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Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (ERISA)

A Guide to Federal and State Regulation

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Table of Contents

Foreword

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.

Introduction

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. 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.

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.

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.

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.

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.

The Patient Protection and Affordable Care Act (ACA) established a multipronged approach to MEWA abuses. Improvements in reporting, together with stronger enforcement tools, are designed to reduce MEWA fraud and abuse. These include expanded reporting and required registration with the Department of Labor prior to operating in a State. The additional information provided will enhance the State and Federal governments' joint mission to prevent harm and take enforcement action. The ACA also strengthened enforcement by giving the Secretary of Labor authority to issue a cease and desist order when a MEWA engages in fraudulent or other abusive conduct and issue a summary seizure order when a MEWA is in a financially hazardous condition.

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.

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.

Regulation of Multiple Employer Welfare Arrangements under ERISA

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.

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.

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.

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.

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.

What is an "employee welfare benefit plan"?

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:

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.)

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.

Is there a plan, fund or program providing a benefit described in Section 3(1)?

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).

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.

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.

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.

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.

What is an "employer"?

The term "employer" is defined in Section 3(5) of ERISA, 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.

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).

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).

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.

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.

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."

What is an "employee organization"?

The term "employee organization" is defined in Section 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:

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; …

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.

The second part of the definition of "employee organization" includes:

… any employees’ beneficiary association organized for the purpose in whole or in part, of establishing such a plan.

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. In order to be an employee organization under either part of section 3(4) of ERISA, the functions and activities of the organization must be in fact controlled by its members either directly or through the regular election of directors, officers, etc. See, e.g. Advisory Opinion 1992-19A (participation in employees beneficiary association means control).

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).

What types of plans are excluded from coverage under Title I of ERISA?

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.

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.

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).

What requirements apply to an employee welfare benefit plan under Title I of ERISA?

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 Title I 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.

The following is a general overview of the various requirements applicable to welfare plans subject to ERISA.

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.

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, all welfare plans required to file a Form M-1, Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Entities Claiming Exception (ECEs), must file an annual report with the Department regardless of the plan size or type of funding, and include information on compliance with the Form M-1 filing requirements as part of the Form 5500 filing. (See below for information regarding the Form M-1 filing requirements.)

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.

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.

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).

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).

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.

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:

  • death of the covered employee, termination (other than by reason of an employee’s gross misconduct), or reduction of hours of covered employment;
  • divorce or legal separation of the covered employee from the employee’s spouse;
  • a dependent child ceasing to be a dependent under the generally applicable requirements of the plan.

Continuation coverage may be maintained for periods up to 18 months, 36 months, or even longer depending on the qualifying event and other circumstances.

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.

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), the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), the Women's Health and Cancer Rights Act (WHCRA), the Genetic Information Nondiscrimination Act (GINA), Michelle's Law, and the Patient Protection and Affordable Care Act (Affordable Care Act).

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.

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. MHPAEA generally requires employment-based group health plans and health insurance issuers that provide group health coverage for mental health/substance use disorders to maintain parity between such benefits and their 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. GINA expands the genetic information nondiscrimination protections included in HIPAA. Under GINA, group health plans and health insurance issuers cannot base premiums for a plan or a group of similarly situated individuals on genetic information. GINA generally prohibits plans and issuers from requesting or requiring an individual to undergo genetic testing, and prohibits a plan from collecting genetic information (including family medical history) prior to or in connection with enrollment, or for underwriting purposes. Michelle's Law prohibits group health plans and issuers from terminating coverage for a dependent child, whose enrollment in the plan requires student status at a postsecondary educational institution, if student status is lost as a result of a medically necessary leave of absence.

The Affordable Care Act added a new Section 715 of ERISA to incorporate the market reform provisions of the Public Health Service (PHS) Act into ERISA and the Code, and make them applicable to group health plans and health insurance issuers providing group health insurance coverage. The Affordable Care Act also amended Section 101(g) of ERISA to mandate that the Secretary of Labor require MEWAs to register prior to operating in a state. Section 6605 of the Affordable Care Act added Section 521 to ERISA which authorizes the Secretary to issue a cease and desist order without prior notice or hearing when it appears that the conduct of a MEWA is fraudulent, creates an immediate danger to the public safety or welfare, or is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury. It also provides for issuance of a summary seizure order when it appears that a MEWA is in a financially hazardous condition.

To what extent does ERISA govern the activities of MEWAs that are not "employee welfare benefit plans"?

The Department's authority is not limited to MEWAs that are employee welfare benefit plans. When the sponsor of an ERISA-covered single-employer plan purchases health care coverage for its employees from a MEWA, the persons operating the MEWA typically exercise discretionary authority or control over the management of those ERISA-covered plans or control over the assets of such plans, such as in the payment of administrative expenses and in the making of benefit claim determinations. In doing so, 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.

Moreover, a MEWA that offers benefits in connection with one or more ERISA-covered plans may be subject to other enforcement actions under ERISA. When it appears that a MEWA is engaging in conduct that is fraudulent, creates an immediate danger to the public safety or welfare, or is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury the Department may issue an ex parte cease and desist order. (See: ERISA Section 521(a) and 29 C.F.R. §2560.521-1(c)). MEWAs may also be subject to summary seizure orders if it appears that they are in a financially hazardous condition. (See: ERISA Section 521(e) and 29 C.F.R. §2560.521-1(f).) Criminal penalties may also apply, including if they make false statements in connection with the sale or marketing of the MEWA. (See: ERISA Sections 501(b) and 519.)

While the Department may pursue enforcement actions with respect to MEWAs, it is important to note that, in many instances, States may be able to take quicker action than the Department upon determining that the MEWA has failed to comply with licensing, contribution or reserve requirements under State insurance laws. Because of the factual and transactional nature of fiduciary breach determinations in particular, investigations of possible fiduciary breaches tend to be very complex and time-consuming and thus, may take considerably longer.

Regulation of Multiple Employer Welfare Arrangements under State Insurance Laws

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.

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).

What is the general scope of ERISA preemption?

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."

Section 514(a) of ERISA provides, in relevant part, that:

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 ….

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. 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).

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.

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:

  1. 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….
  2. 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,….

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.

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.

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.

What is a "multiple employer welfare arrangement"?

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:

  1. 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 -
    1. under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements,
    2. by a rural electric cooperative, or
    3. by a rural telephone cooperative association(1) (Emphasis supplied.)

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" 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:

  1. 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
  2. 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.

Set forth below are a number of issues which should be considered in making a MEWA determination.

Does the arrangement offer or provide benefits to the employees of two or more employers?

1. Plans maintained by one employer or a group of employers under common control

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:

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.

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).

