained by an employer, the program may nonetheless
be an ERISA-covered plan if it is maintained by an “employee organization.”
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The
term “employee organization” is defined in Sec-tion 3(4) of ERISA, 29 U.S.C.
§1002(4). There are two types of organizations included within the
definition of “employee organization.” The first part of the
definition includes:
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any labor union or
any organization of any kind, or any agency or employee representation
committee, association, group or plan, in which employees participate and which
exists for the purpose, in whole or in part, of dealing with employers
concerning an employee benefit plan, or other matters incidental to employment
relationships; . . .
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This
part of the definition is generally limited to labor unions. In order for
an organization to satisfy this part of the definition of “employee
organization,” employees must participate in the organization (i.e., as voting
members) and the organization must exist, at least in part, for the purpose of
dealing with employers concerning matters relating to employment.
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The
second part of the definition of “employee organization” includes:
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. . . any
employees’ beneficiary association organized for the purpose in whole or in
part, of establishing such a plan.
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While
the term “employees’ beneficiary association” is not defined in Title I of
ERISA, the Department of Labor applies the same criteria it utilized in
construing that term under the Welfare and Pension Plans Disclosure Act, which
preceded ERISA’s enactment. Applying those criteria, an organization or
association would, for purposes of ERISA Section 3(4), be an “employees’
beneficiary association” only if: (1) membership in the
association is conditioned on employment status (i.e., members must have a
commonality of interest with respect to their employment relationships); (2) the
association has a formal organization, with officers, by-laws, or other
indications of formality; (3) the association generally does not deal with an
employer (as distinguished from organizations described in the first part of the
definition of “employee organization”); and (4) the association is organized
for the purpose, in whole or in part, of establishing an employee benefit plan.
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It
should be noted that the term “employees’ beneficiary association” used in
Section 3(4) of ERISA is not synonymous with the term “voluntary employees’
beneficiary association” used in Section 501(c)(9) of the Internal Revenue
Code (the Code). Code Section 501(c)(9) provides a tax exemption for a
“voluntary employees’ beneficiary association” providing life, sickness,
accident or other benefits to its members or their dependents or beneficiaries.
While many trusts established under ERISA-covered welfare plans obtain an
exemption from Federal taxation by satisfying the requirements applicable to
voluntary employees’ beneficiary associations, satisfying such requirements
under the Internal Revenue Code is not in and of itself indicative of whether
the entity is an “employees’ beneficiary association” for purposes
of ERISA Section 3(4).
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There
are certain arrangements that appear to meet the definition of an “employee
welfare benefit plan” but which nonetheless are not subject to the provisions
of Title I of ERISA.
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Section
4(b) of ERISA, 29 U.S.C. §1003(b), specifically excludes from Title I coverage
the following plans: (1) governmental plans (as defined in Section 3(32)); (2) church plans (as defined in Section 3(33));
(3) plans maintained solely to comply with workers’ compensation, unemployment
compensation or disability insurance laws; and (4) certain plans maintained
outside the United States.
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In
addition, the Department of Labor has issued regulations, 29 CFR §2510.3-1,
which clarify the definition of “employee welfare benefit plan.” Among
other things, these regulations serve to distinguish certain “payroll
practices” from what might otherwise appear to be ERISA-covered welfare plans
(e.g., payments of normal compensation to employees out of the employer’s
general assets during periods of sickness or vacation).
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In
general, an employee welfare benefit plan covered by ERISA is subject to the
reporting and disclosure requirements of Part 1 of Title I; the fiduciary
responsibility provisions of Part 4 of Title I; the administration and
enforcement provisions of Part 5 of Title I; the continuation coverage
provisions of Part 6 of Title I of ERISA and the health care provisions of Part
7 of ERISA. It is important to note that, unlike ERISA-covered pension
plans, welfare plans are not subject to the participation, vesting, or funding
standards of Parts 2 and 3 of Title I of ERISA. It also is important to
note that merely undertaking to comply with the provisions of ERISA, such as
with the reporting and disclosure requirements, does not make an arrangement an
ERISA-covered plan.
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The
following is a general overview of the various requirements applicable to
welfare plans subject to ERISA.
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Under
Part 1 of Title I, 29 U.S.C. §§1021 - 1031, the administrator of an employee
benefit plan is required to furnish participants and beneficiaries with a
summary plan description (SPD), which describes, in understandable terms, their
rights, benefits and responsibilities under the plan. If there are
material changes to the plan or changes in the information required to be
contained in the summary plan description, summaries of these changes are also
required to be furnished to participants.
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The
plan administrator also is required, under Part 1, to file with the Department
an annual report (the Form 5500 Series) each year which contains financial and
other information concerning the operation of the plan. The Form 5500
Series is a joint Department of Labor - Internal Revenue Service - Pension
Benefit Guaranty Corporation annual report form series. The forms are
filed with the Department of Labor, which processes the forms and furnishes the
data to the Internal Revenue Service. Pursuant to regulations issued by
the Department, welfare plans with fewer than 100 participants that are fully
insured or unfunded (i.e., benefits are paid from the general assets of the
employer) are not required to file annual reports with the Department of Labor.
If a plan administrator is required to file an annual report, the administrator
also generally is required to furnish participants and beneficiaries with a
summary of the information contained in that annual report, i.e., a summary
annual report.
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The
Department of Labor’s regulations governing the application, content and
timing of the various reporting and disclosure requirements are set forth at 29
CFR §2520.101-1, et seq.
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Part
4 of Title I, 29 U.S.C. §1101 - 1114, sets forth standards and rules governing
the conduct of plan fiduciaries. In general, any person who exercises
discretionary authority or control respecting the management of a plan or
respecting management or disposition of the assets of a plan is a
“fiduciary” for purposes of Title I of ERISA. Under ERISA, fiduciaries
are required, among other things, to discharge their duties “solely in the
interest of plan participants and beneficiaries and for the exclusive purpose of
providing benefits and defraying reasonable expenses of administering the
plan.” In discharging their duties, fiduciaries must act prudently and
in accordance with documents governing the plan, insofar as such documents are
consistent with ERISA. (See: ERISA Section 404.) Part 4 also
describes certain transactions involving a plan and certain parties, such as the
plan fiduciaries, which, as a result of the inherent conflicts of interest
present, are specifically prohibited (See: ERISA Section 406). In certain
instances there may be a statutory exemption or an administrative exemption,
granted by the Department, which permits the parties to engage in what would
otherwise be a prohibited transaction, if the conditions specified in the
exemption are satisfied (See: ERISA Section 408).
