MEWAsMultiple Employer WelfareArrangements under theEmployee Retirement IncomeSecurity Act (ERISA): A Guide toFederal and State RegulationU.S. Department of LaborPension and Welfare Benefits Administration

This publication has been developed bythe U.S. Department of Labor,Pension and Welfare Benefits Adminis-tration. It is available on the Internetat: www.dol.gov/pwba

For a complete list of PWBA publica-tions, call toll-free:1-866-275-7922.

This material will be made available inalternate format upon request:

Voice phone: (202) 693-8664TTY: (202) 501-3911

This booklet constitutes a small entitycompliance guide for purposes of the SmallBusiness Regulatory Enforcement FairnessAct of 1996.

MEWAsMultiple Employer Welfare Arrange-ments under theEmployee Retirement IncomeSecurity Act (ERISA): A Guide toFederal and State RegulationU.S. Department of LaborPension and Welfare Benefits AdministrationRevised September 2002

Foreword

Introduction

Regulation of Multiple EmployerWelfare Arrangements underERISA

What is an “Employee Welfare Benefit Plan”?

What is an “Employer”?

What is an “Employee Organization”?

What Types of Plans are Excluded From Coverage Under Title I of ERISA?

What Requirements Apply to anEmployee Welfare Benefit Plan underTitle I of ERISA?

To What Extent Does ERISA Govern theActivities of MEWAS that Are Not "Employee Welfare Benefit Plans"?

Regulation of Multiple EmployerWelfare Arrangements Under StateInsurance Laws

What is the General Scope of ERISAPreemption?

Table of Contents

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What is a “Multiple Employer WelfareArrangement”?

Does the Arrangement Offer or ProvideBenefits to the Employees of Two orMore Employers?

Is the Arrangement Excluded From theDefinition of “MEWA”?

To What Extent May States RegulateERISA-Covered Welfare Plans WhichAre MEWAS?

M-1 Filing Requirement for MEWAs

ERISA Advisory Opinions

ERISA Enforcement

Appendix AAdvisory Opinion 90-18AAdvisory Opinion 92-05A

Appendix BAdvisory Opinion Procedure

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Foreword

This booklet was prepared by the Pension and WelfareBenefits Administration of the U.S. Department of Laborin an effort to address many of the questions that have beenraised concerning the effect of the Employee RetirementIncome Security Act (ERISA) on Federal and State regula-tion of “multiple employer welfare arrangements”(MEWAs). It is the hope of the Department that the infor-mation contained in this booklet will not only provide abetter understanding of the scope and effect of ERISAcoverage, but also will serve to facilitate State regulatoryand enforcement efforts, as well as Federal-State coordina-tion, in the MEWA area.

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Introduction

For many years, promoters and others have estab-lished and operated multiple employer welfare arrange-ments (MEWAs), also described as “multiple employertrusts” or “METs,” as vehicles for marketing health andwelfare benefits to employers for their employees. Promot-ers of MEWAs have typically represented to employers andState regulators that the MEWA is an employee benefitplan covered by the Employee Retirement Income SecurityAct (ERISA) and, therefore, exempt from State insuranceregulation under ERISA’s broad preemption provisions.

By avoiding state insurance reserve, contribution andother requirements applicable to insurance companies,MEWAs are often able to market insurance coverage atrates substantially below those of regulated insurancecompanies, thus, in concept, making the MEWA an attrac-tive alternative for those small businesses finding it diffi-cult to obtain affordable health care coverage for theiremployees. In practice, however, a number of MEWAshave been unable to pay claims as a result of insufficientfunding and inadequate reserves. Or in the worst situa-tions, they were operated by individuals who drained theMEWA’s assets through excessive administrative fees andoutright embezzlement.

Prior to 1983, a number of states attempted to subjectMEWAs to State insurance law requirements, but werefrustrated in their regulatory and enforcement efforts byMEWA-promoter claims of ERISA-plan status and Federal

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preemption. In many instances MEWAs, while operatingas insurers, had the appearance of an ERISA-covered plan— they provided the same benefits as ERISA-coveredplans, benefits were typically paid out of the same type oftax-exempt trust used by ERISA-covered plans, and, insome cases, filings of ERISA-required documents weremade to further enhance the appearance of ERISA-planstatus. MEWA-promoter claims of ERISA-plan status andclaims of ERISA preemption, coupled with the attributes ofan ERISA plan, too often served to impede State efforts toobtain compliance by MEWAs with State insurance laws.

Recognizing that it was both appropriate and neces-sary for states to be able to establish, apply and enforceState insurance laws with respect to MEWAs, the U.S.Congress amended ERISA in 1983, as part of Public Law97-473, to provide an exception to ERISA’s broad preemp-tion provisions for the regulation of MEWAs under Stateinsurance laws.

While the 1983 ERISA amendments were intended toremove Federal preemption as an impediment to Stateregulation of MEWAs, it is clear that MEWA promotersand others have continued to create confusion and uncer-tainty as to the ability of states to regulate MEWAs byclaiming ERISA coverage and protection from State regu-lation under ERISA’s preemption provisions. Obviously, tothe extent that such claims have the effect of discouragingor delaying the application and enforcement of Stateinsurance laws, the MEWA promoters benefit and thosedependent on the MEWA for their health care coveragebear the risk.

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This booklet is intended to assist State officials andothers in addressing ERISA-related issues involvingMEWAs. The Pension and Welfare Benefits Administra-tion has attempted in this booklet to provide a clear under-standing of ERISA’s MEWA provisions, and the effect ofthose provisions on the respective regulatory and enforce-ment roles of the Department of Labor and the States in theMEWA area. Such understanding should not only facilitateState regulation of MEWAs, but should also enhanceFederal-State coordination efforts with respect to MEWAsand, in turn, ensure that employees of employers participat-ing in MEWAs are afforded the benefit of the safeguardsintended under both ERISA and State insurance laws.

The first part of this booklet, Regulation of MultipleEmployer Welfare Arrangements under ERISA, focuseson what constitutes an ERISA-covered plan and the regula-tory and enforcement authority of the Department of Laborover such plans. The second part of the booklet, Regula-tion of Multiple Employer Welfare ArrangementsUnder State Insurance Laws, focuses on what is andwhat is not a MEWA and the extent to which states arepermitted to regulate MEWAs that are also ERISA-coveredwelfare benefit plans.

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Regulation of Multiple EmployerWelfare Arrangementsunder ERISA

The U.S. Department of Labor, through the Pensionand Welfare Benefits Administration (PWBA), is respon-sible for the administration and enforcement of the provi-sions of Title I of ERISA (29 U.S.C. §1001 et seq.). Ingeneral, ERISA prescribes minimum participation, vestingand funding standards for private-sector pension benefitplans and reporting and disclosure, claims procedure,bonding and other requirements which apply to bothprivate-sector pension plans and private-sector welfarebenefit plans. ERISA also prescribes standards of fiduciaryconduct which apply to persons responsible for the admin-istration and management of the assets of employee benefitplans subject to ERISA.

ERISA covers only those plans, funds or arrangementsthat constitute an “employee welfare benefit plan,” asdefined in ERISA Section 3(1), or an “employee pensionbenefit plan,” as defined in ERISA Section 3(2). Bydefinition, MEWAs do not provide pension benefits;therefore, only those MEWAs that constitute “employeewelfare benefit plans” are subject to ERISA’s provisionsgoverning employee benefit plans.

Prior to 1983, if a MEWA was determined to be anERISA-covered plan, State regulation of the arrangementwould have been precluded by ERISA’s preemption provi-

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sions. On the other hand, if the MEWA was not an ERISA-covered plan, which was generally the case, ERISA’spreemption provisions did not apply and states were free toregulate 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 freeto regulate MEWAs whether or not the MEWA may also bean ERISA-covered employee welfare benefit plan.

Under current law, a MEWA that constitutes anERISA-covered plan is required to comply with the provi-sions of Title I of ERISA applicable to employee welfarebenefit plans, in addition to any State insurance laws thatmay be applicable to the MEWA. If a MEWA is deter-mined not to be an ERISA-covered plan, the persons whooperate or manage the MEWA may nonetheless be subjectto ERISA’s fiduciary responsibility provisions if suchpersons are responsible for, or exercise control over, theassets of ERISA-covered plans. In both situations, theDepartment of Labor would have concurrent jurisdictionwith the state(s) over the MEWA.

The following discussion provides a general overviewof the factors considered by the Department of Labor indetermining whether an arrangement is an “employeewelfare benefit plan” covered by ERISA, the requirementsapplicable to welfare plans under Title I of ERISA, and theregulation of persons who administer and operate MEWAsas fiduciaries to ERISA-covered welfare plans.

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What is an “employee welfare benefit plan”?

The term “employee welfare benefit plan” (or welfareplan) is defined in Section 3(1) of ERISA, 29 U.S.C.§1002(1), as follows:

any plan, fund, or program which washeretofore or is hereafter established ormaintained by an employer or by anemployee organization, or by both, to theextent that such plan, fund, or program wasestablished or is maintained for the purposeof providing for its participants or theirbeneficiaries, through the purchase ofinsurance or otherwise, (A) medical,surgical, or hospital care or benefits, orbenefits in the event of sickness, accident,disability, death or unemployment, orvacation benefits, apprenticeship or othertraining programs, or day care centers,scholarship funds, or prepaid legalservices, or (B) any benefit described insection 302(c) of the Labor ManagementRelations Act, 1947 (other than pensions onretirement or death, and insurance toprovide such pensions). (Emphasissupplied.)

A determination as to whether a particular arrange-ment meets the statutory definition of “welfare plan,”typically involves a two-step analysis. The first part of theanalysis involves a determination as to whether the benefit

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being provided is a benefit described in Section 3(1). Thesecond part of the analysis involves a determination as towhether the benefit arrangement is established or main-tained by an “employer” or an “employee organization.”Each of these steps is discussed below.