With regard to situations where there is a 25 percent or more ownership interest, it should be noted that the Department has not adopted regulations under Section 3(40)(B)(iii). Section 4001(b) of Title IV of ERISA and 29 CFR §4001.3(a) provide, however, the PBGC will determine that trades or businesses (whether or not incorporated) are under common control if they are "two or more trades or businesses under common control" as defined in regulations prescribed under Section 414(c) of the Internal Revenue Code. The regulations issued under Section 414(c) of the Code (See: 26 CFR §1.414(c)-2) provide that "common control" generally means, (i) in the case of a parent-subsidiary group, the entities are connected through at least an 80 percent ownership interest or (ii) in the case of a brother-sister group: (a) five or fewer persons own at least an 80 percent interest in each entity, and (b) the same five or fewer persons together own a greater than 50 percent interest in each entity, taking into account the ownership of each person only to the extent such ownership is identical with respect to each organization.

In the absence of regulations under section 3(40)(B)(iii), the Department would generally follow the Code and Title IV common control rules in interpreting ERISA's MEWA preemption provisions. The Department, however, believes it is important in interpreting section 3(40)(B)(i) to keep in mind the different policies underlying the section 4001(b) single employer concept and the single employer provision in section 3(40) of ERISA. The effect of single employer treatment under ERISA section 4001(b) and Code section 414(c) is to ignore separate formal business structures of an employer and of businesses under common control with the employer in order to expand with respect to a particular plan the range of businesses subject to certain PBGC liabilities and the range of businesses to which the tax qualification rules would apply. See H. Conf. Rep. 1280, 93d Cong., 2d Sess. 266, 376 (1974); H. Rep. 807, 93d Cong., 2d Sess. 50 (1974). In contrast, Congress's objective in enacting the MEWA preemption provisions was to remove impediments to the States' ability to regulate multiple employer welfare arrangements and assure the financial soundness and timely payment of benefits under such arrangements. See 128 Cong. Rec. E2407 (1982) (statement of Congressman Ehrlenborn on the purpose of Pub. L. 97-473 which added ERISA section 3(40) and ERISA section 514(b) reducing the scope of ERISA preemption of State law applicable to ERISA-covered plans that are MEWAs). See Information Letter to The Honorable Mike Kreidler, Insurance Commissioner, Washington Office of Insurance Commissioner (March 1, 2006).

2. Plans maintained by groups or associations of unrelated employers

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 above)

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).

3. Plans maintained by employee leasing organizations

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.

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.

4. Determinations as to who is an "employee" of an employer

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.

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.

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.)

Is MEWA status conditioned upon the plan being established or maintained by an employer(s)?

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.

Is the arrangement excluded from the definition of "MEWA"?

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.

1. Plans maintained pursuant to collective bargaining agreements

Section 3(40)(A)(i) of ERISA specifically excludes from the MEWA definition 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." The Department has concluded that the exception under Section 3(40)(A)(i) should be limited to plans providing coverage primarily to those individuals covered under collective bargaining agreements. Criteria for what constitutes a plan established or maintained under or pursuant to collective bargaining is set forth in the Department's regulation at 29 CFR 2510.3-40(b). (See Appendix C.) The criteria are intended to ensure that the statutory exception is only available to plans whose participant base is predominantly comprised of the bargaining unit employees on whose behalf such benefits were negotiated and other individuals with a close nexus to the bargaining unit or the employer(s) of the bargaining unit employees.

The regulation provides that the entity will be treated as established or maintained under or pursuant to collective bargaining for purposes of the exception in Section 3(40)(A)(i) if it meets three affirmative requirements and does not fall within three exclusions. The affirmative requirements are:

  1. the arrangement itself is an employee welfare benefit plan within the meaning of Section 3(1) of ERISA;
  2. at least 85 percent of the participants in the plan who are employed under one or more collective bargaining agreements meeting the requirements of the regulation or who otherwise fall within one of the other categories of persons identified in the regulation as having a "nexus" to the bargaining unit or employers of the bargaining unit employees; and
  3. the plan is incorporated or referenced in a written agreement between one or more employers and one or more employee organizations, which agreement, itself or together with other agreements among the same parties, is the product of a bona fide collective bargaining relationship between the employer(s) and the employee organization(s) and contains certain terms that ordinarily are in collective bargaining agreements.

The regulation sets forth eight factors indicative of bona fide collective bargaining. The regulation provides that if four of the eight factors are met, there is a rebuttable presumption that the bargaining was bona fide. In addition, the regulation lists a variety of factors that may be examined to rebut the presumption regarding a plan that meets four of the eight factors, or to prove a plan is in fact collectively bargained despite its failure to meet four of eight factors.

The regulation provides, however, that a plan will be deemed to be a MEWA even if it ostensibly meets the affirmative criteria described above, if: (1) the plan is self-funded or partially self-funded and is marketed to employers or sole proprietors; (2) the principal intent of the purported collective bargaining agreement is to evade compliance with State law and regulations applicable to insurance; or (3) there is fraud, forgery, or willful misrepresentation that the plan satisfies the affirmative criteria in the regulation.

The Department also has promulgated regulations at 29 CFR part 2570, subpart H, providing for administrative hearings to obtain a determination by the Secretary of Labor as to whether a particular entity is an employee welfare benefit plan established or maintained under or pursuant to one or more collective bargaining agreements for purposes of Section 3(40) of ERISA. The hearing procedure is available only in situations where the jurisdiction or law of a State has been asserted against a plan or other arrangement that contends it meets the exception in section 3(40)(A)(i) for collectively bargaining plans. A petition for a hearing may be initiated only by the plan or other arrangement. The regulations specifically provide that filing a petition for a hearing is not intended to provide a basis for delaying or staying a State proceeding against the plan or arrangement.

2. Rural Electric Cooperatives

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."

Section 3(40)(B)(iv) defines the term "rural electric cooperative" to mean:

  1. 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
  2. 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).

3. Rural Telephone Cooperative Associations

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).

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.

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:

  1. a single employer plan (which includes employers within the same control group);
  2. a plan established or maintained under or pursuant to a collective bargaining agreement;
  3. a plan established or maintained by a rural electric cooperative; or
  4. a plan established or maintained by a rural telephone cooperative association.

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).

To what extent may States regulate ERISA-covered welfare plans that are MEWAs?

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).

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 effect on the ability of States to regulate MEWAs under their insurance laws.

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).

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.

What state insurance laws may be applied to a fully insured plan?

Section 514(b)(6)(A)(i) provides:

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 --

  1. 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
  2. provisions to enforce such standards… (Emphasis supplied.)

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.

What is a "fully insured" MEWA?

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).

What State insurance laws may be applied to a plan that is not fully insured?

Section 514(b)(6)(A)(ii) provides:

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)

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.

Under what circumstances might a State insurance law be "inconsistent" with Title I of ERISA?

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.

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).

Has the Department of Labor granted any exemptions from State regulation for MEWAs which are not fully insured?

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.

The Department has neither prescribed regulations for such exemptions nor granted any such exemptions since the enactment of the MEWA provisions in 1983.