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Part
5 of Title I, 29 U.S.C. §§1131 - 1145, contains the administration and
enforcement provisions of ERISA. Among other things, these provisions
describe the remedies available to participants and beneficiaries, as well as
the Department, for violations of the provisions of ERISA (See: ERISA Sections
501 and 502). With regard to benefit claims, Part 5, at Section 503,
requires that each employee benefit plan maintain procedures for the filing of
benefit claims and for the appeal of claims that are denied in whole or in part
(See also: 29 CFR §2560.503-1).
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Part
5 also sets forth, at Section 514, ERISA’s preemption provisions. In
general, Section 514(a) provides that provisions of ERISA shall supersede any
and all State laws insofar as they “relate to” any employee benefit plan.
Section 514(b), however, saves certain State laws, as well as Federal laws, from
ERISA preemption, including an exception for the State regulation of MEWAs.
These provisions are discussed in detail later in this booklet.
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Part
6 of Title I, 29 U.S.C. §§1161 - 1168, contains the “continuation
coverage” provisions, also referred to as the “COBRA” provisions because
they were enacted as part of the Consolidated Omnibus Budget Reconciliation Act
of 1985. In general, the continuation coverage provisions require that
participants and their covered dependents be afforded the option of maintaining
coverage under their health benefit plan, at their own expense, upon the
occurrence of certain events (referred to as “qualifying events”) that would
otherwise result in a loss of coverage under the plan. “Qualifying
events” include, among other things:
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death of the covered
employee, termination (other than by reason of an employee’s gross
misconduct),
or reduction of hours of covered employment;
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divorce or legal
separation of the covered employee from the employee’s spouse;
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a dependent child
ceasing to be a dependent under the generally applicable requirements of the
plan.
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Continuation
coverage may be maintained for periods up to 18 months, 36 months, or even
longer depending on the qualifying event and other circumstances.
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It
is important to note that while Title I of ERISA contains continuation coverage
requirements and participants and beneficiaries may enforce their rights to
continuation coverage in accordance with the remedies afforded them under
Section 502 of Title I of ERISA, the Department of Labor has limited regulatory
and interpretative jurisdiction with respect to the continuation coverage
provisions. Specifically, the Department of Labor has responsibility
for the COBRA notification and disclosure provisions, while the Internal Revenue
Service has regulatory and interpretative responsibility for all the other
provisions of COBRA under the Internal Revenue Code.
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Part
7 of Title I of ERISA, 29 U.S.C.§1181 et seq., contains provisions setting
forth specific benefit requirements applicable to group health plans and health
insurance issuers under the Health Insurance Portability and Accountability Act
(HIPAA), the Newborns’ and Mothers’ Health Protection Act (Newborn’s Act),
the Mental Health Parity Act (MHPA), and the Women’s Health and Cancer Rights
Act (WHCRA).
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The
HIPAA portability rules, at Section 701 of ERISA, place limitations on a group
health plan’s ability to impose pre-existing condition exclusions and provides
special enrollment rights for certain individuals that lose other health
coverage or who experience a life change. Section 702 contains HIPAA’s
nondiscrimination rules that prohibit plans or issuers from establishing rules
for eligibility to enroll in the plan or charging individuals higher premium
amounts based on a health factor. In addition, Section 703 of Part 7 sets
forth provisions for guaranteed renewability in MEWAs and multiemployer plans.
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The
Newborns’ Act (in Section 711 of ERISA) generally requires group health plans
that offer maternity hospital benefits for mothers and newborns to pay for at
least a 48-hour hospital stay for the mother and newborn following normal
childbirth or a 96-hour hospital stay following a cesarean. MHPA, at
Section 712, provides for parity in the application of annual and dollar limits
on mental health benefits with annual lifetime dollar limits on medical/surgical
benefits. WHCRA, at Section 713, provides protections for patients who
elect breast reconstruction or certain other follow-up care in connection with a
mastectomy.
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Under ERISA, persons who exercise discretionary authority or control over the
management of ERISA-covered plans or the assets of such plans are considered
fiduciaries and, therefore, are subject to ERISA’s fiduciary responsibility
provisions. When the sponsor of an ERISA-covered plan purchases health
care coverage for its employees from a MEWA, the assets of the MEWA generally
are considered to include the assets of the plan (i.e., “plan assets”),
unless the MEWA is a State-licensed insurance company. (See: 29
C.F.R. §§2510.3-101 and 2510.3-102 relating to the definition of “plan
assets.”) In exercising discretionary authority or control over plan
assets, such as in the payment of administrative expenses and in the making of
benefit claim determinations, the persons operating the MEWA would be performing
fiduciary acts that are governed by ERISA’s fiduciary provisions. Where
a fiduciary breaches statutorily mandated duties under ERISA, or where a person
knowingly participates in such breach, the U.S. Department of Labor may pursue
civil sanctions.
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Inasmuch
as MEWAs typically are not ERISA-covered welfare plans and the Department of
Labor does not have direct regulatory authority over the business of insurance,
the Department’s investigations of MEWAs necessarily focus on whether the
persons operating MEWAs have breached their fiduciary duties under ERISA to
employee plans that have purchased health coverage from the MEWA. Because
of the factual and transactional nature of fiduciary breach determinations,
investigations of possible fiduciary breaches tend to be more complex and
time-consuming than investigations involving alleged violations of specific
statutory requirements, such as the reporting, disclosure, and claims
procedure requirements. For example, MEWA investigations typically require
detailed reviews of the financial records and documents relating to the
operation of the MEWA, the contracts between the MEWA and the service providers
to the MEWA, participation or other agreements between the MEWA and ERISA-covered
welfare plans, as well as the actual transactions engaged in by the MEWA, in
order to determine whether there has been a violation of ERISA’s fiduciary
standards.
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Accordingly,
while the Department may pursue enforcement actions with respect to MEWAs, such
action is considerably different from, and often more limited than, the remedies
generally available to the states under their insurance laws. In this
regard, it is important to note that, in many instances, states may be able to
take immediate action with respect to a MEWA upon determining that the MEWA has
failed to comply with licensing, contribution or reserve requirements under
State insurance laws, whereas investigating and substantiating a fiduciary
breach under ERISA may take considerably longer.
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As
noted in the introduction, states, prior to 1983, were effectively precluded by
ERISA’s broad preemption provisions from regulating any employee benefit plan
covered by Title I of ERISA. As a result, a state’s ability to
regulate MEWAs was often dependent on whether the particular MEWA was an ERISA-covered plan. In an effort to address this problem, the U.S.