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

A plan, fund or program will be considered anERISA-covered welfare plan only to the extent it providesone or more of the benefits described in Section 3(1).

As reflected in the definition of “welfare plan,” thebenefits included as welfare plan benefits are broadlydescribed and wide ranging in nature. By regulation, theDepartment of Labor has provided additional clarificationsas to what are and are not benefits described in Section3(1) (See: 29 CFR §2510.3-1). In most instances, however,it will be fairly clear from the facts whether a benefitdescribed in Section 3(1) is being provided to participants.

For example, the provision of virtually any type ofhealth, medical, sickness or disability benefit will be theprovision of a benefit described in Section 3(1). Wherethere is an employer or employee organization providingone or more of the described benefits, the Department hasgenerally held that there is a “plan,” regardless of whetherthe program of benefits is written or informal, funded (i.e.,with benefits provided through a trust or insurance) orunfunded (i.e., with benefits provided from the generalassets of the employer or employee organization), offered

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on a routine or ad hoc basis, or is limited to a single em-ployee-participant.

If it is determined that a Section 3(1) benefit is beingprovided, a determination then must be made as to whetherthe benefit is being provided by a plan “established ormaintained by an employer or by an employee organiza-tion, or by both.” Under Section 3(1), a plan, even thoughit provides a benefit described in Section 3(1), will not bedeemed to be an ERISA-covered employee welfare benefitplan unless it is established or maintained by an employer(as defined in ERISA Section 3(5)), or by an employeeorganization (as defined in ERISA Section 3(4)), or by bothan employer and employee organization.

For example, MEWAs provide benefits described inSection 3(1) (e.g., medical and hospital benefits), butMEWAs generally are not established or maintained byeither an employer or employee organization and, for thatreason, do not constitute ERISA-covered plans.

What is an “employer”?

The term “employer” is defined in Section 3(5) ofERISA, 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; andincludes a group or association ofemployers acting for an employer in suchcapacity.

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Under the definition of “employer,” an employeewelfare benefit plan might be established by a singleemployer or by a group or association of employers actingon behalf of its employer-members with respect to the plan.“Employer” status is rarely an issue where only a singleemployer is involved in the provision of welfare benefits toemployees. However, questions frequently are raised as towhether 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 mustbe a bona fide group or association of employers acting inthe interest of its employer-members to provide benefits fortheir employees. In this regard, the Department has ex-pressed the view that where several unrelated employersmerely execute identically worded trust agreements orsimilar documents as a means to fund or provide benefits,in the absence of any genuine organizational relationshipbetween the employers, no employer group or associationexists for purposes of Section 3(5). Similarly, wheremembership in a group or association is open to anyoneengaged in a particular trade or profession regardless oftheir status as employers (i.e., the group or associationmembers include persons who are not employers) or wherecontrol of the group or association is not vested solely inemployer members, the group or association is not a bonafide group or association of employers for purposes ofSection 3(5).

The following factors are considered in determiningwhether a bona fide group or association of employersexists for purposes of ERISA: how members are solicited;

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who is entitled to participate and who actually participatesin the association; the process by which the association wasformed; the purposes for which it was formed and what, ifany, were the pre-existing relationships of its members; thepowers, rights and privileges of employer-members; andwho actually controls and directs the activities and opera-tions of the benefit program. In addition, employer-mem-bers of the group or association that participate in thebenefit program must, either directly or indirectly, exercisecontrol over that program, both in form and in substance,in order to act as a bona fide employer group or associationwith respect to the benefit program. It should be noted thatwhether employer-members of a particular group or asso-ciation exercise control in substance over a benefit programis an inherently factual issue on which the Departmentgenerally will not rule.

Where no bona fide group or association of employersexists, the benefit program sponsored by the group orassociation would not itself constitute an ERISA-coveredwelfare plan; however, the Department would view each ofthe employer-members that utilizes the group or associationbenefit program to provide welfare benefits to its employ-ees as having established separate, single-employer welfarebenefit plans subject to ERISA. In effect, the arrangementsponsored by the group or association would, under suchcircumstances, be viewed merely as a vehicle for fundingthe provision of benefits (like an insurance company) to anumber of individual ERISA-covered plans.

If a benefit program is not maintained by an employer,the program may nonetheless be an ERISA-covered plan ifit is maintained by an “employee organization.”

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What is an “employee organization”?

The term “employee organization” is defined in Sec-tion 3(4) of ERISA, 29 U.S.C. §1002(4). There are twotypes of organizations included within the definition of“employee organization.” The first part of the definitionincludes:

any labor union or any organization of anykind, or any agency or employee represen-tation committee, association, group orplan, in which employees participate andwhich exists for the purpose, in whole or inpart, of dealing with employers concerningan employee benefit plan, or other mattersincidental to employment relationships; . . .

This part of the definition is generally limited to laborunions. In order for an organization to satisfy this part ofthe definition of “employee organization,” employees mustparticipate in the organization (i.e., as voting members) andthe organization must exist, at least in part, for the purposeof dealing with employers concerning matters relating toemployment.

The second part of the definition of “employee organi-zation” includes:

. . . any employees’ beneficiary associationorganized for the purpose in whole or inpart, of establishing such a plan.

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While the term “employees’ beneficiary association”is not defined in Title I of ERISA, the Department of Laborapplies the same criteria it utilized in construing that termunder the Welfare and Pension Plans Disclosure Act, whichpreceded ERISA’s enactment. Applying those criteria, anorganization or association would, for purposes of ERISASection 3(4), be an “employees’ beneficiary association”only if: (1) membership in the association is conditionedon employment status (i.e., members must have a common-ality of interest with respect to their employment relation-ships); (2) the association has a formal organization, withofficers, by-laws, or other indications of formality; (3) theassociation generally does not deal with an employer (asdistinguished from organizations described in the first partof the definition of “employee organization”); and (4) theassociation is organized for the purpose, in whole or inpart, of establishing an employee benefit plan.

It should be noted that the term “employees’ benefi-ciary association” used in Section 3(4) of ERISA is notsynonymous with the term “voluntary employees’ benefi-ciary association” used in Section 501(c)(9) of the InternalRevenue Code (the Code). Code Section 501(c)(9) pro-vides a tax exemption for a “voluntary employees’ benefi-ciary association” providing life, sickness, accident orother benefits to its members or their dependents or benefi-ciaries. While many trusts established under ERISA-covered welfare plans obtain an exemption from Federaltaxation by satisfying the requirements applicable to

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voluntary employees’ beneficiary associations, satisfyingsuch requirements under the Internal Revenue Code is notin and of itself indicative of whether the entity is an “em-ployees’ beneficiary association” for purposes of ERISASection 3(4).

What types of plans are excluded fromcoverage under Title I of ERISA?

There are certain arrangements that appear to meet thedefinition of an “employee welfare benefit plan” but whichnonetheless are not subject to the provisions of Title I ofERISA.

Section 4(b) of ERISA, 29 U.S.C. §1003(b), specifi-cally 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) plansmaintained 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 issuedregulations, 29 CFR §2510.3-1, which clarify the defini-tion of “employee welfare benefit plan.” Among otherthings, these regulations serve to distinguish certain “pay-roll practices” from what might otherwise appear to beERISA-covered welfare plans (e.g., payments of normalcompensation to employees out of the employer’s generalassets during periods of sickness or vacation).

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

In general, an employee welfare benefit plan coveredby ERISA is subject to the reporting and disclosure re-quirements of Part 1 of Title I; the fiduciary responsibilityprovisions of Part 4 of Title I; the administration andenforcement provisions of Part 5 of Title I; the continuationcoverage provisions of Part 6 of Title I of ERISA and thehealth care provisions of Part 7 of ERISA. It is importantto note that, unlike ERISA-covered pension plans, welfareplans are not subject to the participation, vesting, or fund-ing standards of Parts 2 and 3 of Title I of ERISA. It also isimportant to note that merely undertaking to comply withthe provisions of ERISA, such as with the reporting anddisclosure requirements, does not make an arrangement anERISA-covered plan.

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

Under Part 1 of Title I, 29 U.S.C. §§1021 - 1031, theadministrator of an employee benefit plan is required tofurnish participants and beneficiaries with a summary plandescription (SPD), which describes, in understandableterms, their rights, benefits and responsibilities under theplan. If there are material changes to the plan or changes inthe information required to be contained in the summaryplan description, summaries of these changes are alsorequired to be furnished to participants.

The plan administrator also is required, under Part 1,to file with the Department an annual report (the Form

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5500 Series) each year which contains financial and otherinformation concerning the operation of the plan. TheForm 5500 Series is a joint Department of Labor - InternalRevenue Service - Pension Benefit Guaranty Corporationannual report form series. The forms are filed with theDepartment of Labor, which processes the forms andfurnishes the data to the Internal Revenue Service. Pursu-ant to regulations issued by the Department, welfare planswith fewer than 100 participants that are fully insured orunfunded (i.e., benefits are paid from the general assets ofthe employer) are not required to file annual reports withthe Department of Labor. If a plan administrator is re-quired to file an annual report, the administrator alsogenerally is required to furnish participants and beneficia-ries with a summary of the information contained in thatannual report, i.e., a summary annual report.

The Department of Labor’s regulations governing theapplication, content and timing of the various reporting anddisclosure requirements are set forth at 29 CFR §2520.101-1, et seq.

Part 4 of Title I, 29 U.S.C. §1101 - 1114, sets forthstandards and rules governing the conduct of plan fiducia-ries. In general, any person who exercises discretionaryauthority or control respecting the management of a plan orrespecting management or disposition of the assets of aplan 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 planparticipants and beneficiaries and for the exclusive purposeof providing benefits and defraying reasonable expenses of

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administering the plan.” In discharging their duties, fidu-ciaries must act prudently and in accordance with docu-ments governing the plan, insofar as such documents areconsistent with ERISA. (See: ERISA Section 404.) Part 4also describes certain transactions involving a plan andcertain parties, such as the plan fiduciaries, which, as aresult of the inherent conflicts of interest present, arespecifically prohibited (See: ERISA Section 406). Incertain instances there may be a statutory exemption or anadministrative exemption, granted by the Department,which permits the parties to engage in what would other-wise be a prohibited transaction, if the conditions specifiedin the exemption are satisfied (See: ERISA Section 408).