Form M-1 Filing Requirement for MEWAs

The Form M-1 is a reporting form of the Employee Benefits Security Administration (EBSA) for MEWAs and for certain collectively bargained arrangements, called entities claiming exception (ECEs). It was developed under the Health Insurance Portability and Accountability Act (HIPAA) and corresponding regulations to provide EBSA with information concerning compliance by MEWAs with the requirements of Part 7 of ERISA. MEWAs and ECEs have been required to submit annual filings on the Form M-1 since 2003. The Affordable Care Act extended reporting requirements for MEWAs. As a result, under the Affordable Care Act and corresponding regulations, MEWAs are also required to register prior to operating in a State.

For MEWAs, generally, the Form M-1 is required to be filed annually by March 1 following each calendar year during all or part of which the MEWA is operating. Filers will generally be granted an automatic 60-day extension if they request one. For ECEs, generally, the Form M-1 is required to be filed annually by March 1 for the three calendar years following an origination event, described below, during all or part of which the ECE is operating.

In addition to the annual filing requirement, administrators of both plan and non-plan MEWAs also must file the Form M-1 within a certain time upon the following five registration events:

  1. 30 days prior to operating in any State.
  2. Within 30 days of knowingly operating in any additional State or States that were not indicated on a previous Form M-1 filing.
  3. Within 30 days of operating with regard to the employees of an additional employer (or employers, including one or more self-employed individuals) after a merger with another MEWA.
  4. Within 30 days of the date the number of employees receiving coverage for medical care under the MEWA is at least 50 percent greater than the number of such employees on the last day of the previous calendar year.
  5. Within 30 days of experiencing a material change as defined in the Form M-1 instructions.

Administrators of ECEs are required to submit a Form M-1 within a certain time when an origination occurs:

  1. 30 days prior to when the ECE begins operating with regard to the employees of two or more employers (including one or more self-employed individuals);
  2. Within 30 days of when the ECE begins operating following a merger with another ECE (unless all of the ECEs that participate in the merger previously were last originated at least three years prior to the merger);
  3. Within 30 days of when the number of employees receiving coverage for medical care under the ECE is at least 50 percent greater than the number of such employees on the last day of the previous calendar year (unless the increase is due to a merger with another ECE under which all ECEs that participate in the merger were last originated three years prior to the merger).

Administrators of ECEs are generally required to file the Form M-1 for the first three years after an origination event only. However, two of these events will extend or restart the three year period:

  1. The ECE experiences a merger with another ECE (unless all of the ECEs that participate in the merger previously were last originated at least three years prior to the merger);
  2. The number of employees receiving coverage for medical care under the ECE increases by at least 50 percent based on number of employees on the last day of the previous calendar year. If either of these two events occur, an ECE must file a Form M-1 even if it falls outside the three-year period.

ECEs must also update the Form M-1 within 30 days of experiencing a special filing event. A special filing event occurs if, during the three year origination period, the ECE experiences a material change or knowingly begins operating in an additional State or States that were not indicated on a previous Form M-1 filing.

For MEWAs that are not plans, ERISA Section 502 (c)(5) provides for the assessment of civil penalties for failure to comply with the Form M-1 filing requirements. Welfare plans that are MEWAs or ECEs required to file the Form M-1 are required to file an annual report under the Form 5500 series, regardless of size or type of funding, and to complete the Form M-1 compliance questions. Failure to comply with these annual reporting requirements may subject the plan to civil penalties assessed pursuant to ERISA Section 502(c)(2).

The Form M-1 must be filed electronically at www.askebsa.dol.gov/mewa. More detailed information on the electronic filing system is available at http://www.askebsa.dol.gov/mewa/Home/FAQ. For questions regarding the electronic filing system, contact the EBSA computer help desk at 202.693.8600. If you need any assistance in completing the Form M-1, please call the EBSA Form M-1 help desk at 202.693.8360.

The Form 5500 also must be filed electronically. More information is available at the EFAST2 website at www.efast.dol.gov. For more information on electronically filing the Form 5500 or related questions, call the EFAST2 Help Line toll-free at 1.866.GO.EFAST (1.866.463.3278). The EFAST2 Help Line is available Monday through Friday from 8:00 am to 8:00 pm EST. You can access the EFAST2 website 24 hours a day.

ERISA Advisory Opinions

Advisory opinions relating to Title I of ERISA are issued by the Employee Benefits Security 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.

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.

Is an advisory opinion on the MEWA status of an arrangement necessary in order for a State to exercise jurisdiction over the arrangement?

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.

Is it necessary to determine by advisory opinion whether a MEWA is an ERISA-covered employee benefit plan?

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.

If it is determined that an advisory opinion is necessary, what information is required in order for the Department to issue a ruling?

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 above) 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.

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 above). 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.

Where should advisory opinion requests be sent?

Requests for advisory opinions involving MEWAs should be sent to the following address:

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue, NW, Suite N-5655
Washington, DC 20210

ERISA Enforcement

Enforcement of the provisions of Title I of ERISA and related criminal sections of Title 18 of the United States Code is carried out by the Employee Benefits Security Administration. EBSA's national office provides policy direction and technical and management support for regional and district offices which investigate potential violations. MEWA investigations are conducted by these regional offices under the supervision of a regional director with oversight and coordination provided by the national office.

In an effort to facilitate State and Federal enforcement efforts in the MEWA area, EBSA's regional 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, regional 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 regional office responsible for their particular State.

For more information or to locate the regional office nearest you, contact EBSA electronically at www.askebsa.dol.gov or by calling toll free 1.866.444.3272.

View this and other free EBSA compliance assistance publications at www.dol.gov/ebsa.

Appendix A - Advisory Opinions and Information Letters

July 2, 1990
Mr. J. Scott Kyle
Texas State Board of Insurance
1110 San Jacinto
Austin, Texas 78701-1998

90-18A
ERISA Section
514(b)(6)(A)(ii)

Dear Mr. Kyle:

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).

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.

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.

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.

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).

We hope the following is responsive to your request.

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).

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)

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.

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).

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.

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.

This letter constitutes an advisory opinion under ERISA Procedures 76-1.

Sincerely,

Robert J. Doyle
Director of Regulations and Interpretations

January 27, 1992


Mr. Chuck Huff
Georgia Insurance Department
Seventh Floor, West Tower
Floyd Building
2 Martin Luther King, Jr., Drive
Atlanta, Georgia 30334

92-05A
ERISA Section
3(40), 514(b)(6)

Dear Mr. Huff:

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.

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:

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…

Action maintains a self-funded health program for leased employees.

With regard to its health benefit program, Action represents that the program is an ERISA-covered employee welfare benefit plan maintained by a single employer, i.e., Action.

Information submitted with your request, however, indicates that, in at least one instance, an Action client, with employees participating in the Action health benefit program, hired Action to enable employees to participate in the Action health benefit program. According to the information provided, the client, rather than Action, retains the right to control, evaluate, direct, hire and fire all employees.

