Advisory Opinion

December 30, 2005

Andrew Ky Haynes, Esq.
Haynes Hitesman, PC
4700 Belleview Avenue, Suite 201
Kansas City, MO 64112

2005-25A
3(5)

Dear Mr. Haynes:

This is in response to your request on behalf of the Tennessee Independent Colleges and Universities Association Benefit Consortium, Inc. (TICUA Benefit Consortium or Consortium) for an advisory opinion concerning the applicability of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) to the TICUA Benefit Consortium Health Plan (Plan). Specifically, you ask whether the Plan is an "employee welfare benefit plan" within the meaning of section 3(1) of ERISA that is maintained by a "group or association of employers" within the meaning of section 3(5) of ERISA.

You provided the following facts and representations with your request. The Tennessee Independent Colleges and Universities Association (TICUA) was formed in 1951. TICUA was founded to foster better cooperation among institutions of higher education in Tennessee, promote cooperative programs among member institutions, supply public policy analysis, and provide a vehicle for collaborative efforts among members for raising funds from corporations and businesses. TICUA has 35 members, all of which are private, not-for-profit organizations that are either regionally accredited colleges and universities in Tennessee that have a traditional arts and sciences curriculum, or regionally accredited educational institutions that specialize in such fields as medicine, dentistry, optometry, fine arts and mortuary science.

The Consortium, a membership-based mutual benefit corporation, was established effective May 1, 2001, at the request of a majority of TICUA's members. The Consortium's Charter provides that the "Consortium shall establish and maintain a health and welfare plan" to provide health and other welfare benefits to the employees of participating member employers. The Consortium's Charter limits membership in the Consortium to independently governed and operated private-sector institutions of higher education in the State of Tennessee that are members of TICUA and are approved by a majority of the then current members of the Consortium, and that meet such other terms and procedures as are set forth in the Consortium's By-laws or established by resolution of the Board of Directors. The Consortium's By-laws provide the operational rules for the Consortium. Article Two provides that the members shall meet annually, and that special meetings can be called at any time by a majority of the members, as well as by the Chairman of the Board, the Executive Director or the Board of Directors. Article Three provides that each member is entitled to one vote on each matter submitted to a vote at a meeting of the members. Article Four sets forth the powers and duties of the Board of Directors, and provides that the property, business and affairs of the Consortium shall be controlled and managed by the Board of Directors. Article Four also provides that Directors shall be elected at the annual meeting of the members. The Executive Director is required to send a notice to all members requesting nominations for the Board, and such nominees must be presented to the members who shall elect each Director by majority vote. In the event of a vacancy on the Board, the Executive Director may fill the vacancy, subject to approval of a majority of the members. Section 4.11(a) of Article Four provides that Directors may be removed by a majority of the Board of Directors for failure to meet qualifications stated in the Charter or By-laws or for being in breach of any agreement. Section 4.11(b) provides that Directors may be removed with or without cause by a majority of the members.

The TICUA Benefit Consortium Board of Directors established the Plan, effective May 1, 2001. The Consortium's Charter requires the Board of Directors to hold all assets in trust for the exclusive benefit of the participants and beneficiaries of the Plan. The Consortium's By-laws require the Directors to furnish Consortium members annually a written statement of account of the finances of the trust that holds the Plan's assets. You represented that the Consortium, and a trust that it established as the funding vehicle for the Plan, are intended to operate as a "voluntary employee's beneficiary association" (VEBA) within the meaning of section 501(c)(9) of the Internal Revenue Code (Code). TICUA members that want to participate in the Plan must execute a membership and adoption agreement whereby the employer becomes a Consortium member and adopts the Plan. You represented that TICUA has its own employees and, although not expressly provided for in the Consortium's Charter, that TICUA was permitted to become a member of the TICUA Benefit Consortium and a participating employer in the Plan.

TICUA and sixteen of TICUA's 35 members have elected to become members of the Consortium and participating employers in the Plan. Employees of Consortium employer members (and their dependents) who meet the Plan's eligibility requirements may be enrolled and receive Plan benefits. There currently are approximately 2,100 present or retired employees of Consortium member employers who are participants in the Plan.