Part 5 of Title I, 29 U.S.C. §§1131 - 1145, containsthe administration and enforcement provisions of ERISA.Among other things, these provisions describe the remediesavailable to participants and beneficiaries, as well as theDepartment, for violations of the provisions of ERISA(See: ERISA Sections 501 and 502). With regard to benefitclaims, Part 5, at Section 503, requires that each employeebenefit plan maintain procedures for the filing of benefitclaims and for the appeal of claims that are denied in wholeor in part (See also: 29 CFR §2560.503-1).

Part 5 also sets forth, at Section 514, ERISA’s preemp-tion provisions. In general, Section 514(a) provides thatprovisions of ERISA shall supersede any and all State lawsinsofar as they “relate to” any employee benefit plan.Section 514(b), however, saves certain State laws, as well

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as Federal laws, from ERISA preemption, including anexception for the State regulation of MEWAs. Theseprovisions are discussed in detail later in this booklet.

Part 6 of Title I, 29 U.S.C. §§1161 - 1168, containsthe “continuation coverage” provisions, also referred to asthe “COBRA” provisions because they were enacted aspart of the Consolidated Omnibus Budget ReconciliationAct of 1985. In general, the continuation coverage provi-sions require that participants and their covered dependentsbe afforded the option of maintaining coverage under theirhealth benefit plan, at their own expense, upon the occur-rence of certain events (referred to as “qualifying events”)that would otherwise result in a loss of coverage under theplan. “Qualifying events” include, among other things:

death of the covered employee,termination (other than byreason of an employee’s grossmiscon-duct), or reduction ofhours of covered employment;

divorce or legal separation ofthe covered employee from theem-ployee’s spouse;

a dependent child ceasing to bea dependent under the generallyapplicable requirements of theplan.

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Continuation coverage may be maintained for periodsup to 18 months, 36 months, or even longer depending onthe qualifying event and other circumstances.

It is important to note that while Title I of ERISAcontains continuation coverage requirements and partici-pants and beneficiaries may enforce their rights to continu-ation coverage in accordance with the remedies affordedthem under Section 502 of Title I of ERISA, the Depart-ment of Labor has limited regulatory and interpretativejurisdiction with respect to the continuation coverageprovisions. Specifically, the Department of Labor hasresponsibility for the COBRA notification and disclosureprovisions, while the Internal Revenue Service has regula-tory and interpretative responsibility for all the otherprovisions 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 require-ments applicable to group health plans and health insur-ance issuers under the Health Insurance Portability andAccountability Act (HIPAA), the Newborns’ and Mothers’Health Protection Act (Newborn’s Act), the Mental HealthParity Act (MHPA), and the Women’s Health and CancerRights Act (WHCRA).

The HIPAA portability rules, at Section 701 ofERISA, place limitations on a group health plan’s ability toimpose pre-existing condition exclusions and providesspecial enrollment rights for certain individuals that loseother health coverage or who experience a life change.Section 702 contains HIPAA’s nondiscrimination rules that

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prohibit plans or issuers from establishing rules for eligibil-ity to enroll in the plan or charging individuals higherpremium amounts based on a health factor. In addition,Section 703 of Part 7 sets forth provisions for guaranteedrenewability in MEWAs and multiemployer plans.

The Newborns’ Act (in Section 711 of ERISA) gener-ally requires group health plans that offer maternity hospi-tal benefits for mothers and newborns to pay for at least a48-hour hospital stay for the mother and newborn follow-ing normal childbirth or a 96-hour hospital stay following acesarean. MHPA, at Section 712, provides for parity in theapplication of annual and dollar limits on mental healthbenefits with annual lifetime dollar limits on medical/surgical benefits. WHCRA, at Section 713, providesprotections for patients who elect breast reconstruction orcertain other follow-up care in connection with a mastec-tomy.

To what extent does ERISA govern theactivities of MEWAs that are not “employeewelfare benefit plans”?

Under ERISA, persons who exercise discretionaryauthority or control over the management of ERISA-covered plans or the assets of such plans are consideredfiduciaries and, therefore, are subject to ERISA’s fiduciaryresponsibility provisions. When the sponsor of an ERISA-covered plan purchases health care coverage for its employ-ees from a MEWA, the assets of the MEWA generally areconsidered to include the assets of the plan (i.e., “planassets”), unless the MEWA is a State-licensed insurance

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company. (See: 29 C.F.R. §§2510.3-101 and 2510.3-102relating to the definition of “plan assets.”) In exercisingdiscretionary authority or control over plan assets, such asin the payment of administrative expenses and in themaking of benefit claim determinations, the persons operat-ing the MEWA would be performing fiduciary acts that aregoverned by ERISA’s fiduciary provisions. Where afiduciary breaches statutorily mandated duties underERISA, or where a person knowingly participates in suchbreach, the U.S. Department of Labor may pursue civilsanctions.

Inasmuch as MEWAs typically are not ERISA-coveredwelfare plans and the Department of Labor does not havedirect regulatory authority over the business of insurance,the Department’s investigations of MEWAs necessarilyfocus on whether the persons operating MEWAs havebreached their fiduciary duties under ERISA to employeeplans that have purchased health coverage from theMEWA. Because of the factual and transactional nature offiduciary breach determinations, investigations of possiblefiduciary breaches tend to be more complex and time-consuming than investigations involving alleged violationsof specific statutory requirements, such as the reporting,disclosure, and claims procedure requirements. For ex-ample, MEWA investigations typically require detailedreviews of the financial records and documents relating tothe operation of the MEWA, the contracts between theMEWA and the service providers to the MEWA, participa-tion or other agreements between the MEWA and ERISA-covered welfare plans, as well as the actual transactions

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engaged in by the MEWA, in order to determine whetherthere has been a violation of ERISA’s fiduciary standards.

Accordingly, while the Department may pursue en-forcement actions with respect to MEWAs, such action isconsiderably different from, and often more limited than,the remedies generally available to the states under theirinsurance laws. In this regard, it is important to note that,in many instances, states may be able to take immediateaction with respect to a MEWA upon determining that theMEWA has failed to comply with licensing, contribution orreserve requirements under State insurance laws, whereasinvestigating and substantiating a fiduciary breach underERISA may take considerably longer.

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Regulation of MultipleEmployer WelfareArrangements underState Insurance Laws

As noted in the introduction, states, prior to 1983,were effectively precluded by ERISA’s broad preemptionprovisions from regulating any employee benefit plancovered by Title I of ERISA. As a result, a state’s abilityto regulate MEWAs was often dependent on whether theparticular MEWA was an ERISA-covered plan. In an effortto address this problem, the U.S. Congress amendedERISA in 1983 to establish a special exception to ERISA’spreemption provisions for MEWAs. This exception, whichis discussed in detail below, was intended to eliminateclaims of ERISA-plan status and Federal preemption as animpediment to State regulation of MEWAs by permittingstates to regulate MEWAs that are ERISA-covered em-ployee welfare benefit plans.

The following discussion relating to ERISA’s preemp-tion provisions and the 1983 MEWA amendments isintended to clarify what is and what is not a “multipleemployer welfare arrangement” within the meaning ofERISA Section 3(40), and the extent to which states mayregulate MEWAs, as provided by ERISA Section514(b)(6).

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What is the general scope of ERISApreemption?

Under the general preemption clause of ERISA Sec-tion 514(a), 29 U.S.C. §1144(a), ERISA preempts any andall State laws which “relate to” any employee benefit plansubject to Title I of ERISA. However, there are a numberof exceptions to the broad preemptive effect of Section514(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 thissection [Section 514], the provisions of thistitle [title I] . . . supersede any and all Statelaws insofar as they may now or hereafterrelate to any employee benefit plan . . . .

In determining whether a State law may “relate to” anemployee benefit plan, the U.S. Supreme Court has deter-mined that the words “relate to” should be construedexpansively. In Shaw v. Delta Air Lines, Inc., 463 U.S. 85,96-97 (1983), the Court held that “[a] law ‘relates to’ anemployee benefit plan, in the normal sense of the phrase, ifit has a connection with or reference to such a plan.” (Seealso: Metropolitan Life Insurance Co. v. Massachusetts,471 U.S. 724 (1985).

As noted above, however, while a state law may befound to “relate to” an employee benefit plan, within the

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meaning of Section 514(a) of ERISA, the law may nonethe-less be saved from ERISA preemption to the extent that anexception described in Section 514(b) applies.

With regard to the application of State insurance lawsto ERISA-covered plans, Section 514(b)(2) contains tworelevant exceptions. This section provides, in relevant part,that:

(A) Except as provided in subparagraph (B),nothing in this title [title I] shall be construedto exempt or relieve any person from any lawof any State which regulates insurance....

(B) Neither an employee benefit plan..., norany trust established under such a plan, shallbe deemed to be an insurance company orother insurer... for purposes of any law of anyState purporting to regulate insurance com-panies, insurance contracts,....

Section 514(b)(2)(A) referred to as the "savingsclause” essentially preserves to the states the right toregulate the business of insurance and persons engaged inthat business (See: Metropolitan Life Insurance Co. v.Massachusetts, cited above, for a discussion of the criteriaapplied by the U.S. Supreme Court in determining whethera State law is one that “regulates insurance.”). However,while Section 514(b)(2)(A) saves from ERISA preemptionstate laws that regulate insurance, Section 514(b)(2)(B),referred to as the “deemer clause,” makes clear that a Statelaw that “purports to regulate insurance” cannot deem anemployee benefit plan to be an insurance company.