ERISA section 3(40)(A) defines the term "multiple employer welfare arrangement" to mean:

… 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) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such arrangement does not include any plan or arrangement which is established or maintained --

  1. under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements,
  2. by a rural electric cooperative, or
  3. by a rural telephone cooperative association.

Inasmuch as there is no indication that the Action health benefit program is established or maintained under or pursuant to one or more collective bargaining agreements, by a rural electric cooperative, or by a rural telephone cooperative association, the only issue relating to the health program’s status as a MEWA appears to be whether the program provides benefits, as described in ERISA section 3(1), "to the employees of two or more employers." The resolution of this issue is dependent on whether, for purposes of ERISA section 3(40), the employees covered by the Action health benefit program are employees of a single employer (i.e., Action) or more than one employer (i.e., Action’s clients).

ERISA section 3(5) defines the term "employer" 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 reflected above, the term "employer", for purposes of title I of ERISA, encompasses not only persons with respect to whom 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 because a person, group or association may be determined to be an "employer" within the meaning of ERISA section 3(5) does not mean that the individuals covered by the plan with respect to which the person, group or association is an "employer" are "employees" of that employer.

The term "employee" is defined in ERISA section 3(6) to mean "any individual employed by an employer." (Emphasis added). An individual is "employed" by an employer, for purposes of section 3(6), when an employer-employee relationship exists. For purposes of section 3(6), whether an employer-employee relationship exists will be determined by applying common law principles and taking into account the remedial purposes of ERISA. In making such determinations, therefore, consideration must be given to 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; and whether the individual performing the services is as a matter of economic reality dependent upon the business to which he or she renders services, among other considerations.

While the Action Agreement for Services submitted with your request purports, with respect to the leased employees, to establish in Action the authority and control associated with a common law employer-employee relationship, your submission indicates that in at least one instance the client employer, rather than Action, actually retained and exercised such authority and control.(7)

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.

It should also be noted that it is the view of the Department that where the employees participating in the plan of an employee leasing organization include "employees" of two or more client (or "recipient") employers, or employees of the leasing organization and at least one client employer, the plan of the leasing organization would, by definition, constitute a MEWA because the plan would be providing benefits to the employees of two or more employers.

On the basis of the information provided, the Action health benefit program covered at least one client’s employees with respect to whom Action did not have an employer-employee relationship and, accordingly, were not "employees" of Action within the meaning of ERISA section 3(6). Therefore, in the absence of any indication that Action and its client employers constitute a "control group" within the meaning of ERISA section 3(40)(B)(i), it is the view of the Department that the Action health benefit program provides benefits to the employees of two or more employers and is, therefore, a multiple employer welfare arrangement within the meaning section 3(40)(A). Accordingly, the preemption provisions of ERISA would not preclude state regulation of the Action health benefit program to the extent provided in ERISA section 514(b)(6)(A). In this regard, we are enclosing, for your information, a copy of Opinion 90-18A (dated July 2, 1990) which discusses the scope of the States’ authority to regulate MEWAs pursuant to section 514(b)(6)(A) of ERISA.

Because your request for an opinion was concerned primarily with the issue of whether or not the Action health benefit program is subject to the applicable regulatory authority of the State of Georgia’s insurance laws or is saved from such authority under the general preemption provision of section 514(a) of title I of ERISA, and because of the opinion above, we have determined it is not necessary at this time to render an opinion as to whether the Action health benefit program is an employee welfare benefit plan within the meaning of section 3(1) of that title.

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.

Sincerely,
Robert J. Doyle
Director of Regulations and Interpretations

Enclosure


March 1, 2002

Commissioner Mike Pickens
Arkansas Insurance Department
1200 West Third Street
Little Rock, AR 72201-1904

Dear Commissioner Pickens:

This is in reply to a letter, dated February 11, 2002, from Sara Farris, Associate Counsel with the Arkansas Insurance Department, requesting information regarding the applicability of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, she asked for the view of the Department of Labor (Department) on whether section 514 of Title I or ERISA precludes the Arkansas Department of Insurance (ADOI) from regulating the United Employers Voluntary Employees Beneficiary Association (UEVEBA), National Association for Working Americans (NAWA) and American Benefit Plans (ABP).

We understand that the ADOI has initiated a cease and desist proceeding alleging illegal insurance activities by UEVEBA, NAWA, ABP, and John Rhondo aka John Ramirez and David Neal. An issue has arisen in that proceeding as to whether ADOI has jurisdiction to regulate UEVEBA as an unauthorized insurer or as an unlicensed multiple employer welfare arrangement (MEWA). UEVEBA is contending that it is not subject to state insurance regulation by reason of Title I of ERISA. Ms. Farris provided us with a copy of a transcript from the February 1, 2002, hearing in the cease and desist order proceeding and copies of the respondents' exhibits and selected ADOI exhibits. The following summary is based solely on information in the transcript and exhibits; it is not, and should not be treated as, factual findings of the Department.

UEVEBA states that it is organized under section 501(c)(9) of the Internal Revenue Code as a tax-exempt, non-profit voluntary employees' beneficiary organization (VEBA) and as a VEBA trust.(8) The trustee of the VEBA trust is "The 4 Corners Company, LLC," which acts through its managing member John Rhondo aka John Ramirez.

The UEVEBA Defined Contribution Health and Welfare Limited Benefit Medical Plan is a prototype plan document developed by ABP. The prototype documents also include a summary plan description, trust agreement, and adoption agreement. The UEVEBA prototype plan document provides for medical, dental, vision, hearing and pharmaceutical benefits, and life insurance. NAWA, either directly or through ABP, markets the UEVEBA arrangement and assists employers in the process of adopting the UEVEBA prototype plan and becoming participating employers in the VEBA trust. Employers, by executing the UEVEBA adoption agreement used in Arkansas, establish their own individual employee welfare benefit plans under the terms and conditions set forth in the UEVEBA prototype plan document. The employers also execute a standard trust joinder agreement where the employer, among other things, agrees to join UEVEBA, designates UEVEBA as the plan's trust, authorizes the VEBA trustee to act on behalf of the employer in administering the VEBA trust, and agrees to make contributions to the VEBA trust for the payment of benefits for the employer's eligible employees, spouses, dependents or beneficiaries.(9) The prototype summary plan description is used to disclose information about benefits, rights and obligations under the plan and is distributed to eligible employees. It appears that more than two, and possibly as many as 400 or more, separate and unrelated private sector employers have adopted the UEVEBA prototype plan document and use the UEVEBA arrangement to provide benefits to their eligible employees, spouses, dependents, and other beneficiaries.