Congress amended ERISA in 1983 to establish a special exception to ERISA’s
preemption provisions for MEWAs. This exception, which is discussed in
detail below, was intended to eliminate claims of ERISA-plan status and Federal
preemption as an impediment to State regulation of MEWAs by permitting states to
regulate MEWAs that are ERISA-covered employee welfare benefit plans.
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The
following discussion relating to ERISA’s preemption provisions and the 1983
MEWA amendments is intended to clarify what is and what is not a “multiple
employer welfare arrangement” within the meaning of ERISA Section 3(40), and
the extent to which states may regulate MEWAs, as provided by ERISA Section
514(b)(6).
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Under
the general preemption clause of ERISA Section 514(a), 29 U.S.C. §1144(a),
ERISA preempts any and all State laws which “relate to” any employee benefit
plan subject to Title I of ERISA. However, there are a number of
exceptions to the broad preemptive effect of Section 514(a) set forth in ERISA
Section 514(b), 29 U.S.C. §1144(b), referred to as the “savings clause.”
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Section
514(a) of ERISA provides, in relevant part, that:
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Except as provided
in subsection (b) of this section [Section 514], the provisions of this title
[title I] . . . supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan . . . .
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In
determining whether a State law may “relate to” an employee benefit plan,
the U.S. Supreme Court has determined that the words “relate to” should be
construed expansively.
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In Shaw v. Delta Air Lines, Inc., 463 U.S. 85,
96-97 (1983), the Court held that “[a] law ‘relates to’ an employee
benefit plan, in the normal sense of the phrase, if it has a connection with or
reference to such a plan.” (See also: Metropolitan Life
Insurance Co. v. Massachusetts, 471 U.S. 724 (1985).
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As
noted above, however, while a state law may be found to “relate to” an
employee benefit plan, within the meaning of Section 514(a) of ERISA, the law
may nonetheless be saved from ERISA preemption to the extent that an exception
described in Section 514(b) applies.
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With
regard to the application of State insurance laws to ERISA-covered plans,
Section 514(b)(2) contains two relevant exceptions. This section provides,
in relevant part, that:
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Except as provided in subparagraph (B), nothing in this title [title I] shall be
construed to exempt or relieve any person from any law of any State which
regulates insurance....
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Neither an employee benefit plan..., nor any trust established under such a
plan, shall be deemed to be an insurance company or other insurer... for
purposes of any law of any State purporting to regulate insurance companies,
insurance contracts,....
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Section
514(b)(2)(A) referred to as the "savings clause” essentially preserves to
the states the right to regulate the business of insurance and persons engaged
in that business (See: Metropolitan Life Insurance Co. v. Massachusetts,
cited above, for a discussion of the criteria applied by the U.S. Supreme Court
in determining whether a State law is one that “regulates insurance.”).
However, while Section 514(b)(2)(A) saves from ERISA preemption state laws that
regulate insurance, Section 514(b)(2)(B), referred to as the “deemer
clause,” makes clear that a State law that “purports to regulate
insurance” cannot deem an employee benefit plan to be an insurance company.
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While
plans purchasing insurance are, as a practical matter, indirectly affected by
State insurance laws (inasmuch as the insurance contracts purchased by the plans
are subject to State insurance law requirements), the “deemer clause,” prior
to 1983, effectively prevented the direct application of State insurance laws to
ERISA-covered employee benefit plans. In 1983, however, ERISA was amended,
as part of Public Law 97-473 (January 14, 1983), to add Section 514(b)(6) to
ERISA’s preemption provisions.
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In
general, Section 514(b)(6) provides a special exception for the application of
State insurance laws to ERISA-covered welfare plans that are “multiple
employer welfare arrangements” (MEWAs). Because the application of
Section 514(b)(6) is limited to benefit programs that are MEWAs, the following
discussion first reviews what is and what is not a MEWA for purposes of the
Section 514(b)(6) exception, followed by a detailed review of the exception and
its effect on state regulation of MEWAs.
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The
term “multiple employer welfare arrangement” is defined in ERISA Section
3(40), 29 U.S.C. §1002(40). Section 3(40)(A) provides as follows:
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The term "multiple employer welfare
arrangement" means an employee welfare benefit plan, or any
other arrangement (other than an employee welfare benefit plan)
which is established or maintained for the purpose of offering or
providing any benefit described in paragraph (1) [welfare plan benefits]
to the employees of two or more employers (including one or more
self-employed individuals), or to their beneficiaries, except that such
term does not include any such plan or arrangement that is established
or maintained -
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under or pursuant to one or more agreements which
the Secretary finds to be collective bargaining agreements,
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by a rural electric
cooperative, or
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by a rural telephone
cooperative association(1) (Emphasis supplied.)
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As
reflected above, the definition of MEWA includes both ERISA-covered employee
welfare benefit plans and other arrangements which offer or provide medical,
surgical, hospital care or benefits, or benefits in the event of sickness,
accident, disability or any other benefit described in ERISA Section 3(1) (See:
definition of “employee welfare benefit plan” on page 6 for a complete list
of benefits). Therefore, whether a particular arrangement is or is not an
employee welfare benefit plan subject to ERISA is irrelevant for purposes of
determining whether the arrangement is a MEWA. In order to constitute a
MEWA, however, a determination must be made that:
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the
arrangement offers or provides welfare benefits to the employees of two or more
employers or to the beneficiaries of such employees (i.e., the arrangement is
not a single employer plan); and
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the
arrangement is not excepted from the definition of MEWA as established or
maintained under or pursuant to one or more collective bargaining agreements, or
by a rural electric cooperative, or by a rural telephone cooperative
association.
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Set
forth below are a number of issues which should be considered in making a MEWA
determination.
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1. Plans
maintained by one employer or a group of employers under common control
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If
a plan is maintained by a single-employer for the exclusive purpose of providing
benefits to that employer’s employees, former employees (e.g., retirees), or
beneficiaries (e.g., spouses, former spouses, dependents) of such employees, the
plan will be considered a single employer plan and not a MEWA within the meaning
of ERISA Section 3(40). For purposes of Section 3(40), certain groups of
employers which have common ownership interests are treated as a single
employer. In this regard, Section 3(40)(B)(i) provides that:
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two or more trades
or businesses, whether or not incorporated, shall be deemed a single employer if
such trades or businesses are within the same control group.
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In
determining whether trades or businesses are within the “same control
group,” Section 3(40)(B)(ii) provides that the term “control group” means
a group of trades or businesses under “common control.” Pursuant to
Section 3(40)(B)(iii), whether a trade or business is under “common control”
is to be determined under regulations issued by the Secretary applying
principles similar to those applied in determining whether there is “common
control” under section 4001(b) of Title IV of ERISA, except that common
control shall not be based on an interest of less than 25 percent.