27

While plans purchasing insurance are, as a practicalmatter, indirectly affected by State insurance laws (inas-much as the insurance contracts purchased by the plans aresubject to State insurance law requirements), the “deemerclause,” prior to 1983, effectively prevented the directapplication of State insurance laws to ERISA-coveredemployee benefit plans. In 1983, however, ERISA wasamended, as part of Public Law 97-473 (January 14, 1983),to add Section 514(b)(6) to ERISA’s preemption provi-sions.

In general, Section 514(b)(6) provides a specialexception for the application of State insurance laws toERISA-covered welfare plans that are “multiple employerwelfare arrangements” (MEWAs). Because the applicationof Section 514(b)(6) is limited to benefit programs that areMEWAs, the following discussion first reviews what is andwhat is not a MEWA for purposes of the Section 514(b)(6)exception, followed by a detailed review of the exceptionand its effect on state regulation of MEWAs.

What is a “multiple employer welfarearrangement”?

The term “multiple employer welfare arrangement” isdefined in ERISA Section 3(40), 29 U.S.C. §1002(40).Section 3(40)(A) provides as follows:

(A) The term “multiple employer welfare arrange-ment” means an employee welfare benefit plan,or any other arrangement (other than an em-ployee welfare benefit plan) which is established or

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28

maintained for the purpose of offering or providingany benefit described in paragraph (1) [welfare planbenefits] to the employees of two or more employ-ers (including one or more self-employed individu-als), or to their beneficiaries, except that such termdoes not include any such plan or arrangement thatis established or maintained -

under or pursuant to one ormore agreements which theSecretary finds to be collectivebargaining agreements,

by a rural electric cooperative,or

by a rural telephone cooperativeassociation* (Emphasissupplied.)

As reflected above, the definition of MEWA includesboth ERISA-covered employee welfare benefit plans andother arrangements which offer or provide medical, surgi-cal, hospital care or benefits, or benefits in the event ofsickness, accident, disability or any other benefit describedin ERISA Section 3(1) (See: definition of “employeewelfare benefit plan” on page 6 for a complete list of

(i)

(ii)

(iii)

* The Rural Telephone Cooperative Associations ERISA AmendmentsAct of 1991 (Public Law No. 102-89) amended the definition of“multiple employer welfare arrangement” to exclude ERISA-coveredwelfare plans established or maintained by “rural telephone coopera-tive associations,” as defined in ERISA section 3(40)(B)(v), effectiveAugust 14, 1991, the date of enactment.

29

benefits). Therefore, whether a particular arrangement is oris not an employee welfare benefit plan subject to ERISA isirrelevant for purposes of determining whether the arrange-ment is a MEWA. In order to constitute a MEWA, how-ever, a determination must be made that:

the arrangement offers or provideswelfare benefits to the employees of twoor more employers or to the beneficiariesof such employees (i.e., the arrangementis not a single employer plan); and

the arrangement is not excepted from thedefinition of MEWA as established ormaintained under or pursuant to one ormore collective bargaining agreements, orby a rural electric cooperative, or by arural telephone cooperative association.

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

Does the arrangement offer or providebenefits to the employees of two or moreemployers?

Plans maintained by one employer or agroup of employers under common control

If a plan is maintained by a single-employer for theexclusive purpose of providing benefits to that employer’semployees, former employees (e.g., retirees), or beneficia-

--

1.

❒

--

30

ries (e.g., spouses, former spouses, dependents) of suchemployees, the plan will be considered a single employerplan and not a MEWA within the meaning of ERISASection 3(40). For purposes of Section 3(40), certaingroups of employers which have common ownershipinterests are treated as a single employer. In this regard,Section 3(40)(B)(i) provides that:

two or more trades or businesses, whetheror not incorporated, shall be deemed asingle employer if such trades or businessesare within the same control group.

In determining whether trades or businesses are withinthe “same control group,” Section 3(40)(B)(ii) providesthat the term “control group” means a group of trades orbusinesses under “common control.” Pursuant to Section3(40)(B)(iii), whether a trade or business is under “com-mon control” is to be determined under regulations issuedby the Secretary applying principles similar to those ap-plied in determining whether there is “common control”under section 4001(b) of Title IV of ERISA, except thatcommon control shall not be based on an interest of lessthan 25 percent. Accordingly, trades or businesses withless than a 25 percent ownership interest will not be con-sidered under “common control” and, therefore, will not beviewed as a single employer for purposes of determiningwhether their plan provides benefits to the employees oftwo or more employers under Section 3(40).

With regard to situations where there is a 25 percentor more ownership interest, it should be noted that, the

31

Department of Labor has not adopted regulations underSection 3(40)(B)(iii). However, regulations issued underSection 4001(b) of Title IV and Section 414(c) of theInternal Revenue Code (See: 29 CFR §2612.2 and 26 CFR§1.414(c)-2, respectively) provided that “common control”generally means, in the case of a parent-subsidiary group oftrades or businesses, an 80 percent ownership interest, or,in the case of organizations controlled by five or fewerpersons, which are the same persons with respect to eachorganization, at least a 50 percent ownership interest bysuch persons in each organization.

Plans maintained by groups orassociations of unrelated employers

Questions have been raised as to whether a plansponsored by a group or association acting on behalf of itsemployer-members, which are not part of a control group,constitutes a “single employer” for purposes of the MEWAdefinition. The question is premised on the fact that theterm “employer” is defined in Section 3(5), 29 U.S.C.§1002(5), to mean “any person acting directly as an em-ployer, or indirectly in the interest of an employer, inrelation to an employee benefit plan; and includes a groupor association of employers acting for an employer in suchcapacity.” As discussed earlier, the Department has takenthe position that a bona fide group or association of em-ployers would constitute an “employer” within the meaningof ERISA Section 3(5) for purposes of having establishedor maintained an employee benefit plan (See: page 8).

However, unlike the specified treatment of a controlgroup of employers as a single employer, there is no indica-

2.

32

tion in Section 3(40), or the legislative history accompany-ing the MEWA provisions, that Congress intended thatsuch groups or associations be treated as “single employ-ers” for purposes of determining the status of such arrange-ments as a MEWA. Moreover, while a bona fide group orassociation of employers may constitute an “employer”within the meaning of ERISA Section 3(5), the individualstypically covered by the group or association-sponsoredplan 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 theemployer-members of the group or association. Accord-ingly, to the extent that a plan sponsored by a group orassociation of employers provides benefits to the employ-ees of two or more employer-members (and such employer-members are not part of a control group of employers), theplan would constitute a MEWA within the meaning ofSection 3(40).

Plans maintained by employee leasingorganizations

When a health benefit plan is maintained by an em-ployee leasing organization, there is often a factual ques-tion as to whether the individuals covered by the leasingorganization’s plan are employees of the leasing organiza-tion or employees of the client (often referred to as the“recipient”) employers. If all the employees participatingin the leasing organization’s plan are determined to beemployees of the leasing organization, the plan wouldconstitute a “single employer” plan and not a MEWA. Onthe other hand, if the employees participating in the plan

3.

33

include employees of two or more recipient employers oremployees of the leasing organization and at least onerecipient employer, the plan would constitute a MEWAbecause it would be providing benefits to the employees oftwo or more employers.

Like a bona fide group or association of employers, anemployee leasing organization may be an “employer”within the meaning of ERISA Section 3(5) to the extent itis acting directly or indirectly in the interest of an em-ployer. However, as with bona fide groups or associationsof employers, “employer” status under Section 3(5) doesnot in and of itself mean the individuals covered by theleasing organization plan are “employees” of the leasingorganization. As discussed below, in order for an indi-vidual to be considered an “employee” of an “employer”for purposes of the MEWA provisions, an employer-employee relationship must exist between the employer andthe individual covered by the plan. In this regard, thepayment of wages, the payment of Federal, State and localemployment taxes, and the providing of health and/orpension benefits are not solely determinative of an em-ployer-employee relationship. Moreover, a contract pur-porting to create an employer-employee relationship willnot be determinative where the facts and circumstancesestablish that the relationship does not exist.

Determinations as to who is an“employee” of an employer

As discussed above, the term “employer” is defined toencompass not only persons with respect to which there

4.

34

exists an employer-employee relationship between theemployer and individuals covered by the plan (i.e., personsacting directly as an employer), but also certain persons,groups and associations, which, while acting indirectly inthe interest of or for an employer in relation to an employeebenefit plan, have no direct employer-employee relation-ship with the individuals covered under an employeebenefit plan. Therefore, merely establishing that a plan ismaintained by a person, group or association constitutingan “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 tothe employees of two or more employers (i.e., a MEWA).A determination must be made as to the party or partieswith whom the individuals covered by the plan maintain anemployer-employee relationship.

The term “employee” is defined in Section 3(6) ofERISA, 29 U.S.C. §1002(6), to mean “any individualemployed by an employer.” (Emphasis supplied.) TheDepartment 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 inmost instances the existence, or absence, of an employer-employee relationship will be clear, there may be situationswhen the relationship is not entirely free from doubt.

In general, whether an employer-employee relation-ship exists is a question that must be determined on thebasis of the facts and circumstances involved. It is the

35

position of the Department that, for purposes of Section3(6), such determinations must be made by applyingcommon law of agency principles.* In applying commonlaw principles, consideration must be given to, amongother things, whether the person for whom services arebeing performed has the right to control and direct theindividual who performs the services, not only as to theresult to be accomplished by the work but also as to thedetails and means by which the result is to be accom-plished; whether the person for whom services are beingperformed has the right to discharge the individual per-forming the services; whether the individual performing theservices is as a matter of economic reality dependent uponthe business to which he or she renders service, etc. In thisregard, it should be noted that a contract purporting tocreate an employer-employee relationship will not controlwhere common law factors (as applied to the facts andcircumstances) establish that the relationship does notexist. (See: Advisory Opinion No. 92-05, Appendix A.)