Under the UEVEBA prototype adoption agreement used in Arkansas, contributions from participating employers are made to a pooled trust account held by the VEBA trustee for the benefit of eligible employees, and their spouses, dependents and other beneficiaries. It appears that third party administrators (TPAs) have been designated by the VEBA trustee to act as representatives in operating a "Registered Office" and transacting business on behalf of the VEBA trustee. In some cases, employer contributions may be deposited in a TPA's UEVEBA Deposit Bank Account and transmitted to the VEBA pooled trust account. UEVEBA provides benefits to covered employees, and their spouses, dependents and beneficiaries from the VEBA pooled trust account.(10) In the event the VEBA pooled account is insufficient to pay benefits due, UEVEBA agreed that it would file a claim under a reinsurance contract if entered into with Equity Reinsurance International (ERI), a division of Cosmopolitan Life Insurance Company. Under the reinsurance contract, ERI agreed, subject to certain terms, conditions, and limitations in the contract, to indemnify UEVEBA for benefit liabilities it assumed in connection with employers who adopted the UEVEBA arrangement. UEVEBA's pooled trust account arrangement is structured so that the single employer plans share actuarial risks with each other as part of participating in the UEVEBA arrangement.

Section 515(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 subsection 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."

If a MEWA is not itself an ERISA covered plan, which is generally the case, ERISA's preemption provisions do not apply and States are free to regulate the MEWA in accordance with applicable state law. In such cases, the Department would view each of the employer members that use the MEWA to provide welfare benefits to its employees as having established separate welfare benefit plans subject to ERISA.(11) In effect, the MEWA would be merely a vehicle for funding and administering the provision of benefits (like an insurance company) to a number of separate ERISA-covered plans. 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.(12)

If the MEWA is itself 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) 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 to taxation, fines, civil penalties, and injunctive relief.

We understand that UEVEBA and the other respondents argue that section 514(b)(6)(C) of ERISA forbids Arkansas from regulating the UEVEBA arrangement because the VEBA trust acts a pooled trust holding the assets of single employer plans that participate in the UEVEBA arrangement. This argument misconstrues section 514(b)(6)(C). That section provides that nothing in provisions of section 515(b)(6)(A) that specifically allow states to regulate MEWAs "shall affect the manner or the extent to which the provisions of this subchapter apply to an employee welfare benefit plan which is not a MEWA and which is a plan, fund, or program participating in, subscribing to, or otherwise using a MEWA to fund or administer benefits to such plan's participants and beneficiaries." In analyzing this provision, it is important to distinguish between (1) individual employee benefit plans that obtain benefits through a MEWA, and (2) the MEWA itself. Section 514(b)(6)(C) prevents individual employee benefit plans covered by ERISA from themselves being deemed insurance companies or otherwise regulated as insurance under state insurance law merely because they utilize a MEWA in obtaining benefits; the section does not provide immunity to the MEWA itself from state insurance regulation, or to a pooled trust forming part of a MEWA. See Atlantic Health Care Benefits Trust v. Foster, 809 F.Supp. 365, 370 (M.D.Pa., 1992).

The information supplied indicates that the UEVEBA arrangement is being operated for the purpose of providing health and welfare benefits to employees of two or more employers. Nothing in the material we received suggested that the UEVEBA arrangement is established or maintained under or pursuant to one or more agreements that the Secretary of Labor has found to be collective bargaining agreements, or by a rural electric cooperative or rural telephone cooperative association as defined in section 3(40) of ERISA. Accordingly, in the Department's view, it is a MEWA. It does not appear that any of the respondents are claiming that the UEVEBA arrangement is itself an ERISA-covered plan, and nothing in the information you provided suggests that the UEVEBA arrangement is itself such a plan. Therefore, ERISA's preemption provisions do not apply with respect to the UEVEBA arrangement (as distinguished from any individual ERISA-covered plans that obtain benefits through UEVEBA), and Arkansas is free to regulate the UEVEBA arrangement in accordance with applicable state law. Further, even if the UEVEBA arrangement were itself found to be an ERISA-covered plan, Title I of ERISA does not preclude the application of Arkansas insurance law or regulations to the UEVEBA arrangement in accordance with section 514(b)(6)(A) of ERISA as described above.

We hope this information is of assistance to you. Should you have any questions concerning this letter, please contact me at 202.693.8531. I have also enclosed a brochure prepared by the Department entitled "Multiple Employer Welfare Arrangements Under the Employee Retirement Income Security Act: A Guide to Federal and State Regulation."

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

Enclosure
cc:John Rhondo aka John Ramizer


August 16, 2007

Edward L. Wender
Venable LLP
Two Hopkins Plaza, Suite 1800
Baltimore, MD 21201-2978

2007-06A
ERISA Sec.
3(40) & 514(b)(6)(A)

Dear Mr. Wender:

This is in reply to your request on behalf of the Custom Rail Employer Welfare Trust Fund ("CREW" or "CREW Welfare Trust") for an advisory opinion regarding Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Specifically, you asked for the view of the Department of Labor (Department) on whether CREW is an "employee welfare benefit plan" within the meaning of section 3(1) of ERISA, and whether it is a "multiple employer welfare arrangement" (MEWA), within the meaning of section 3(40), that is "fully insured" within the meaning of section 514(b)(6)(A) of ERISA.(13)

The following summary of facts and representations is based on the materials submitted in support of your request and information on CREW's web site at www.crew-benefits.com. CREW is marketed to members of the Small Railroad Business Owners Association of America, Inc. (Association) as an employee welfare benefit plan designed to provide medical, surgical, hospital, and disability benefits exclusively to members' employees and dependents. The Association's Articles of Incorporation provide that the Association" shall be operated exclusively as a nonstock not-for-profit organization and specifically for the following purposes: (i) To function as a trade association of short line and small railroads in the United States and Canada; . . . and (iv) To provide for insurance and other employee benefits and welfare plans to employees of members of the Association."(14) The Association's By-Laws provide that "[m]embership will be open to all railroads and railroad related entities that employ at least one (1) person and that otherwise are engaged in [activities]" including "the operation of interstate freight, and intrastate scenic and tourist railroads and who otherwise pursue the purposes of the Association. . . ." The Association's Articles of Incorporation and By-Laws have been construed "so that only (a) railroad contractors who maintain the railroad track right away [sic] and whose operations may result in them being subject to FELA [Federal Employment Liability Act] liability, and (b) a parent company or affiliate of a small railroad which leases track or employs the administrative personnel who supervise the operation of one or more small or short line railroads are eligible to participate in the New Association [Association] and CREW."(15)

You represent that the Association lobbies State and Federal agencies on matters affecting small and short line railroads, sponsors programs and distributes publications to publicize the importance of small and short line railroads, provides a forum for the exchange of ideas and facilitates the purchase and sale of equipment among members, develops briefing papers for use by members, and provides email alerts to members concerning the industry.