Accordingly, trades or businesses with less than a 25 percent ownership interest
will not be considered under “common control” and, therefore, will not be
viewed as a single employer for purposes of determining whether their plan
provides benefits to the employees of two or more employers under Section 3(40).
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With
regard to situations where there is a 25 percent or more ownership interest, it
should be noted that, the Department of Labor has not adopted regulations under
Section 3(40)(B)(iii). However, regulations issued under Section 4001(b)
of Title IV and Section 414(c) of the Internal Revenue Code (See: 29 CFR §2612.2
and 26 CFR §1.414(c)-2, respectively) provided that “common control”
generally means, in the case of a parent-subsidiary group of trades or
businesses, an 80 percent ownership interest, or, in the case of organizations
controlled by five or fewer persons, which are the same persons with respect to
each organization, at least a 50 percent ownership interest by such persons in
each organization.
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2. Plans
maintained by groups or associations of unrelated employers
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Questions
have been raised as to whether a plan sponsored by a group or association acting
on behalf of its employer-members, which are not part of a control group,
constitutes a “single employer” for purposes of the MEWA definition.
The question is premised on the fact that the term “employer” is defined in
Section 3(5), 29 U.S.C. §1002(5), to mean “any person acting directly as an
employer, or indirectly in the interest of an employer, in relation to an
employee benefit plan; and includes a group or association of employers acting
for an employer in such capacity.” As discussed earlier, the Department
has taken the position that a bona fide group or association of employers would
constitute an “employer” within the meaning of ERISA Section 3(5) for
purposes of having established or maintained an employee benefit plan (See: page
8).
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However,
unlike the specified treatment of a control group of employers as a single
employer, there is no indication in Section 3(40), or the legislative history
accompanying the MEWA provisions, that Congress intended that such groups or
associations be treated as “single employers” for purposes of determining
the status of such arrangements as a MEWA. Moreover, while a bona fide
group or association of employers may constitute an “employer” within the
meaning of ERISA Section 3(5), the individuals typically covered by the group or
association-sponsored plan are not “employed” by the group or association
and, therefore, are not “employees” of the group or association.
Rather, the covered individuals are “employees” of the employer-members of
the group or association. Accordingly, to the extent that a plan sponsored
by a group or association of employers provides benefits to the employees of two
or more employer-members (and such employer-members are not part of a control
group of employers), the plan would constitute a MEWA within the meaning of
Section 3(40).
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3. Plans
maintained by employee leasing organizations
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When
a health benefit plan is maintained by an employee leasing organization, there
is often a factual question as to whether the individuals covered by the leasing
organization’s plan are employees of the leasing organization or employees of
the client (often referred to as the “recipient”) employers. If all
the employees participating in the leasing organization’s plan are determined
to be employees of the leasing organization, the plan would constitute a
“single employer” plan and not a MEWA. On the other hand, if the
employees participating in the plan include employees of two or more recipient
employers or employees of the leasing organization and at least one recipient
employer, the plan would constitute a MEWA because it would be providing
benefits to the employees of two or more employers.
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Like
a bona fide group or association of employers, an employee leasing organization
may be an “employer” within the meaning of ERISA Section 3(5) to the extent
it is acting directly or indirectly in the interest of an employer.
However, as with bona fide groups or associations of employers, “employer”
status under Section 3(5) does not in and of itself mean the individuals covered
by the leasing organization plan are “employees” of the leasing
organization. As discussed below, in order for an individual to be
considered an “employee” of an “employer” for purposes of the MEWA
provisions, an employer-employee relationship must exist between the employer
and the individual covered by the plan. In this regard, the payment of
wages, the payment of Federal, State and local employment taxes, and the
providing of health and/or pension benefits are not solely determinative of an
employer-employee relationship. Moreover, a contract purporting to create
an employer-employee relationship will not be determinative where the facts and
circumstances establish that the relationship does not exist.
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4.
Determinations
as to who is an “employee” of an employer
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As
discussed above, the term “employer” is defined to encompass not only
persons with respect to which there exists an employer-employee relationship
between the employer and individuals covered by the plan (i.e., persons acting
directly as an employer), but also certain persons, groups and associations,
which, while acting indirectly in the interest of or for an employer in relation
to an employee benefit plan, have no direct employer-employee relationship with
the individuals covered under an employee benefit plan. Therefore, merely
establishing that a plan is maintained by a person, group or association
constituting an “employer” within the meaning of ERISA Section 3(5) is not
in and of itself determinative that the plan is a single-employer plan, rather
than a plan that provides benefits to the employees of two or more employers
(i.e., a MEWA). A determination must be made as to the party or parties
with whom the individuals covered by the plan maintain an employer-employee
relationship.
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The
term “employee” is defined in Section 3(6) of ERISA, 29 U.S.C. §1002(6), to
mean “any individual employed by an employer.” (Emphasis supplied.)
The Department has taken the position that an individual is “employed” by an
employer, for purposes of Section 3(6), when an employer-employee relationship
exists. While in most instances the existence, or absence, of an
employer-employee relationship will be clear, there may be situations when the
relationship is not entirely free from doubt.
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In
general, whether an employer-employee relationship exists is a question that
must be determined on the basis of the facts and circumstances involved.
It is the position of the Department that, for purposes of Section 3(6), such
determinations must be made by applying common law of agency principles.(2)
In applying common law principles, consideration must be given to,
among other things, whether the person for whom services are being performed has
the right to control and direct the individual who performs the services, not
only as to the result to be accomplished by the work but also as to the details
and means by which the result is to be accomplished; whether the person for whom
services are being performed has the right to discharge the individual
performing the services; whether the individual performing the services is as a
matter of economic reality dependent upon the business to which he or she
renders service, etc. In this regard, it should be noted that a contract
purporting to create an employer-employee relationship will not control where
common law factors (as applied to the facts and circumstances) establish that
the relationship does not exist. (See: Advisory Opinion No. 92-05,
Appendix A.)
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Finally,
pursuant to regulations issued by the Department of Labor, certain individuals
are deemed not be “employees” for purposes of Title I of ERISA. Under
the regulations, an individual and his or her spouse are deemed not be
“employees” with respect to a trade or business which is wholly owned by the
individual or the individual and his or her spouse. Also under the
regulations, a partner in a partnership and his or her spouse are deemed not to
be “employees” with respect to the partnership. (See: 29 CFR §2510.3-3(b)
and (c).)