Finally, pursuant to regulations issued by the Depart-ment of Labor, certain individuals are deemed not be“employees” for purposes of Title I of ERISA. Under theregulations, an individual and his or her spouse are deemednot be “employees” with respect to a trade or businesswhich is wholly owned by the individual or the individualand his or her spouse. Also under the regulations, a partner

* While common law of agency factors typically have been applied indetermining whether a person is an employee or independent contractor,common law principles are equally applicable to determining by whom anindividual is employed. See: Professional & Executive Leasing, Inc. v.Commissioner, 89 TC No. 19(1987). Also see: Nationwide MutualInsurance Co. et al. v. Darden, 503 U.S., 318, 112 S. Ct. 1344(1992).

36

in a partnership and his or her spouse are deemed not to be“employees” with respect to the partnership. (See: 29 CFR§2510.3-3(b) and (c).)

Is MEWA status conditioned upon the planbeing established or maintained by anemployer(s)?

While the definition of MEWA refers to arrangementsthat offer or provide benefits to the employees of two ormore employers, the definition of MEWA is not limited toarrangements established or maintained by an employer. Infact, Section 3(40) does not condition MEWA status on thearrangement being established or maintained by any par-ticular party. Accordingly, the MEWA status of an arrange-ment is not affected by the absence of any connection ornexus between the arrangement and the employers whoseemployees are covered by the arrangement. For example,in Advisory Opinion No. 88-05, the Department of Laborconcluded that an arrangement established by an associa-tion to provide health benefits to its members, who werefull-time ministers and other full-time employees of certainschools and churches, constituted a MEWA even thoughthere was no employer involvement with the association’splan.

Is the arrangement excluded from thedefinition of MEWA?

Once it has been determined that an ERISA-coveredwelfare plan provides benefits to the employees of two ormore employers, a determination must be made as to

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❒

37

whether any of the exclusions from MEWA status apply tothe arrangement. Pursuant to ERISA Section 3(40)(A),three types of arrangements are specifically excluded fromthe definition of “multiple employer welfare arrangement,”even though such arrangements may provide benefits to theemployees of two or more employers. Each of these typesof arrangements is discussed in general terms below.

Plans maintained pursuant to collectivebargaining agreements

Section 3(40)(A)(i) specifically excludes any plan orother arrangement that is established or maintained “underor pursuant to one or more agreements which the Secretaryfinds to be collective bargaining agreements.”

This exception generally includes the type of planscommonly referred to as “multiemployer plans,” a termwhich in some instances has been confused with the term“multiple employer welfare arrangements.” Multiemployerplans, as distinguished from MEWAs, are established andmaintained under collective bargaining agreements negoti-ated between unions and employers or an association ofemployers, and, in accordance with the Labor ManagementRelations Act, employer contributions to the plans are heldin a trust that is jointly administered by labor trustees(appointed by the union) and management trustees (ap-pointed by the employers or employer association).

In general, a collective bargaining agreement is anagreement or contract that is the product of good faithbargaining between bona fide employee representatives and

1.

38

one or more employers. Determinations as to whether aparticular document is the product of good faith bargainingbetween bona fide employee representatives and one ormore employers can be made only upon an examination ofrelevant facts and circumstances, taking into considerationthe pertinent provisions of the National Labor RelationsAct, 29 U.S.C. §151 et seq., and the cases decided thereun-der, as well as other relevant laws.

For purposes of Section 3(40), an employee benefitplan will generally be considered to be established ormaintained “under or pursuant to a collective bargainingagreement” if the agreement is a bona fide collectivebargaining agreement and the agreement provides, directlyor indirectly, for establishment or maintenance of a plan forthe benefit of employees represented by a union in thecollective bargaining process.

While no one item is determinative, factors generallyindicative of a bona fide collective bargaining agreementmay, among others, include: the agreement provides forwages, benefits, working conditions or resolution of griev-ances; the agreement is executed by representatives of alabor organization/union which is either certified by theNational Labor Relations Board or is elected by the major-ity of employee of signatory employers as the exclusivebargaining representative of the employees; neither theagreement nor of the labor organization/union was pro-moted by the employer(s); and the agreement is the productof good faith bargaining.

39

Rural Electric Cooperatives

Section 3(40)(A)(ii) specifically excludes from thedefinition of MEWA any plan or other arrangement that isestablished or maintained by a “rural electric cooperative.”

Section 3(40)(B)(iv) defines the term “rural electriccooperative” to mean:

any organization which is exemptfrom tax under Section 501(a) ofthe Internal Revenue Code of 1986and which is engaged primarily inproviding electric service on amutual or cooperative basis, and

any organization described inparagraph (4) or (6) of Section501(c) of the Internal RevenueCode of 1986 which is exemptfrom tax under Section 501(a) ofsuch Code and at least 80 percentof the members of which areorganizations described insubclause (I).

2.

(II)

(I)

40

Rural Telephone CooperativeAssociations

Section 3(40)(A)(iii) specifically excludes from thedefinition of MEWA any plan or other arrangement that isestablished or maintained by a “rural telephone coopera-tive association.” This exception to MEWA status for ruraltelephone cooperative associations became effective onAugust 14, 1991, the enactment date of the Rural Tele-phone Cooperative Associations ERISA Amendments Actof 1991 (Public Law No. 102-89).

Section 3(40)(B)(v), also added to ERISA by PublicLaw No. 102-89, defines the term “rural telephone coopera-tive association” to mean an organization described inparagraph (4) or (6) of Section 501(c) of the InternalRevenue Code of 1986 which is exempt from tax underSection 501(a) and at least 80 percent of the members ofwhich are organizations engaged primarily in providingtelephone service to rural areas of the United States on amutual, cooperative, or other basis.

To restate the definition of MEWA somewhat differ-ently, a MEWA, within the meaning of Section 3(40),includes any ERISA-covered employee welfare benefit planwhich is not:

a single employer plan (whichincludes employers within thesame control group);

(1)

41

3.

a plan established or maintainedunder or pursuant to a collectivebargaining agreement;

a plan established or maintainedby a rural electric cooperative; or

a plan established or maintained bya rural telephone cooperativeassociation.

If an ERISA-covered employee welfare benefit plan isa MEWA, states may, as discussed below, apply and en-force State insurance laws with respect to the plan inaccordance with the exception to ERISA preemption underSection 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, statesmay apply and enforce their State insurance laws withrespect to the plan to the extent provided by ERISA Section514(b)(6)(A), 29 U.S.C. §1144(b)(6)(A). In general,Section 514(b)(6)(A) provides an exception to ERISA’sbroad preemption provisions for the application and en-forcement of State insurance laws with respect to anyemployee welfare benefit plan that is a MEWA within themeaning of ERISA Section 3(40).

In effect, Section 514(b)(6)(A) serves to provide anexception to the “deemer clause” of Section 514(b)(2)(B),

❒

(4)

42

(3)

(2)

which otherwise precludes states from deeming an ERISA-covered plan to be an insurance company for purposes ofState insurance laws, by permitting states to treat certainERISA-covered plans (i.e., MEWAs) as insurance compa-nies, subject to a few limitations. While the range of Stateinsurance law permitted under Section 514(b)(6)(A) issubject to certain limitations, the Department of Laborbelieves that these limitations should have little, if any,practical affect on the ability of states to regulate MEWAsunder their insurance laws.

There is nothing in Section 514(b)(6)(A) that limitsthe applicability of State insurance laws to only thoseinsurance laws which specifically or otherwise reference"multiple employer welfare arrangements" or "MEWAs."Similarly, while the specific application of a particularinsurance law to a particular MEWA is a matter within thejurisdiction of the State, there is nothing in Section514(b)(6) that would preclude the application of the sameinsurance laws that apply to any insurer to ERISA-coveredplans which constitute MEWAs, subject only to the limita-tions set forth in Section 514(b)(6)(A).

Under Section 514(b)(6)(A), the extent to which Stateinsurance laws may be applied to a MEWA that is anERISA-covered plan is dependent on whether or not theplan is fully insured.

What state insurance laws may be applied toa fully insured plan?

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

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43

in the case of an employee welfare benefitplan which is a multiple employer welfarearrangement and is fully insured (or whichis a multiple employer welfare arrangementsubject to an exemption under sub-paragraph (B)), any law of any State whichregulates insurance may apply to sucharrangement to the extent such lawprovides --

standards, requiring the mainte-nance of specified levels ofreserves and specified levels ofcontributions, which any suchplan, or any trust established undersuch a plan, must meet in order tobe considered under such law ableto pay benefits in full when due,and

provisions to enforce suchstandards... (Emphasis supplied.)

Under Section 514(b)(6)(A)(i), it is clear that, in thecase of fully insured MEWAs, states may apply and enforceany State insurance law requiring the maintenance ofspecific reserves or contributions designed to ensure thatthe MEWA will be able to satisfy its benefit obligations ina timely fashion. Moreover, it is the view of the Depart-ment of Labor that 514(b)(6)(A)(i) clearly enables states tosubject MEWAs to licensing, registration, certification,financial reporting, examination, audit and any other

44

i

ii

requirement of State insurance law necessary to ensurecompliance with the State insurance reserves, contribu-tions and funding requirements.

What is a “fully insured” MEWA?

Section 514(b)(6)(D) provides that, for purposes ofSection 514(b)(6)(A), “a multiple employer welfare ar-rangement shall be considered fully insured only if theterms of the arrangement provide for benefits the amountof all of which the Secretary determines are guaranteedunder a contract, or policy of insurance, issued by aninsurance company, insurance service, or insurance organi-zation, qualified to conduct business in a State.” In thisregard, a determination by the Department of Labor as towhether a particular MEWA is “fully insured” is not re-quired in order for a state to treat a MEWA as “fully in-sured” for purposes of applying State insurance law inaccordance with Section 514(b)(6).

What state insurance laws may be applied toa plan that is not fully insured?