The Association is managed by a Board of Directors. The Board is required to have a minimum of three Directors, with up to a maximum of seven upon amendment of the By-laws to so provide. The materials you provided do not indicate how many Directors currently serve on the Board of Directors, and we did not see any amendment to the By-laws that would increase the number of Directors from three. Each Director may serve on the Board for a term of not more than three years. The By-Laws provide that "Directors shall be elected by a plurality of the votes cast provided that a quorum is present or that the requisite minimum number of votes is cast by written ballot, as the case may be." It is not clear from your submission how Directors are nominated to serve on the Board of Directors or what number constitutes a "requisite minimum number" of votes cast by written ballot. Moreover, it is unclear from the materials you provided whether all Association members are entitled to vote. The Association's Articles of Incorporation provide that the Association shall have only one class of members, and both the Articles of Incorporation and the By-laws provide that "each member" gets one vote with respect to each vacancy on the Board of Directors. However, those two documents define "voting members" differently. The Articles of Incorporation provide that "the voting members of the Association shall be limited to employers (persons or entities who or which employ at least one (1) person for purposes of the provision of welfare and pension benefits)," but the By-Laws provide that "the voting members of the Association shall be limited to employers (persons or entities who or which employ at least five (5) persons for purposes of the provision of welfare and pension benefits)."

The CREW Welfare Trust is organized as a trust under the laws of the District of Columbia and is intended to operate as a "voluntary employees' beneficiary association" (VEBA) within the meaning of section 501(c)(9) of the Internal Revenue Code (Code). You represent that only "employer members" of the Association may participate in the CREW Welfare Trust. The Board of Directors of the Association initially selects the trustees of the CREW Welfare Trust who are responsible for the overall supervision of the CREW Welfare Trust, including approval of insurance policies. Thereafter, the Board presents a slate of trustee nominees to the employer members, and employer members may add additional nominees to the slate. According to CREW's trust agreement, if no employer adds nominees, the slate of trustees is "deemed elected." The trust agreement does not specify the process that ensues if an employer adds a nominee to the slate, and there appear to be discrepancies in the documents we reviewed regarding whether CREW trustees are appointed by the Association's Board of Directors or elected by the Association's members. Specifically, your March 27, 2006 letter to this office provides that "employer members elect the trustees." However, in the Application for Membership in the CREW Welfare Trust, prospective member rail employers must sign that they "understand that the elected Directors [of the Association] appoint the Officers of the Association and appoint the Trustees of the Custom Rail Employer Welfare Trust Fund ('CREW')."

CREW contracts with Medical Benefits Administrators of MD, Inc. (MBA) to undertake CREW's day-to-day administration, including claims processing and adjudication services, access to and management of provider networks, and compliance management. MBA uses an actuarial firm to establish the health insurance rates for employee and dependent coverage options available under the CREW Welfare Trust. Advance Benefit Services, an affiliate of MBA, "assists association member employers in the implementation, design, presentation, and enrollment of employees and dependents under national association benefit programs."(16)

You indicate that CREW has a certificate of insurance coverage (Certificate) with a group of underwriters (Underwriters) at Lloyd's, London. The Certificate was obtained through R. J. Wilson & Associates Ltd., a reinsurance brokerage firm and affiliate of MBA.(17) The Certificate is not covered by any state guaranty association. The Underwriters liable under the Certificate are admitted insurers in the States of Illinois and Kentucky.(18) The Certificate provides CREW with stop-loss coverage for individual claims in excess of $50,000. In addition, in the event of CREW's insolvency, bankruptcy, financial impairment, receivership, voluntary plan of arrangement with creditors or dissolution, or termination or non-renewal of the CREW Welfare Trust, the Underwriters are liable for claims incurred during the period of insurance in excess of a "terminal fund" which CREW must maintain in accordance with the Certificate. The terminal fund consists of current assets on hand to fund the actuarial value of all incurred but unpaid claims (including unreported claims). Individuals covered under the CREW Welfare Trust have the right to seek payment of benefits directly from the Underwriters by making a request through a designated U.S. based representative of the Underwriters after there is a final determination that an individual's claim is payable under the CREW Welfare Trust, and CREW fails to pay within thirty days of the determination. In this eventuality, CREW is required to assign its right of recovery under the Certificate to the claimant or his or her representative.(19)

Your request for an advisory opinion focuses on provisions added to ERISA in 1983 that modified the scope of ERISA's preemption of state law to permit application of certain state insurance laws to employee welfare benefit plans that are MEWAs. Section 3(40)(A) of ERISA defines the term "MEWA," in pertinent part, to include: 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) [ERISA section 3(1)] 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 finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association.

Under the general preemption clause of ERISA section 514(a), state laws are preempted to the extent that they "relate to" employee benefit plans subject to Title I of ERISA. There are, however, a number of exceptions to this broad preemption provision. Section 514(b)(2)(A), referred to as the "savings clause," provides in pertinent part that "nothing in this title [Title I of ERISA] shall be construed to exempt or relieve any person from any law of any State which regulates insurance . . . ." While section 514(b)(2)(A) saves from ERISA preemption state laws regulating insurance, section 514(b)(2)(B) of ERISA, referred to as the "deemer clause," provides that a state law "purporting to regulate insurance" generally cannot deem an employee benefit plan to be an insurance company (or in the business of insurance) for the purpose of regulating such a plan as an insurance company. An additional piece of analysis, however, is needed if the ERISA welfare plan is a MEWA as defined in section 3(40) of ERISA. ERISA section 514(b)(6)(A) creates a partial exception to the deemer clause for employee welfare benefit plans that are also MEWAs. Specifically, if the employee benefit plan MEWA is "fully insured," then, under section 516(b)(6)(A)(i), any state law that regulates insurance may apply to the MEWA to the extent the law provides standards, or provisions to enforce those standards, requiring the maintenance of specified levels of reserves and contributions in order to be considered able to pay benefits. If the employee benefit plan MEWA is not "fully insured," then, under section 514(b)(6)(A)(ii), "any law of any State which regulates insurance" may apply to the extent it is "not inconsistent with" the provisions of ERISA. The limitations set forth in section 514(b)(6)(A) of ERISA on state insurance regulation of MEWAs only apply to MEWAs that are also employee welfare benefit plans as defined in section 3(1) of ERISA. If a MEWA is not an ERISA-covered plan, ERISA's preemption provisions do not limit the ability of states to regulate the arrangement in accordance with applicable state insurance law.

It is the view of the Department based on the information we reviewed that CREW is a MEWA within the meaning of section 3(40) of ERISA. CREW is an arrangement that has been established and is maintained for the purpose of offering and providing welfare benefits to employees of two or more separate employers and does not fall within any of the exceptions listed in section 3(40). Thus, unless the CREW Welfare Trust is itself an ERISA-covered employee benefit plan, ERISA would impose no limit on the application of state insurance law to the CREW benefit arrangement and trust.