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While
the definition of MEWA refers to arrangements that offer or provide benefits to
the employees of two or more employers, the definition of MEWA is not limited to
arrangements established or maintained by an employer. In fact, Section
3(40) does not condition MEWA status on the arrangement being established or
maintained by any particular party. Accordingly, the MEWA status of an
arrangement is not affected by the absence of any connection or nexus between
the arrangement and the employers whose employees are covered by the
arrangement. For example, in Advisory Opinion No. 88-05, the
Department of Labor concluded that an arrangement established by an association
to provide health benefits to its members, who were full-time ministers and
other full-time employees of certain schools and churches, constituted a MEWA
even though there was no employer involvement with the association’s plan.
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Once
it has been determined that an ERISA-covered welfare plan provides benefits to
the employees of two or more employers, a determination must be made as to
whether any of the exclusions from MEWA status apply to the arrangement.
Pursuant to ERISA Section 3(40)(A), three types of arrangements are specifically
excluded from the definition of “multiple employer welfare arrangement,”
even though such arrangements may provide benefits to the employees of two or
more employers. Each of these types of arrangements is discussed in
general terms below.
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1. Plans
maintained pursuant to collective bargaining agreements
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Section 3(40)(A)(i) specifically excludes any plan or other arrangement that is
established or maintained “under or pursuant to one or more agreements which
the Secretary finds to be collective bargaining agreements.”
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This
exception generally includes the type of plans commonly referred to as
“multiemployer plans,” a term which in some instances has been confused with
the term “multiple employer welfare arrangements.” Multiemployer
plans, as distinguished from MEWAs, are established and maintained under
collective bargaining agreements negotiated between unions and employers or an
association of employers, and, in accordance with the Labor Management Relations
Act, employer contributions to the plans are held in a trust that is jointly
administered by labor trustees (appointed by the union) and management trustees
(appointed by the employers or employer association).
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In
general, a collective bargaining agreement is an agreement or contract that is
the product of good faith bargaining between bona fide employee representatives
and one or more employers. Determinations as to whether a particular
document is the product of good faith bargaining between bona fide employee
representatives and one or more employers can be made only upon an examination
of relevant facts and circumstances, taking into consideration the pertinent
provisions of the National Labor Relations Act, 29 U.S.C. §151 et seq., and the
cases decided thereunder, as well as other relevant laws.
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For
purposes of Section 3(40), an employee benefit plan will generally be considered
to be established or maintained “under or pursuant to a collective bargaining
agreement” if the agreement is a bona fide collective bargaining agreement and
the agreement provides, directly or indirectly, for establishment or maintenance
of a plan for the benefit of employees represented by a union in the collective
bargaining process.
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While
no one item is determinative, factors generally indicative of a bona fide
collective bargaining agreement may, among others, include: the agreement
provides for wages, benefits, working conditions or resolution of grievances;
the agreement is executed by representatives of a labor organization/union which
is either certified by the National Labor Relations Board or is elected by the
majority of employee of signatory employers as the exclusive bargaining
representative of the employees; neither the agreement nor of the labor
organization/union was promoted by the employer(s); and the agreement is the
product of good faith bargaining.
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2.
Rural
Electric Cooperatives
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Section 3(40)(A)(ii) specifically excludes from the definition of MEWA any plan or other
arrangement that is established or maintained by a “rural electric
cooperative.”
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Section 3(40)(B)(iv) defines the term “rural electric cooperative” to mean:
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any organization
which is exempt from tax under Section 501(a) of the Internal Revenue Code of
1986 and which is engaged primarily in providing electric service on a mutual or
cooperative basis, and
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any organization
described in paragraph (4) or (6) of Section 501(c) of the Internal Revenue Code
of 1986 which is exempt from tax under Section 501(a) of such Code and at least
80 percent of the members of which are organizations described in subclause (I).
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3.
Rural
Telephone Cooperative Associations
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Section 3(40)(A)(iii) specifically excludes from the definition of MEWA any plan or
other arrangement that is established or maintained by a “rural telephone
cooperative association.” This exception to MEWA status for rural
telephone cooperative associations became effective on August 14, 1991,
the enactment date of the Rural Telephone Cooperative Associations ERISA
Amendments Act of 1991 (Public Law No. 102-89).
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Section 3(40)(B)(v), also added to ERISA by Public Law No. 102-89, defines the term
“rural telephone cooperative association” to mean an organization described
in paragraph (4) or (6) of Section 501(c) of the Internal Revenue Code of 1986
which is exempt from tax under Section 501(a) and at least 80 percent of the
members of which are organizations engaged primarily in providing
telephone service to rural areas of the United States on a mutual, cooperative,
or other basis.
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To
restate the definition of MEWA somewhat differently, a MEWA, within the meaning
of Section 3(40), includes any ERISA-covered employee welfare benefit plan which
is not:
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a single employer
plan (which includes employers within the same control group);
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a plan established
or maintained under or pursuant to a collective bargaining agreement;
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a plan established
or maintained by a rural electric cooperative; or
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a plan established
or maintained by a rural telephone cooperative association.
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If
an ERISA-covered employee welfare benefit plan is a MEWA, states may, as
discussed below, apply and enforce State insurance laws with respect to the plan
in accordance with the exception to ERISA preemption under Section 514(b)(6).
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If
an ERISA-covered welfare plan is a MEWA, states may apply and enforce their
State insurance laws with respect to the plan to the extent provided by ERISA
Section 514(b)(6)(A), 29 U.S.C. §1144(b)(6)(A). In general, Section
514(b)(6)(A) provides an exception to ERISA’s broad preemption provisions for
the application and enforcement of State insurance laws with respect to any
employee welfare benefit plan that is a MEWA within the meaning of ERISA Section
3(40).
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In
effect, Section 514(b)(6)(A) serves to provide an exception to the “deemer
clause” of Section 514(b)(2)(B), which otherwise precludes states from deeming
an ERISA-covered plan to be an insurance company for purposes of State insurance
laws, by permitting states to treat certain ERISA-covered plans (i.e., MEWAs) as
insurance companies, subject to a few limitations. While the range of
State insurance law permitted under Section 514(b)(6)(A) is subject to certain
limitations, the Department of Labor believes that these limitations should have
little, if any, practical affect on the ability of states to regulate MEWAs
under their insurance laws.
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There
is nothing in Section 514(b)(6)(A) that limits the applicability of State
insurance laws to only those insurance laws which specifically or otherwise
reference "multiple employer welfare arrangements" or
"MEWAs." Similarly, while the specific application of a
particular insurance law to a particular MEWA is a matter within the
jurisdiction of the State, there is nothing in Section 514(b)(6) that would
preclude the application of the same insurance laws that apply to any insurer to
ERISA-covered plans which constitute MEWAs, subject only to the limitations set
forth in Section 514(b)(6)(A).