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

in the case of any other employee welfarebenefit plan which is a multiple employerwelfare arrangement, in addition to thistitle [title I], any law of any State whichregulates insurance may apply to theextent not inconsistent with the preceding

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45

❒

sections of this title [Title I]. (Emphasissupplied)

Accordingly, if a MEWA is not “fully insured,” theonly limitation on the applicability of State insurance lawsto the MEWA is that the law not be inconsistent with Title Iof ERISA.

Under what circumstances might a stateinsurance law be “inconsistent” with Title I ofERISA?

In general, a State law would be inconsistent with theprovisions of Title I to the extent that compliance with suchlaw would abolish or abridge an affirmative protection orsafeguard otherwise available to plan participants andbeneficiaries under Title I or would conflict with anyprovision of Title I, making compliance with ERISAimpossible. For example, any State insurance law whichwould adversely affect a participant’s or beneficiary’s rightto request or receive documents described in Title I ofERISA, or to pursue claims procedures established inaccordance with Section 503 of ERISA, or to obtain andmaintain continuation health coverage in accordance withPart 6 of ERISA would be viewed as inconsistent with theprovisions of Title I. Similarly, a State insurance law thatwould require an ERISA-covered plan to make imprudentinvestments would be inconsistent with the provisions ofTitle I.

On the other hand, a State insurance law generally willnot be deemed “inconsistent” with the provisions of Title I

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46

if it requires ERISA-covered plans constituting MEWAs tomeet more stringent standards of conduct, or to providemore or greater protection to plan participants and benefi-ciaries than required by ERISA. The Department hasexpressed the view that any state insurance law which setsstandards requiring the maintenance of specified levels ofreserves and specified levels of contributions in order for aMEWA to be considered, under such law, able to paybenefits will generally not be “inconsistent” with theprovisions of Title I for purposes of Section514(b)(6)(A)(ii). The Department also has expressed theview that a State law regulating insurance which requires alicense or certificate of authority as a condition precedentor otherwise to transacting insurance business or whichsubjects persons who fail to comply with such require-ments to taxation, fines and other civil penalties, includinginjunctive relief, would not in and of itself be “inconsis-tent” with the provisions of title I for purposes of Section514(b)(6)(A)(ii). (See: Advisory Opinion 90-18, Appen-dix A).

Has the Department of Labor granted anyexemptions from State regulation for MEWAswhich are not fully insured?

Pursuant to Section 514(b)(6)(B), the Secretary ofLabor may, under regulations, exempt from Section514(b)(6)(A)(ii) MEWAs which are not fully insured. Suchexemptions may be granted on an individual or class basis.While the Department has the authority to grant exemp-tions from the requirements of Section 514(b)(6)(A)(ii),such authority does not extend to the requirements of

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47

Section 514(b)(6)(A)(i) relating to the maintenance ofspecified levels of reserves and specified levels of contri-butions under State insurance laws.

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

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Form M-1 Filing Requirement forMEWAs

The Health Insurance Portability and AccountabilityAct of 1996 (HIPAA) established a filing requirement forMEWAs. The purpose of the Form M-1 filing requirementis to provide PWBA with information concerning compli-ance by MEWAs with the requirements of Part 7 of ERISA(including the provisions of HIPAA, the Mental HealthParity Act, the Newborns’ and Mothers’ Health ProtectionAct, and the Women’s Health and Cancer Rights Act).

Under the new reporting requirement, the one-pageForm M-1 is generally required to be filed once a year, dueon March 1; however, plan administrators can request a 60-day extension.

To help filers, PWBA has published a guide forcompleting the Form M-1, which is available by calling thePWBA toll-free line at 1-866-275-7922 and on the Internetat www.dol.gov/pwba. Plan administrators may alsocontact us with any questions or for assistance in complet-ing the Form M-1 by calling the PWBA Help Desk at 202-693-3860.

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ERISAADVISORY OPINIONS

Advisory opinions relating to Title I of ERISA areissued by the Pension and Welfare Benefits Administrationand represent the official views of the U.S. Department ofLabor on the interpretation and application of the provi-sions of ERISA. Advisory opinions are issued pursuant toERISA Procedure 76-1, which, among other things, de-scribes the circumstances under which the Department willand will not rule on particular matters and the effect ofadvisory opinions generally. A copy of ERISA Procedure76-1 is reprinted as Appendix B. Pursuant to Section 12 ofERISA Procedure 76-1, advisory opinions, as well asadvisory opinion requests, accompanying documentation,and related correspondence are available to the generalpublic.

It should be noted that the advisory opinion process isnot a fact-finding process. Advisory opinions are generallybased solely on the facts and representations submitted tothe Department by the party or parties requesting theopinion. Therefore, advisory opinions should not beviewed as determinations by the Department as to theaccuracy of any of the facts and representations providedby the requesting party and cited in such opinions.

51

Is an advisory opinion on the MEWA status ofan arrangement necessary in order for a stateto exercise jurisdiction over the arrange-ment?

No. First, there is nothing in ERISA Section 3(40)which conditions MEWA status on the obtaining of anopinion from the Department. Second, in most instances,the question of whether a particular arrangement is aMEWA will require factual, rather than interpretative,determinations. That is, if the arrangement meets thedefinition of a MEWA - because it is providing health orsimilar benefits to the employees of more than one em-ployer (i.e., the arrangement is not a single-employer plan)and the arrangement is not established or maintained underor pursuant to a collective bargaining agreement or by arural electric cooperative, or by a rural telephone coopera-tive association - the arrangement is, by definition, aMEWA, whether or not the Department rules on the matter.

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

In most cases, no. While the MEWA exception toERISA's preemption provisions does impose a few limita-tions on the ability of states to regulate MEWAs that areERISA-covered plans, these limitations, as discussedearlier and in Advisory Opinion No. 90-18 (See: AppendixA), should not, as a practical matter, have any significanteffect on a state's application and enforcement of its insur-ance laws with respect to a MEWA which is an ERISA-

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52

covered plan. Accordingly, a determination as to whetheror not a MEWA is an ERISA- covered plan is not necessaryin most instances.

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

If a MEWA determination is needed, the advisoryopinion request should include sufficient facts and repre-sentations to conclude whether the arrangement is provid-ing benefits described in Section 3(1) of ERISA (See:pages 7-8) whether benefits are being provided to theemployees of two or more employers, whether the employ-ers of covered employees are members of the same controlgroup of employers, and whether the arrangement is estab-lished or maintained pursuant to or under a collectivebargaining agreement or by a rural electric cooperative orrural telephone cooperative association.

If an ERISA-coverage determination is needed, theadvisory opinion request should also include sufficientinformation to determine whether the arrangement isestablished or maintained by an employer, employeeorganization, or by both (See: pages 9-16). An advisoryopinion request for such a determination should includecopies of plan and trust documents, constitutions andby-laws, if any, administrative agreements, employer-participation agreements, collective bargaining agreements,if applicable, and any other documents or correspondencethat might have a bearing on the status of the arrangementfor ERISA purposes.

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53

Where should advisory opinion requests besent?

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

Office of Regulations and InterpretationsPension and Welfare Benefits AdministrationU.S. Department of LaborRoom N-5669200 Constitution Avenue, NWWashington, DC 20210

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ERISA ENFORCEMENT

Enforcement of the provisions of Title I of ERISA iscarried out by the Pension and Welfare Benefits Admin-istration’s Office of Enforcement. The Office of Enforce-ment consists of a national office and 15 field officeslocated throughout the United States. The national officeprovides policy direction and technical and managementsupport for the field offices, in addition to conductinginvestigations in selected sensitive areas. Most, if not all,MEWA-related investigations are conducted by the fieldoffices under the supervision of an area or district director,with oversight and coordination provided by the nationaloffice.

In an effort to facilitate State and Federal enforcementefforts in the MEWA area, PWBA’s field offices haveestablished, or are in the process of pursuing, cooperativearrangements with the states in their jurisdiction pursuantto which the offices will share and discuss cases openedand closed by PWBA involving MEWAs. In addition, fieldoffices will, in accordance with such agreements, makeavailable documents obtained through voluntary produc-tion or pursuant to a civil subpoena. In order to ensureproper coordination of MEWA-related initiatives, stateofficials should direct information and/or inquiries (otherthan advisory opinion requests) to the director of thePWBA area office responsible for their particular state.

55

For more information for the field office near you,contact PWBA’s Participant and Compliance Assistancetoll-free number - 1-866-275-7922 - or view it on theagency’s Web site.

View this and other free PWBA publications atwww.dol.gov/pwba.

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Appendix AAdvisory Opinions

July 2, 1990

U.S. Department of LaborPension and Welfare Benefits AdministrationWashington. DC 20210

90-18AMr. J. Scott Kyle ERISA SECTexas State Board of Insurance 514(b)(6)(A)(ii)1110 San JacintoAustin, Texas 78701-1998

Dear Mr. Kyle:

This responds to your letter of May 8, 1990, regarding MDPhysiciansand Associates, Inc. Employee Benefit Plan (MDPEBP). You request theviews of the Department of Labor concerning issues that arise, asdescribed below, under section 514(b)(6)(A) of the Employee RetirementIncome Security Act of 1974 (ERISA).

In Opinion 90-10A, the Department of Labor (the Department) concludedthat MDPEBP is a multiple employer welfare arrangement (MEWA)within the meaning of section 3(40) of ERISA and, therefore, is subject tostate regulation at least to the extent provided in section 514(b)(6)(A) ofERISA, regardless of whether MDPEBP is an employee benefit plancovered by title I of ERISA. You state in your letter that MDPhysiciansand Associates, Inc., which administers MDPEBP, has filed suit againstthe Texas State Board of Insurance and Texas Attorney General for adeclaratory judgment relating to the ability of the State of Texas toregulate or prohibit MDPEBP. MDPhysicians and Associates, Inc.contends in its complaint that, among other things, anyattempt by theState of Texas to regulate MDPEBP by requiring licensure of MDPEBP asan insurer would be inconsistent with title I of ERISA, and that the Stateof Texas lacks statutory authority to regulate MDPEBP in any respect inthe absence of enabling legislation respecting the regulation of self-insured MEWAs.