Although it appears that the CREW Welfare Trust provides benefits described in section 3(1) of ERISA, to be an employee welfare benefit plan, the Trust must also, among other criteria, be established or maintained by an employer, an employee organization, or both an employer and an employee organization. There is no indication in your submission that the Fund was established or is maintained by an employee organization within the meaning of section 3(4) of ERISA. Therefore, this letter will only address whether the CREW Welfare Trust is established or maintained by an "employer" within the meaning of section 3(5) of ERISA. Section 3(5) of ERISA defines an 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 definitional provisions of ERISA recognize that a single employee welfare benefit plan might be established or maintained by a cognizable, bona fide group or association of employers acting in the interests of its employer members to provide benefits for their employees. 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). 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 ERISA section 3(5). See, e.g., Advisory Opinion 95-01A, and Advisory Opinion 88-07A. In that regard, the Department has previously concluded that sole proprietors without common-law employees are not eligible to be treated as "employers" for purposes of participating in a bona fide group or association of employers within the meaning of ERISA section 3(5). See Advisory Opinion 94-07A ("[A]lthough USA represents that its membership is composed of employers, the Articles and Bylaws indicate that USA's membership class includes self-employed persons. Because self-employed persons are not necessarily employers of common-law employees, it appears that membership eligibility in USA is not limited to 'employers.'").

If the Association membership is limited to employers, and if control of the CREW Welfare Trust is vested solely in its employer members that participate in the CREW Welfare Trust, the Department would find that the Association constitutes a bona fide employer group or association acting as an employer in relation to the CREW Welfare Trust within the meaning of ERISA section 3(5).

However, even if the Crew Welfare Trust is an employee welfare benefit plan within the meaning of section 3(1), it would be a plan covering multiple employers, not a single employer plan, and a MEWA subject to state insurance regulation at least to the extent permitted under section 514(b)(6)(A) of ERISA. Assuming for purposes of this letter that the CREW Welfare Trust is itself an ERISA-covered plan, it is the view of the Department based on the information we reviewed that CREW is not fully insured within the meaning of section 514(b)(6)(D) of ERISA.

Under section 514(b)(6)(D) of ERISA, a MEWA "shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of which the Secretary [of Labor] 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."(20) ERISA's requirement that a fully insured MEWA have benefits guaranteed under a contract, or policy of insurance does not refer merely to a financial guaranty running to the plan, but rather requires the insurance company or organization that issued the insurance contract to unconditionally guarantee, upon receipt of the required premium or consideration, to pay all benefits due under the plan, and each participant must have a right to those guaranteed benefits which is legally enforceable directly against the insurance company or organization. In the Department's view, the Certificate is not such a contract or policy of insurance. Rather, the financial arrangement between CREW and Lloyd's, London represented by the Certificate's stop-loss coverage, the CREW Welfare Trust's terminal fund, and the Trust's promise to assign rights to payment under the Certificate to participants and beneficiaries, is fundamentally one where, until the occurrence of a triggering event—CREW's failure to pay a claim within thirty days of a final determination that an individual's claim is payable under the CREW Welfare Trust—the insurance risk for the benefits remains primarily with CREW and the employers and employees funding the program and the terminal fund.(21)

We were unable to conclude that the participants would, upon the Underwriters' receipt of the required premium, have rights to guaranteed benefits legally enforceable directly against the Underwriters. For example, it is unclear whether a failure by CREW to meet its commitments regarding the terminal fund would affect the ability of plan participants to make a claim against the Underwriters. Further, since the Underwriters' liability under the Certificate does not arise until after there is a final determination that a participant's claim is payable under the CREW Welfare Trust, it is unclear when a liability would arise, if ever, for the Underwriters if CREW refused to make such a determination. It would appear that a participant in such a case might have to obtain an enforceable court order concluding that a particular claim was payable under the CREW Welfare Trust before being able to make a claim against the Underwriters.

Thus, even if the CREW Welfare Trust is an ERISA-covered plan within the meaning of section 3(1) of ERISA, CREW as a MEWA that is not fully insured would be subject to state insurance regulation subject to the limitation in section 514(b)(6)(A)(ii) of ERISA that the state law is "not inconsistent" with Title I of ERISA.

The relationship between CREW, the participants, and the Underwriters is distinguishable from the arrangement in Advisory Opinion 93-11A, which the Department concluded was a fully insured MEWA. In that advisory opinion, the insurance agreement obligated the insurer to pay participants and beneficiaries of the plan, directly or through its agent, and in a timely manner, all of the benefits under the Plan. The insurer's obligation to pay benefits directly to participants and beneficiaries was backed by the insurer's general assets and was not conditioned on whether the insurer received reimbursements from the plan. Although agreements between the plan and the insurer limited the insurer's actual risk of loss in various ways, such as by providing that the insurer would be reimbursed by the plan on a daily basis for its benefit payments, by requiring the plan to maintain a substantial balance in a trust used to reimburse the insurer for benefit payments, and by permitting the insurer to terminate insurance agreements unilaterally if these conditions were not met, the insurer was unconditionally liable to the participants and beneficiaries for payment of all claims for benefits incurred while the insurance agreement was in effect. Further, the insurer's obligation to pay benefits survived termination of those agreements with respect to all claims for benefits incurred prior to their termination. See also Advisory Opinion 2005-20A.

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.

Sincerely,

Lisa M. Alexander
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations

Enclosure

Appendix B - Advisory Opinion Procedure

ERISA Proc. 76-1 - Procedure for ERISA Advisory Opinions

Appendix C - Regulations

Employee Retirement Income Security Act of 1974; Plans Established or Maintained Under or Pursuant to Collective Bargaining Agreements Under Section 3(40)(A) of ERISA [4/9/2003]

Procedures for Administrative Hearings Regarding Plans Established or Maintained Pursuant to Collective Bargaining Agreements Under Section 3(40)(A) of ERISA [4/9/2003]

Ex Parte Cease and Desist and Summary Seizure Orders – Multiple Employer Welfare Arrangements [3/1/2013]

Filings Required of Multiple Employer Welfare Arrangements and Certain Other Related Entities [3/1/2013]