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Under
Section 514(b)(6)(A), the extent to which State insurance laws may be applied to
a MEWA that is an ERISA-covered plan is dependent on whether or not the plan is
fully insured.
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Section 514(b)(6)(A)(i) provides:
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in the case of an
employee welfare benefit plan which is a multiple employer welfare
arrangement and is fully insured (or which is a multiple employer welfare
arrangement subject to an exemption under sub-paragraph (B)), any law of any
State which regulates insurance may apply to such arrangement to the extent such
law provides --
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standards,
requiring the maintenance of specified levels of reserves and specified levels
of contributions, which any such plan, or any trust established under such a
plan, must meet in order to be considered under such law able to pay benefits in
full when due, and
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provisions to
enforce such standards... (Emphasis supplied.)
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Under
Section 514(b)(6)(A)(i), it is clear that, in the case of fully insured MEWAs,
states may apply and enforce any State insurance law requiring the maintenance
of specific reserves or contributions designed to ensure that the MEWA will be
able to satisfy its benefit obligations in a timely fashion. Moreover, it
is the view of the Department of Labor that 514(b)(6)(A)(i) clearly enables
states to subject MEWAs to licensing, registration, certification, financial
reporting, examination, audit and any other requirement of State insurance law
necessary to ensure compliance with the State insurance reserves, contributions
and funding requirements.
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Section
514(b)(6)(D) provides that, for purposes of Section 514(b)(6)(A), “a multiple
employer welfare arrangement shall be considered fully insured only if the terms
of the arrangement provide for benefits the amount of all of which the Secretary
determines are guaranteed under a contract, or policy of insurance, issued by an
insurance company, insurance service, or insurance organization, qualified to
conduct business in a State.” In this regard, a determination by the
Department of Labor as to whether a particular MEWA is “fully insured” is
not required in order for a state to treat a MEWA as “fully insured” for
purposes of applying State insurance law in accordance with Section 514(b)(6).
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Section 514(b)(6)(A)(ii) provides:
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in the case of any
other employee welfare benefit plan which is a multiple employer welfare
arrangement, in addition to this title [title I], any law of any State which
regulates insurance may apply to the extent not inconsistent with the preceding
sections of this title [Title I]. (Emphasis supplied)
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Accordingly,
if a MEWA is not “fully insured,” the only limitation on the applicability
of State insurance laws to the MEWA is that the law not be inconsistent with
Title I of ERISA.
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In
general, a State law would be inconsistent with the provisions of Title I to the
extent that compliance with such law would abolish or abridge an affirmative
protection or safeguard otherwise available to plan participants and
beneficiaries under Title I or would conflict with any provision of Title
I, making compliance with ERISA impossible. For example, any State
insurance law which would adversely affect a participant’s or beneficiary’s
right to request or receive documents described in Title I of ERISA, or to
pursue claims procedures established in accordance with Section 503 of ERISA, or
to obtain and maintain continuation health coverage in accordance with Part 6 of
ERISA would be viewed as inconsistent with the provisions of Title I.
Similarly, a State insurance law that would require an ERISA-covered plan to
make imprudent investments would be inconsistent with the provisions of Title I.
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On
the other hand, a State insurance law generally will not be deemed
“inconsistent” with the provisions of Title I if it requires ERISA-covered
plans constituting MEWAs to meet more stringent standards of conduct, or to
provide more or greater protection to plan participants and beneficiaries than
required by ERISA. The Department has expressed the view that any state
insurance law which sets standards requiring the maintenance of specified levels
of reserves and specified levels of contributions in order for a MEWA to be
considered, under such law, able to pay benefits will generally not be
“inconsistent” with the provisions of Title I for purposes of Section
514(b)(6)(A)(ii). The Department also has expressed the view that a State
law regulating insurance which requires a license or certificate of authority as
a condition precedent or otherwise to transacting insurance business or which
subjects persons who fail to comply with such requirements to taxation, fines
and other civil penalties, including injunctive relief, would not in and of
itself be “inconsistent” with the provisions of title I for purposes of
Section 514(b)(6)(A)(ii). (See: Advisory Opinion 90-18, Appendix A).
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Pursuant
to Section 514(b)(6)(B), the Secretary of Labor may, under regulations, exempt
from Section 514(b)(6)(A)(ii) MEWAs which are not fully insured. Such
exemptions may be granted on an individual or class basis. While the
Department has the authority to grant exemptions from the requirements of
Section 514(b)(6)(A)(ii), such authority does not extend to the requirements of
Section 514(b)(6)(A)(i) relating to the maintenance of specified levels of
reserves and specified levels of contributions under State insurance laws.
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The
Department has neither prescribed regulations for such exemptions nor granted
any such exemptions since the enactment of the MEWA provisions in 1983.
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The
Health Insurance Portability and Accountability Act of 1996 (HIPAA) established
a filing requirement for MEWAs. The purpose of the Form M-1 filing
requirement is to provide EBSA with information concerning compliance by MEWAs
with the requirements of Part 7 of ERISA (including the provisions of HIPAA, the
Mental Health Parity Act, the Newborns’ and Mothers’ Health Protection Act,
and the Women’s Health and Cancer Rights Act).
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Under
the new reporting requirement, the one-page Form M-1 is generally required to be
filed once a year, due on March 1; however, plan administrators can request a
60-day extension.
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To
help filers, EBSA has published a guide for completing the Form M-1, which is
available by calling the EBSA toll-free line at 1.866.444.3272 and on the
Internet at www.dol.gov/pwba. Plan administrators may also contact us with
any questions or for assistance in completing the Form M-1 by calling the EBSA
Help Desk at 202.693.3860.
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Advisory
opinions relating to Title I of ERISA are issued by the Pension and Welfare
Benefits Administration and represent the official views of the U.S. Department
of Labor on the interpretation and application of the provisions of ERISA.
Advisory opinions are issued pursuant to ERISA Procedure 76-1, which, among
other things, describes the circumstances under which the Department will and
will not rule on particular matters and the effect of advisory opinions
generally. A copy of ERISA Procedure 76-1 is reprinted as Appendix B.
Pursuant to Section 12 of ERISA Procedure 76-1, advisory opinions, as well as
advisory opinion requests, accompanying documentation, and related
correspondence are available to the general public.
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It
should be noted that the advisory opinion process is not a fact-finding process.
Advisory opinions are generally based solely on the facts and representations
submitted to the Department by the party or parties requesting the opinion.
Therefore, advisory opinions should not be viewed as determinations by the
Department as to the accuracy of any of the facts and representations provided
by the requesting party and cited in such opinions.
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No.