You state that Texas does not have legislation specifically aimed atregulation of self-funded MEWAs which are employee welfare benefitplans covered by title I of ERISA. It is the position of the State Board ofInsurance that such plans are doing an insurance business and aresubject to the same requirements asany other insurer operating in Texas. You further state that the TexasInsurance Code provides that no person or insurer may do the businessof insurance in Texas without specific authorization of statute, unlessexempt under the provisions of Texas or federal law. The Code estab-lishes procedures for issuance of certificates of authority to insurerswho meet statutory requirements. Persons who transact insurancebusiness in Texas without a certificate of authority or valid claim toexemption are subject to taxation, fines, and other civil penalties,including injunctive relief to ef fect cessation of operation.

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Assuming, arguendo, that MDPEBP is an employee welfare benefit plancovered by title I of ERISA, you request the Department’s views as towhether or not a requirement by the State of Texas that MDPEBP ( orany similar plan which might be found to be both an employee welfarebenefit plan and a MEWA as defined by ERISA) obtain a certificate ofauthority to transact insurance business in Texas, and be subject tostatutory penalties and injunctionshould it operate without a certificate of authority, would be inconsis-tent with title I of ERISA.

Section 514(b)(6)(A) of ERISA provides an exception to preemption underERISA section 514(a) for any ERISA-covered employee welfare benefitplan that is a MEWA. In general, the exception permits application ofstate 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 lawmay apply to the extent it provides standards requiring the maintenanceof specified levels of reserves and contributions, and provisions toenforce such standards (See section 514(b)(6)(A)(i)). If the MEWA is notfully insured, any law of any state which regulates insurance may applyto 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 MDPEBPis 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 regulatesinsurance, without regard to whether such laws specifically or otherwisereference MEWAs or employee benefit plans which are MEWAs, subjectonly to the limitations set forth in subparagraphs (A)(i) and (A)(ii) of thatsection. Similarly, while we are unable to rule on the specific applicationof the Texas Insurance Code to MDPEBP, a matter within the jurisdic-tion of the Texas State Board of Insurance, it is the view of the Depart-ment that, with the exception of the aforementionedlimitations, there is nothing in ERISA which would preclude theapplication of the same state insurance laws which apply to any insurerwhich is not an ERISA-covered plan to ERISA-covered plans whichconstitute MEWAs within the meaning of ERISA section 3(40).

Second, it is the view of the Department that Congress, in enacting theMEWA provisions, recognized that the application and enforcement ofstate insurance laws to ERISA-covered MEWAs 1/provide both appropri-ate and necessary protection for the participants and beneficiariescovered by such plans, in addition to those protections afforded by

1/ The principles discussed in this letter apply to those MEWAs which are alsotitle I plans, and, thus, such MEWAs will be referred to as “ERISA-coveredMEWAs” .

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ERISA. For this reason, the Department is of the opinion that in thecontext of section 514(b)(6)(A)(ii), which, in the case of a MEWA which isnot fully insured, saves from ERISA preemption any law of any statewhich regulates insurance to the extent such law is not inconsistentwith the provisions of title I of ERISA, a state law which regulatesinsurance would be inconsistent with the provisions of title I to theextent that compliance with such law would abolish or abridge anaffirmative protection or safeguard otherwise available to plan partici-pants and beneficiaries under title I of ERISA,2/ or conflict with anyprovision of title I of ERISA. 3/ For example, state insurance law whichwould require an ERISA-covered MEWA to make imprudent investmentswould be deemed to be “inconsistent” with the provisions of title I ofERISA because compliance with such a law would “conflict” with thefiduciary responsibility provisions of ERISA section 404, and, as such,would be preempted pursuant to the provisions of ERISA section514(b)(6)(A)(ii).4/

However, a state insurance law will, generally, not be deemed “inconsis-tent” with the provisions of title I of ERISA if it requires ERISA-coveredMEWAs to meet more stringent standards of conduct, or to provide moreor greater protections to plan participants and beneficiaries, thanrequired by ERISA. For example, state insurance laws which would

2/ For example, any state insurance law which would adversely affect aparticipant’s or beneficiary’s rights under title I of ERISA to review or receivedocuments to which the participant or beneficiary is otherwise entitled would beviewed as inconsistent with the provisions of title I. Similarly, any state insurancelaw which would adversely affect a participant’s or beneficiary’sright to continuation of health coverage in accordance with Part 6 of title I or topursue claims procedures established in accordance with section 503 of title Iwould be viewed as inconsistent with the provisions of title I of ERISA.

3/ In this regard, the Department believes an actual conflict with theprovisions of ERISA will occur when state insurance law makes compliance a“physical impossibility”. See Florida Lime & Avocado Growers. Inc., v. Paul, 373U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963).

4/ While certain permissive state insurance laws may not be “inconsis-tent” with the provisions of title I of ERISA as here defined, the behaviorpermitted under such laws may yet be denied to ERISA-covered MEWAs and theirfiduciaries pursuant to ERISA section 514(b)(6)(A)(ii), which applies the provi-sions of title I as well as state insurance laws which are not inconsistent with theprovisions of title I of ERISA to such MEWAs. For example, neither ERISA-covered MEWAs nor their fiduciary managers may take advantage of laws whichwould permit an ERISA-covered MEWA to engage in transactions which areprohibited under the provisions of ERISA section 406; to effectuate exculpatoryprovisions relieving a fiduciary from responsibility or liability for any responsibil-ity, obligation, or duty under ERISA; or, to fail to meet the reporting anddisclosure requirements contained in part 1 of title I of ERISA.

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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 prohibit-ing a fiduciary of an ERISA-covered MEWA from availing himself of anERISA statutory or administratively-granted exemption permittingcertain behavior will not be deerned by the Department to be “inconsis-tent” with the provisions of ERISA.

Finally, the Department also notes that, in its opinion, any stateinsurance law which sets standards requiring the maintenance ofspecified levels of reserves and specified levels of contributions to be metin order for a MEWA to be considered, under such law, able to paybenefits in full when due will generally not be considered to be “incon-sistent” with the provisions of title I of ERISA pursuant to ERISA section514(b) (6)(A) (ii) .

Thus, it is the opinion of the Department that a state law regulatinginsurance which requires the obtaining of a license or certificate ofauthority as a condition precedent or otherwise to transacting insurancebusiness or which subjects persons who fail to comply with suchrequirements to taxation, fines, and other civil penalties, includinginjunctive relief, would not in and of itself adversely affect the protec-tions and safeguards Congress intended to be available to participantsand beneficiaries or conflict with any provision of title I of ERISA, and,therefore, would not, for purposes of section 514(b)(6)(A)(ii), beinconsistent with the provisions of title I. Moreover, given the clearintent of Congress to permit states to apply and enforce their insurancelaws with respect to ERISA-covered MEWAs, as evidenced by theenactment of the MEWA provisions, it is the view of the Department thatit would be contrary to Congressional intent to conclude that states,while having the authority to apply insurance laws to such plans, do nothave the authority to require and enforce registration, licensing,reporting and similar requirements necessary to establish and monitorcompliance with those laws.

Finally, we would note that while section 514(b)(6)(B) of ERISA providesthat the Secretary of Labor may prescribe regulations under which .theDepartment may exempt MEWAs from state regulation under section514(b)(6)(A)(ii), the Department has neither prescribed regulations in thisarea, nor granted any such exemptions.

This letter constitutes an advisory opinion under ERISA Procedures76-1.

Sincerely,

Robert J. DoyleDirector of Regulations and Interpretaions

January 27, 1992

Mr. Chuck Huff 92-05AGeorgia Insurance Department ERISA SECTIONSeventh Floor, West Tower 3(40), 514(b)(6)Floyd Building2 Martin Luther King, Jr., DriveAtlanta, Georgia 30334

Dear Mr. Huff:

This is in response to your request regarding the status of a self-fundedhealth benefit program sponsored by Action Staffing, Inc. (Action) undertitle I of the Employee Retirement Income Security Act (ERISA). Specifi-cally, you have requested an opinion as to whether the Action healthbenefit program is an employee welfare benefit plan within the meaningof section 3(1) of title I of ERISA, and whether the Action health benefitprogram is a multiple employer welfare arrangement (MEWA), within themeaning of ERISA section 3(40) and, therefore, subject to applicablestate insurance laws at least to the extent permitted under section514(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 propos-als to potential client employers in a variety of trades and businesses. Ifa client employer agrees to the terms of the proposal, an Agreement forServices is executed with Action. Under the terms of the Agreement forServices, a specimen copy of which accompanied your request, Actionagrees to lease personnel to the client employer, subject to the paymentof 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 withregard to the leased employees: The recruitment,hiring, directing and controlling of employees intheir day-to-day assignments; the disciplining,replacing, termination and the designation of thedate of separation from employment; the promo-tion, reward, evaluation and from time to time theredetermination of the wages, hours and otherterms and conditions of employment of theemployees. . .

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

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

Information submitted with your request, however, indicates that, in atleast one instance, an Action client, with employees participating in theAction health benefit program, hired Action to enable employees toparticipate in the Action health benefit program. According to theinformation provided, the client, rather than Action, retains the right tocontrol, evaluate, direct, hire and fire all employees.

ERISA section 3(40)(A) defines the term “multiple employer welfarearrangement” to mean:

. . . an employee welfare benefit plan, or any otherarrangement (other than an employee welfare benefitplan) which is established or maintained for the purposeof offering or providing any benefit described in para-graph (1) to the employees of two or more employers(including one or more self-employed individuals), or totheir beneficiaries, except that such arrangement doesnot include any plan or arrangement which is establishedor maintained --

(i) under or pursuant to one or moreagreements which the Secretary finds to becollective bargaining agreements,

(ii) by a rural electric cooperative, or(iii) by a rural telephone cooperative

association.