Footnotes

  1. The Rural Telephone Cooperative Associations ERISA Amendments Act of 1991 (Public Law No. 102-89) amended the definition of "multiple employer welfare arrangement" to exclude ERISA-covered welfare plans established or maintained by "rural telephone cooperative associations," as defined in ERISA section 3(40)(B)(v), effective August 14, 1991, the date of enactment.
  2. While common law of agency factors typically have been applied in determining whether a person is an employee or independent contractor, common law principles are equally applicable to determining by whom an individual is employed. See: Professional & Executive Leasing, Inc. v. Commissioner, 89 TC No. 19(1987). Also see: Nationwide Mutual Insurance Co. et al. v. Darden, 503 U.S., 318, 112 S. Ct. 1344(1992).
  3. The principles discussed in this letter apply to those MEWAs which are also title I plans, and, thus, such MEWAs will be referred to as "ERISA-covered MEWAs".
  4. For example, any state insurance law which would adversely affect a participant’s or beneficiary’s rights under title I of ERISA to review or receive documents to which the participant or beneficiary is otherwise entitled would be viewed as inconsistent with the provisions of title I. Similarly, any state insurance law which would adversely affect a participant’s or beneficiary’s right to continuation of health coverage in accordance with Part 6 of title I or to pursue claims procedures established in accordance with section 503 of title I would be viewed as inconsistent with the provisions of title I of ERISA.
  5. In this regard, the Department believes an actual conflict with the provisions of ERISA will occur when state insurance law makes compliance a "physical impossibility". See Florida Lime & Avocado Growers. Inc., v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963).
  6. While certain permissive state insurance laws may not be "inconsistent" with the provisions of title I of ERISA as here defined, the behavior permitted under such laws may yet be denied to ERISA-covered MEWAs and their fiduciaries pursuant to ERISA section 514(b)(6)(A)(ii), which applies the provisions of title I as well as state insurance laws which are not inconsistent with the provisions of title I of ERISA to such MEWAs. For example, neither ERISA-covered MEWAs nor their fiduciary managers may take advantage of laws which would permit an ERISA-covered MEWA to engage in transactions which are prohibited under the provisions of ERISA section 406; to effectuate exculpatory provisions relieving a fiduciary from responsibility or liability for any responsibility, obligation, or duty under ERISA; or, to fail to meet the reporting and disclosure requirements contained in part 1 of title I of ERISA.
  7. Although we conclude in this situation that some of the individuals participating as "employees" in the health benefit program are "employees" of the client employers, the Department notes that Action may also be considered an "employer" within the meaning of ERISA section 3(5).
  8. UEVEBA's name appears to have been changed in 1998 from the "California Association of Medical Professionals Voluntary Employees Beneficiary Association Trust."
  9. A trust joinder agreement attached to a January 10, 2002 letter from John Ramirez to the Colorado Commissioner of Insurance identified UEVEBA as the "United Employers Voluntary Employees Beneficiary Association I (Herein 'VEBA')" while copies of other trust joinder agreements identified UEVEBA as "United Vendors of America Chapter I Voluntary Employees' Beneficiary Association (the 'UEVEBA')…." We have assumed for purposes of this letter that these differences reflect different trade names under which UEVEBA conducts its operations.
  10. Although adoption agreements refer to benefits provided under insurance contracts purchased by the plan administrator and held by the VEBA trust, such insurance contracts were not in the materials we received.
  11. UEVEBA appears to allow plans to participate that are not be subject to Title I of ERISA (e.g., governmental plans, church plans, and certain plans covering only self-employed individuals and their spouses). Participation by non-ERISA plans does not change the Title I conclusion regarding the States' ability to regulate the MEWA.
  12. 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.
  13. The National Association of Insurance Commissioners (NAIC) submitted a letter urging the Department to conclude that the CREW Welfare Trust is subject to state insurance regulation, including state insurance laws that would require CREW to become licensed in the states where it operates as a MEWA and obtain insurance from a carrier or carriers licensed in each State in which CREW operates. The NAIC described itself as an organization that represents the chief insurance regulators from the 50 states, the District of Columbia, and four U.S. territories. We also received your supplemental submission responding to the NAIC's arguments and legal analyses.
  14. Included in the materials you submitted is a copy of a Certificate of Incorporation issued by the Government of the District of Columbia, Department of Consumer and Regulatory Affairs. The Certificate of Incorporation, dated October 11, 2001, certified that "all applicable provisions of the District of Columbia NonProfit Corporation Act have been complied with and accordingly, this Certificate of Incorporation is hereby issued to: Small Railroad Business Owners Association of America, Inc." The web site of the District of Columbia Department of Consumer and Regulatory Affairs (www.mblr.dc.gov/corp/lookup/status.asp?id=26854), however, indicates that the Association's registration has been revoked.
  15. See Affidavit of Ronald J. Wilson, at 3 (August 7, 2006).
  16. See CREW's web site (www.crew-benefits.com/faq/faq_list.asp).
  17. The general organizational structure used in the CREW arrangement appears to be a prototype-like employee benefit structure that is being established and marketed under various designations. See, for example, the web sites for The Evangelical Benefit Trust (www.ebt-benefits.com/overview.html) the ATA Archery & Bowhunting Industry Benefit Trust (www.archerybenefits.com), and the IGA Group Employee Benefits Trust (www.iga-benefits.com).
  18. Lloyd's web site (www.lloyds.com) states that Lloyd's is an insurance market, not a single insurance company, consisting of a number of separate businesses (syndicates) that underwrite risks. Lloyd's underwriters are licensed in Kentucky, Illinois and the US Virgin Islands, and are eligible surplus lines insurers in all US jurisdictions except Kentucky and the US Virgin Islands. Lloyd's underwriters are also accredited reinsurers in all US states. Insurance policies issued by Lloyd's underwriters are not protected by state insurance guaranty associations or insolvency funds, except in states where licensed.
  19. Decisions regarding the method through which benefits are to be paid under an employee welfare benefit plan, including the selection of an insurer and the negotiation of the terms of any contractual arrangement obligating the plan, are matters that generally are subject to the fiduciary responsibility provisions of Title I of ERISA. This letter does not express any view on whether the CREW arrangements satisfy those fiduciary requirements.
  20. In the Department's view, section 514(b)(6)(D) requires the insurer to be qualified to do business in "a State," not in every State where the plan offers or provides benefits. A central purpose of the "qualified to do business" requirement, however, is to ensure that the policy insuring the plan benefits is subject to insurance regulation by a State that authorized the insurer to sell its residents the type of insurance purchased by the plan. Nonetheless, a consequence of the insurance savings clause in ERISA section 514(b)(2)(A), under which the application of State insurance laws to insurance companies is saved from preemption, is that even in the case of a fully insured MEWA, ERISA would not limit any State in which the MEWA's insurance risk is resident or located or to be performed from enforcing state insurance law requirements directly against the insurance company, insurance service or insurance organization insuring the MEWA.
  21. See generally John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 510 US 86 (1993) (in interpreting the definition of "guaranteed benefit policy" in ERISA section 401, the Court concluded that a contract "provides for benefits the amount of which is guaranteed by the insurer" in the context of insured pension benefits "only if it allocates investment risk to the insurer." The Court explained that "[s]uch an allocation is present when the insurer provides a genuine guarantee of an aggregate amount of benefits payable to retirement plan participants and their beneficiaries.").

This publication has been developed by the U.S. Department of Labor, Employee Benefits Security Administration. To view this and other EBSA publications, visit the agency's website at www.dol.gov/ebsa. To order publications or request assistance from a benefits advisor, contact EBSA electronically at www.askebsa.dol.gov or call toll free 1-866-444-3272. This material will be made available in alternative format to persons with disabilities upon request: Voice phone: 202.693.8664 TTY: 202.501.9311. This booklet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.