First, there is nothing in ERISA Section 3(40) which conditions MEWA status on
the obtaining of an opinion from the Department. Second, in most
instances, the question of whether a particular arrangement is a MEWA will
require factual, rather than interpretative, determinations. That is, if
the arrangement meets the definition of a MEWA - because it is providing health
or similar benefits to the employees of more than one employer (i.e., the
arrangement is not a single-employer plan) and the arrangement is not
established or maintained under or pursuant to a collective bargaining agreement
or by a rural electric cooperative, or by a rural telephone cooperative
association - the arrangement is, by definition, a MEWA, whether or not the
Department rules on the matter.
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In most cases, no. While the MEWA exception to ERISA's preemption provisions
does impose a few limitations on the ability of states to regulate MEWAs that
are ERISA-covered plans, these limitations, as discussed earlier and in Advisory
Opinion No. 90-18 (See: Appendix A), should not, as a practical matter, have any
significant effect on a state's application and enforcement of its insurance
laws with respect to a MEWA which is an ERISA-covered plan. Accordingly, a
determination as to whether or not a MEWA is an ERISA- covered plan is not
necessary in most instances.
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If
a MEWA determination is needed, the advisory opinion request should include
sufficient facts and representations to conclude whether the arrangement is
providing benefits described in Section 3(1) of ERISA (See: pages 7-8)
whether benefits are being provided to the employees of two or more employers,
whether the employers of covered employees are members of the same control group
of employers, and whether the arrangement is established or maintained pursuant
to or under a collective bargaining agreement or by a rural electric cooperative
or rural telephone cooperative association.
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If
an ERISA-coverage determination is needed, the advisory opinion request should
also include sufficient information to determine whether the arrangement is
established or maintained by an employer, employee organization, or by both
(See: pages 9-16). An advisory opinion request for such a
determination should include copies of plan and trust documents, constitutions
and by-laws, if any, administrative agreements, employer-participation
agreements, collective bargaining agreements, if applicable, and any other
documents or correspondence that might have a bearing on the status of the
arrangement for ERISA purposes.
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Requests
for advisory opinions involving MEWAs should be sent to the following address:
U.S. Department of
Labor
Pension and Welfare
Benefits Administration
Office of Regulations
and Interpretations
200 Constitution
Avenue, NW, Suite N-5669
Washington, DC
20210
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Enforcement
of the provisions of Title I of ERISA is carried out by the Pension and Welfare
Benefits Administration’s Office of Enforcement. The Office of
Enforcement consists of a national office and 15 field offices located
throughout the United States. The national office provides policy
direction and technical and management support for the field offices, in
addition to conducting investigations in selected sensitive areas. Most,
if not all, MEWA-related investigations are conducted by the field offices under
the supervision of an area or district director, with oversight and coordination
provided by the national office.
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In
an effort to facilitate State and Federal enforcement efforts in the MEWA area,
EBSA’s field offices have established, or are in the process of pursuing,
cooperative arrangements with the states in their jurisdiction pursuant to which
the offices will share and discuss cases opened and closed by EBSA involving
MEWAs. In addition, field offices will, in accordance with such
agreements, make available documents obtained through voluntary production or
pursuant to a civil subpoena. In order to ensure proper coordination of
MEWA-related initiatives, state officials should direct information and/or
inquiries (other than advisory opinion requests) to the director of the EBSA
area office responsible for their particular state.
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For
more information for the field office near you, contact EBSA’s Toll-Free
Employee & Employer Hotline number: 1.866.444.3272 - or view it on the
agency’s Web site.
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July 2, 1990
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Mr.
J. Scott Kyle
Texas
State Board of Insurance
1110
San Jacinto
Austin,
Texas 78701-1998
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1990-18A
ERISA Sec. 514(b)(6)(A)(ii)
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Dear
Mr. Kyle:
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This
responds to your letter of May 8, 1990, regarding MDPhysicians and Associates,
Inc. Employee Benefit Plan (MDPEBP). You request the views of the
Department of Labor concerning issues that arise, as described below, under
section 514(b)(6)(A) of the Employee Retirement Income Security Act of 1974 (ERISA).
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In
Opinion 90-10A, the Department of Labor (the Department) concluded that MDPEBP
is a multiple employer welfare arrangement (MEWA) within the meaning of section
3(40) of ERISA and, therefore, is subject to state regulation at least to the
extent provided in section 514(b)(6)(A) of ERISA, regardless of whether MDPEBP
is an employee benefit plan covered by title I of ERISA. You state in your
letter that MDPhysicians and Associates, Inc., which administers MDPEBP, has
filed suit against the Texas State Board of Insurance and Texas Attorney General
for a declaratory judgment relating to the ability of the State of Texas to
regulate or prohibit MDPEBP. MDPhysicians and Associates, Inc. contends
in its complaint that, among other things, any attempt by the State of Texas to
regulate MDPEBP by requiring licensure of MDPEBP as an insurer would be
inconsistent with title I of ERISA, and that the State of Texas lacks statutory
authority to regulate MDPEBP in any respect in the absence of enabling
legislation respecting the regulation of self-insured MEWAs.
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You
state that Texas does not have legislation specifically aimed at regulation of
self-funded MEWAs which are employee welfare benefit plans covered by title I of
ERISA. It is the position of the State Board of Insurance that such plans are
doing an insurance business and are subject to the same requirements as any
other insurer operating in Texas. You further state that the Texas Insurance
Code provides that no person or insurer may do the business of insurance in
Texas without specific authorization of statute, unless exempt under the
provisions of Texas or federal law. The Code establishes procedures for issuance
of certificates of authority to insurers who meet statutory requirements.
Persons who transact insurance business in Texas without a certificate of
authority or valid claim to exemption are subject to taxation, fines, and other
civil penalties, including injunctive relief to effect cessation of operation.
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Assuming, arguendo, that MDPEBP is an employee welfare benefit plan covered by title I of
ERISA, you request the Department’s views as to whether or not a requirement
by the State of Texas that MDPEBP (or any similar plan which might be found to
be both an employee welfare benefit plan and a MEWA as defined by ERISA) obtain
a certificate of authority to transact insurance business in Texas, and be
subject to statutory penalties and injunction should it operate without a
certificate of authority, would be inconsistent with title I of ERISA.
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Section
514(b)(6)(A) of ERISA provides an exception to preemption under ERISA section
514(a) for any ERISA-covered employee welfare benefit plan that is a MEWA. In
general, the exception permits application of state insurance law to a MEWA as
follows: If the MEWA is “fully insured” within the meaning of section
514(b)(6)(D) of ERISA, state insurance law may apply to the extent it provides
standards requiring the maintenance of specified levels of reserves and
contributions, and provisions to enforce such standards (See section
514(b)(6)(A)(i)). If the MEWA is not fully insured, any law of any state
which regulates insurance may apply to the extent not inconsistent with title I
of ERISA (See 514(b)(6)(A)(ii)). It appears from your letter that the
parties do not dispute that MDPEBP is not fully insured within the meaning of
ERISA section 514(b)(6)(D).
