Information Letter

November 4, 2002

Mr. Sherwin Kaplan
Thelen Reid & Priest LLP
Attorneys At Law
Market Square, Suite 800
701 Pennsylvania Avenue, NW
Washington, DC 20004-2608

Dear Mr. Kaplan:

This is in response to your letter, dated September 17, 2002, to our Los Angeles Regional Office (LARO) regarding the application of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), to the International Union for the Natural Health, Complementary & Alternative Medicine Professions (Natural Health Union) Health and Welfare Fund (Fund). Specifically, you asked the Department of Labor (Department) to make a finding that the Fund is established or maintained under or pursuant to one or more collective bargaining agreements for purposes of section 3(40)(A)(i) of ERISA. Your request is premised, at least in part, on your interest in asserting ERISA preemption as a defense in a proceeding initiated by the Washington State Insurance Commissioner seeking to apply Washington insurance law to the Fund.

Based on the information you submitted to LARO, it appears that the Natural Health Union established the Fund in May of 2000 to provide health, medical and other welfare benefits to its members and their beneficiaries. It also appears that the Natural Health Union purports to be an employee organization within the meaning of section 3(4) of ERISA. The Natural Health Union and various employers (including self-employed individuals), either directly or through certain purported employer associations, apparently entered into agreements that govern contributions to the Fund. Contributions from participating employers and other assets are held in trust by the Fund. The Fund's third-party administrator, Advanced Administration, Inc., makes benefits payments from Fund assets. The Fund provides benefits to the employees of two or more employers. As of the date of your request, benefits were being provided to approximately 3,000 individuals.

Section 514(a) of Title I of ERISA generally preempts state laws purporting to regulate an employee benefit plan covered under that title. There are, however, exceptions to this general preemption provision. The relevant exception for purposes of your inquiry is in section 514(b)(6)(A), which allows state insurance regulation of MEWAs and MEWA trusts without regard to whether they are employee benefit plans covered by Title I of ERISA. Section 3(40)(A) of ERISA defines the term MEWA, in relevant part, to mean: "[A]n 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 [section 3(1) of ERISA] 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 other arrangement which is established or maintained - (i) under or pursuant to one or more agreements which the Secretary [of Labor] finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association."

As you know, the Department, as a matter of policy, has refrained from making findings under section 3(40)(A)(i) regarding specific collective bargaining agreements. Rather than making case-specific determinations, the Department proposed a regulation with standards and procedures to facilitate determinations as to whether a plan or other arrangement would be treated as established or maintained under or pursuant to one or more collective bargaining agreements for purposes of the exception under ERISA section 3(40)(A)(i). See 65 Fed. Reg. 64482 (Oct. 27, 2000). The preamble of the proposed regulation describes some of the relevant history regarding this issue. The Department currently is in the process of promulgating a final rule. Accordingly, in accordance with longstanding policy, the Department has determined not to make a finding under section 3(40)(A)(i) of ERISA in this case.

It has been the Department's position that, in the absence of such a finding, a plan or other arrangement that provides welfare benefits to the employees of two or more employers, and not otherwise excepted from the MEWA definition, is a MEWA. Nothing in the material we received suggested that the Fund is established or maintained by a rural electric cooperative or rural telephone cooperative association as defined in section 3(40) of ERISA. Accordingly, based on the information we have reviewed, the Fund would be a MEWA within the meaning of ERISA section 3(40)(A). We do not need to make, and are not making, any determinations in this letter regarding whether the Fund is itself a plan within the meaning of section 3(1) of ERISA because, as explained below, even if the Fund is an ERISA covered plan, it would be subject to the provisions of ERISA governing employee welfare benefit plans, and would also be subject to a broad range of state insurance laws.

Section 514(b)(6)(A)(i) of ERISA provides that, in the case of a MEWA that is itself a plan and is fully insured, states may apply to and enforce against the MEWA 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. In the Department's view, section 514(b)(6)(A)(i) enables states to subject such MEWAs to licensing, registration, certification, financial reporting, examination, audit and any other requirement of state insurance law necessary to ensure compliance with state insurance reserve, contribution and funding requirements. Section 514(b)(6)(D) provides that a MEWA is "fully insured" for this purpose, "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 the case of a MEWA that is itself a plan but is not fully insured, section 514(b)(6)(A)(ii) of ERISA allows any state insurance laws to be applied to the MEWA subject only to the limitation that the law is "not inconsistent" with Title I of ERISA. The Department has expressed the view that a state insurance law would not be inconsistent with Title I if it requires a MEWA to meet more stringent standards of conduct, or to provide greater protection to plan participants and beneficiaries than required by ERISA. The Department has also expressed the view that a state law regulating insurance would not, in and of itself, be inconsistent with the provisions of Title I if it requires a license or certificate of authority as a condition to transacting business, requires maintenance of specific reserves or contributions designed to ensure that the MEWA will be able to satisfy its benefit obligations in a timely fashion, requires financial reporting, examination or audit, or subjects persons who fail to comply with such requirements to taxation, fines, civil penalties, and injunctive relief.

If a MEWA is not itself an ERISA covered plan, which is often the case, ERISA's preemption provisions do not prohibit States from regulating the MEWA in accordance with applicable state insurance law. In such cases, the Department would view each employer member using the MEWA to provide welfare benefits to its employees as having established a separate welfare benefit plan subject to ERISA. The Department has concurrent jurisdiction with the States to regulate persons who operate such MEWAs to the extent those persons have responsibility for, or control over, the assets of ERISA plans that participate in the MEWA. When the sponsor of an ERISA-covered plan uses a MEWA to provide health care coverage for its employees, the assets of the MEWA generally are considered to include the assets of the plan, unless the MEWA is a state licensed insurance company. In exercising discretionary authority or control over plan assets, such as paying administrative expenses and making benefit claim determinations, the person or persons operating the MEWA would be performing fiduciary acts governed by ERISA's fiduciary provisions.

We hope this is of assistance to you. Should you have any questions concerning this letter, please feel free to contact me at 202.693.8523.


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