The term "employee welfare benefit plan" is defined in section 3(1) of ERISA to include, among others, "any plan, fund, or program . . . established or maintained by an employer or by an employee organization, or by both, to the extent 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 . . . medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment . . . ." Although the Plan was established for the purpose of providing benefits among those described in section 3(1) of ERISA, in order to be an employee welfare benefit plan the Plan must also, among other criteria, be established or maintained by an employer, an employee organization, or both. There is no indication that an employee organization within the meaning of section 3(4) of ERISA is in any way involved in the Plan.(1) Therefore, this letter will focus on the issue of whether the Plan sponsored by the TICUA Benefit Consortium is established or maintained by an "employer" within the meaning of section 3(5) of ERISA.

Section 3(5) of ERISA defines employer as ". . . 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."  The Department has taken the view, on the basis of the definitional provisions of ERISA as well as the overall statutory scheme, that, in the absence of the involvement of an employee organization, a single "employee welfare benefit plan" may, nevertheless, exist where a cognizable, bona fide group or association of employers acts in the interests of its employer members to establish a benefit program for the members' employees. See, e.g.,  Advisory Opinion 94-07A, Advisory Opinion 2001-04A.

A determination whether there is a bona fide employer group or association must be made on the basis of all the facts and circumstances involved. Among the factors considered are the following: 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 preexisting relationships of its members; the powers, rights, and privileges of employer members that exist by reason of their status as employers; and who actually controls and directs the activities and operations of the benefit program. The employers that participate in a benefit program must, either directly or indirectly, exercise control over the program, both in form and in substance, in order to act as a bona fide employer group or association with respect to the program.

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 ERISA section 3(5). See, e.g., Advisory Opinion 96-25A. Similarly, where membership in a group or association is open to anyone engaged in a particular trade or profession regardless of their status as employer, and 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 ERISA section 3(5). See, e.g.,  id. Advisory Opinion 2003-13A.

In this case, you represented that the membership of the TICUA Benefit Consortium is comprised of employers that are private-sector educational institutions in Tennessee that are TICUA members and TICUA itself. In this regard, the employer members of the Consortium have a commonality of interest and genuine organizational relationship beyond participation in the Consortium as a means to provide welfare benefits to their employees. You also represented that participation in the Plan is limited to employers who are members of the Consortium and their employees. Under the Consortium By-laws, the employer members that participate in the Plan appear to have the power to exercise control over the Plan by reason of their authority to exercise control over and direct the activities and operations of the Consortium. In particular, each employer member has the power to nominate individuals for election to the Consortium Board of Directors and can vote on Consortium matters, including election and removal of members of the Consortium's Board of Directors. We assume for purposes of this letter that TICUA, as a Consortium member, has the same rights and powers as other Consortium members. Consequently, it appears that the Consortiums employer members control and direct the activities and operation of the Consortium and the Plan.

Based on the information submitted, it is the view of the Department that the employer members of the Consortium would, at least in form, constitute a bona fide group or association of employers, and the Plan would, at least in form, constitute an employee welfare benefit plan for purposes of Title I of ERISA. Whether the employer members of the Consortium exercise control in substance over the benefit program is an inherently factual issue on which the Department generally will not rule in an advisory opinion.

We note that without regard to whether the Plan constitutes an employee welfare benefit plan, the Plan would be a multiple employer welfare arrangement (MEWA) within the meaning of ERISA section 3(40). Section 3(40) defines the term MEWA, subject to certain exceptions not relevant here, to mean an employee welfare benefit plan, or any other arrangement, which is established or maintained for the purpose of offering or providing any benefit described in section 3(1) of ERISA to the employees of two or more employers.

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, it is issued subject to the provisions of that procedure, including section 10 thereof, relating to the effect of advisory opinions. This opinion relates solely to the application of the provisions of Title I of ERISA addressed in the letter. It is not determinative of any particular tax treatment under the Internal Revenue Code and does not address any issues arising under any other federal or state laws.

Sincerely,

John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations

Footnotes

  1. The Department has previously stated that whether an entity has or has not been recognized as a VEBA for the purposes of Code section 501(c)(9) is not indicative of whether the entity is an employee organization for the purposes of section 3(4) of ERISA. See, e.g.,  Advisory Opinion 96-25A.