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We
hope the following is responsive to your request.
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First,
it is the view of the Department of Labor that section 514(b)(6)(A) saves from
ERISA preemption any law of any state which regulates insurance, without regard
to whether such laws specifically or otherwise reference MEWAs or employee
benefit plans which are MEWAs, subject only to the limitations set forth in
subparagraphs (A)(i) and (A)(ii) of that section. Similarly, while we are unable
to rule on the specific application of the Texas Insurance Code to MDPEBP,
a matter within the jurisdiction of the Texas State Board of Insurance, it is
the view of the Department that, with the exception of the aforementioned limitations,
there is nothing in ERISA which would preclude the application of the same state
insurance laws which apply to any insurer which is not an ERISA-covered plan to
ERISA-covered plans which constitute MEWAs within the meaning of ERISA section
3(40).
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Second,
it is the view of the Department that Congress, in enacting the MEWA provisions,
recognized that the application and enforcement of state insurance laws to ERISA-covered MEWAs(3)
provide both appropriate and necessary protection for the participants and
beneficiaries covered by such plans, in addition
to those protections afforded by ERISA. For this reason, the Department is
of the opinion that in the context of section 514(b)(6)(A)(ii), which, in the
case of a MEWA which is not fully insured, saves from ERISA preemption any law
of any state which regulates insurance to the extent such law is not inconsistent
with the provisions of title I of ERISA, a state law which regulates insurance
would be inconsistent with the provisions of title I to the extent that
compliance with such law would abolish or abridge an affirmative protection or
safeguard otherwise available to plan participants and beneficiaries under title
I of ERISA,(4) or conflict with any provision
of title I of ERISA.(5) For example, state insurance law which would require an
ERISA-covered MEWA to
make imprudent investments would be deemed to be “inconsistent” with the
provisions of title I of ERISA because compliance with such a law would
“conflict” with the fiduciary responsibility provisions of ERISA section
404, and, as such, would be preempted pursuant to the provisions of ERISA
section 514(b)(6)(A)(ii).(6)
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However,
a state insurance law will, generally, not be deemed “inconsistent” with the
provisions of title I of ERISA if it requires ERISA-covered MEWAs to meet more
stringent standards of conduct, or to provide more or greater protections to
plan participants and beneficiaries, than required by ERISA. For example,
state insurance laws which would require more informational disclosure to plan
participants of an ERISA-covered MEWA will not be deemd by the Department to be
“inconsistent” with the provisions of ERISA. Similarly, a state insurance
law prohibiting a fiduciary of an ERISA-covered MEWA from availing himself of an
ERISA statutory or administratively-granted exemption permitting certain
behavior will not be deerned by the Department to be “inconsistent” with the
provisions of ERISA.
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Finally,
the Department also notes that, in its opinion, any state insurance law which
sets standards requiring the maintenance of specified levels of reserves and
specified levels of contributions to be met in order for a MEWA to be
considered, under such law, able to pay benefits in full when due will generally
not be considered to be “inconsistent” with the provisions of title I of
ERISA pursuant to ERISA section 514(b) (6)(A) (ii) .
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Thus,
it is the opinion of the Department that a state law regulating insurance which
requires the obtaining of a license or certificate of authority as a condition
precedent or otherwise to transacting insurance business or which subjects
persons who fail to comply with such requirements to taxation, fines, and other
civil penalties, including injunctive relief, would not in and of itself
adversely affect the protections and safeguards Congress intended to be
available to participants and beneficiaries or conflict with any provision of
title I of ERISA, and, therefore, would not, for purposes of section 514(b)(6)(A)(ii), be inconsistent with the provisions of title I.
Moreover, given the clear intent of Congress to permit states to apply and
enforce their insurance laws with respect to ERISA-covered MEWAs, as evidenced
by the enactment of the MEWA provisions, it is the view of the Department that
it would be contrary to Congressional intent to conclude that states, while
having the authority to apply insurance laws to such plans, do not have the
authority to require and enforce registration, licensing, reporting and similar
requirements necessary to establish and monitor compliance with those laws.
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Finally,
we would note that while section 514(b)(6)(B) of ERISA provides that the
Secretary of Labor may prescribe regulations under which .the Department may
exempt MEWAs from state regulation under section 514(b)(6)(A)(ii), the
Department has neither prescribed regulations in this area, nor granted any such
exemptions.
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This
letter constitutes an advisory opinion under ERISA Procedures 76-1.
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Robert
J. Doyle
Director
of Regulations
and Interpretations
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January 27, 1992
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Mr.
Chuck Huff
Georgia Insurance Department
Floyd Building, 7th Floor, West Tower
2 Martin Luther King, Jr., Drive
Atlanta, Georgia 30334
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1992-05A
ERISA Sec.
3(40), 514(b)(6)
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Dear
Mr. Huff:
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This
is in response to your request regarding the status of a self-funded health
benefit program sponsored by Action Staffing, Inc. (Action) under title I of the
Employee Retirement Income Security Act (ERISA). Specifically, you have
requested an opinion as to whether the Action health benefit program is an
employee welfare benefit plan within the meaning of section 3(1) of title I of
ERISA, and whether the Action health benefit program is a multiple employer
welfare arrangement (MEWA), within the meaning of ERISA section 3(40) and,
therefore, subject to applicable state insurance laws at least to the extent
permitted under section 514(b)(6)(A) of title I of ERISA.
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According
to your letter, Action identifies its operations as those of a “staff
leasing” company. Action markets its services and issues proposals to
potential client employers in a variety of trades and businesses. If a client
employer agrees to the terms of the proposal, an Agreement for Services is
executed with Action. Under the terms of the Agreement for Services, a specimen
copy of which accompanied your request, Action agrees to lease personnel to the
client employer, subject to the payment of certain fees being paid by the client
employer. Pursuant to the “Services” section of the Agreement for Services,
it is provided that:
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Action shall . . . provide the following services with regard to the
leased employees: The recruitment, hiring, directing and controlling
of employees in their day-to-day assignments; the disciplining, replacing,
termination and the designation of the date of separation from employment;
the promotion, reward, evaluation and from time to time the
redetermination of the wages, hours and other terms and conditions of
employment of the employees. . .
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Action maintains a self-funded health program for leased employees.
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