Inasmuch as there is no indication that the Action health benefitprogram is established or maintained under or pursuant to one or morecollective bargaining agreements, by a rural electric cooperative, or by arural telephone cooperative association, the only issue relating to thehealth program’s status as a MEWA appears to be whether the programprovides benefits, as described in ERISA section 3(1), “to the employeesof two or more em- ployers.” The resolution of this issue is dependent onwhether, for purposes of ERISA section 3(40), the employees covered bythe 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, orindirectly in the interest of an employer, in relation toan employee benefit plan; and includes a group orassociation of employers acting for an employer insuch capacity.

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As reflected above, the term “employer”, for purposes of title I of ERISA,encompasses not only persons with respect to whom there exists anemployer-employee relationship between the employer and individualscovered by the plan (i.e., persons acting directly as an employer), butalso certain persons, groups and associa- tions, which, while actingindirectly in the interest of or for an employer in relation to an employeebenefit plan, have no direct employer-employee relationship with theindividuals covered under an employee benefit plan. Therefore, merelybe- cause a person, group or association may be determined to be an“employer” within the meaning of ERISA section 3(5) does not mean thatthe 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 “anyindividual employed by an employer.” (Emphasis added). An in- dividualis “employed” by an employer, for purposes of section 3(6), when anemployer-employee relationship exists. For pur- poses of section 3(6),whether an employer-employee relationship exists will be determined byapplying common law principles and taking into account the remedialpurposes of ERISA. In making such determinations, therefore, consider-ation must be given to whether the person for whom services are beingperformed has the right to control and direct the individual whoperforms the ser- vices, not only as to the result to be accomplished bythe work, but also as to the details and means by which the result is tobe accomplished; whether the person for whom services are beingperformed has the right to discharge the individual performing theservices; and whether the individual performing the services is as amatter of economic reality dependent upon the business to which he orshe renders services, among other considerations.

While the Action Agreement for Services submitted with your requestpurports, with respect to the leased employees, to establish in Action theauthority and control associated with a common law employer-employeerelationship, your submission indicates that in at least one instance theclient employer, rather than Action, actually retained and exercisedsuch authority and control.* In this regard, it should be noted that acontract purporting to create an employer-employee relationship will notcontrol where common law factors (as applied to the facts and circum-stances) establish that the relationship does not exist.

It should also be noted that it is the view of the Department that wherethe employees participating in the plan of an employee leasing organiza-tion include “employees” of two or more client (or “recipient”) employers,

* Although we conclude in this situation that some of the individuals participatingas “employees” in the health benefit program are “employees” of the clientemployers, the Department notes that Action may also considered an “employer”within the meaning of ERISA section 3(5).

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or employees of the leasing organization and at least one client em-ployer, the plan of the leasing organization would, by definition, consti-tute a MEWA because the plan would be providing benefits to theemployees of two or more employers.

On the basis of the information provided, the Action health benefitprogram covered at least one client’s employees with respect to whomAction did not have an employer-employee relationship and, accord-ingly, were not “employees” of Action within the meaning of ERISAsection 3(6). Therefore, in the absence of any indication that Action andits client employers constitute a “control group” within the meaning ofERISA section 3(40)(B)(i), it is the view of the Department that the Actionhealth benefit program provides benefits to the employees of two or moreemployers and is, therefore, a multiple employer welfare arrangementwithin the meaning section 3(40)(A). Accordingly, the preemptionprovisions of ERISA would not preclude state regulation of the Actionhealth benefit program to the extent provided in ERISA section514(b)(6)(A). In this regard, we are enclosing, for your information, acopy of Opinion 90-18A (dated July 2, 1990) which discusses the scopeof the states’ authority to regulate MEWAs pursuant to section514(b)(6)(A) of ERISA.

Because your request for an opinion was concerned primarily with theissue of whether or not the Action health benefit program is subject tothe applicable regulatory authority of the State of Georgia’s insurancelaws or is saved from such authority under the general preemptionprovision of section 514(a) of title I of ERISA, and because of the opinionabove, we have determined it is not necessary at this time to render anopinion as to whether the Action health benefit program is an employeewelfare 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. DoyleDirector of Regulationsand InterpretationsEnclosure

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Appendix BAdvisory Opinion

Procedure

It is the practice of the Department of Labor (theDepartment) to answer inquiries of individuals or organiza-tions affected, directly or indirectly, by the Employee Re-tirement Income Security Act of 1974 (Pub. L. 93-406, here-inafter “the Act”) as to their status under the Act and as tothe effect of certain acts and transactions. The answers tosuch inquiries are categorized as “information letters” and“advisory opinions.” This “ERISA Procedure” (ERISAProc. 76-1) describes the general procedures of the Depart-ment in issuing information letters and advisory opinionsunder the Act, and is designed to promote efficient handlingof inquiries and to facilitate prompt responses.

Section 7 of this procedure (instructions to individu-als and organizations requesting advisory opinions relatingto prohibited transactions and common definitions) is re-served. This section will set forth the procedures to be fol-lowed to obtain an advisory opinion relating to prohibitedtransactions and common definitions, such as whether a per-son is a party in interest and a disqualified person. In gen-eral, this section will incorporate a revenue procedure to bepublished by the Internal Revenue Service.

This advisory opinion procedure consists of rulesof agency procedure and practice, and is therefore exceptedunder 5 U.S.C. 552(b)(3)(A) of the Administrative Proce-dure Act from the ordinary notice and comment provisionsfor agency rulemaking. Accordingly, the procedure is effec-tive August 27, 1976.

SEC. 1. Purpose. The purpose of this ERISA Pro-cedure is to describe the general procedures of the Depart-ment of Labor (the Department) in issuing information let-ters and advisory opinions to individuals and organizationsunder the Employee Retirement Income Security Act of1974 (Pub. L. 93-406), hereinafter referred to as “the Act.”This ERISA Procedure also informs individuals and orga-nizations, and their authorized representatives, where theymay direct requests for information letters and advisory opin-ions, and outlines procedures to be followed in order to pro-mote efficient handling of their inquiries.

SEC. 2. General practice. It is the practice of theDepartment to answer inquiries of individuals and organi-zations, whenever appropriate, and in the interest of soundadministration of the Act, as to their status under the Actand as to the effects of their acts or transactions. One of thefunctions of the Department is to issue information lettersand advisory opinions in such matters.

SEC. 3. Definitions. .01 An “information letter” isa written statement issued either by the Pension and WelfareBenefit Programs (Office of Employee Benefits Security),U.S. Department of Labor, Washington, D.C. or a RegionalOffice or an Area Office of the Labor-Management Ser-vices Administration, U.S. Department of Labor, that doesno more than call attention to a well-established interpreta-tion or principle of the Act, without applying it to a specificfactual situation. An information letter may be issued to anyindividual or organization when the nature of the requestfrom the individual or the organization suggests that it isseeking general information, or where the request does notmeet all the requirements of section 6 or 7 of this procedure,and it is believed that such general information will assistthe individual or organization.

.02 An “advisory opinion” is a written statementissued to an individual or organization, or to the authorizedrepresentative of such individual or organization, by the Ad-

ministrator of Pension and Welfare Benefit Programs or hisdelegate, that interprets and applies the Act to a specific fac-tual situation. Advisory opinions are issued only by the Ad-ministrator of Pension and Welfare Benefit Programs or hisdelegate.

.03 Individuals and organizations are those personsdescribed in section 4 of this procedure.

SEC. 4. Individuals and organizations who mayrequest advisory opinions or information letters. .01 Anyindividual or organization affected directly or indirectly, bythe Act may request an information letter or an advisoryopinion from the Department.

.02 A request by or for an individual or organiza-tion must be signed by the individual or organization, or bythe authorized representative of such individual or organi-zation. See section 7.03 of this procedure.

SEC. 5. Discretionary Authority to Render Advi-sory Opinions. .01 The Department will issue advisory opin-ions involving the interpretation of the application of one ormore sections of the Act, regulations promulgated under theAct, interpretive bulletins, or exemptions issued by the De-partment to a specific factual situation. Generally, advisoryopinions will be issued by the Department only with respectto prospective transactions (i.e., a transaction which will beentered into). Moreover, there are certain areas where, be-cause of the inherently factual nature of the problem involved,or because the subject of the request for opinion is underinvestigation for a violation of the Act, the Department ordi-narily will not issue advisory opinions. Generally, an advi-sory opinion will not be issued on alternative courses of pro-posed transactions, or on hypothetical situations, or whereall parties involved are not sufficiently identified and de-scribed, or where material facts or details of the transactionare omitted.

.02 The Department ordinarily will not issue advi-sory opinions relating to the following sections of the Act:

.02(a) Section 3(18), relating to whether certainconsideration constitutes adequate consideration;

.02(b) Section 3(26), relating to whether the valua-tion of any asset is at current value;

.02(c) Section 3(27), relating to whether the valua-tion of any asset is at present value;

.02(d) Section 102(a)(1), relating to whether a sum-mary plan description is written in a manner calculated tobe understood by the average participant.

.02(e) Section 103(a)(3)(A), relating to whether thefinancial statements and schedules required to be includedin the Annual Report are presented fairly in conformity withgenerally accepted accounting principles applied on a con-sistent basis;

.02(f) Section 103(b)(1), relating to whether a mat-ter must be included in a financial statement in order to fullyand fairly present the financial statement of the plan;

.02(g) Section 202 (other than section 202(a)(3)and (b)(1)) relating to minimum participation standards;

.02(h) Section 203 (other than sections202(a)(3)(B), (b)(1) (flush language), (b)(2), (b)(3)(A);

.02(i) Section 204 of the Act (other than sections204(b)(1)(B), (b)(1)(A), (C), (D), (E)), relating to benefitaccrual requirements;

.02(j) Section 205(e), relating to the period duringwhich a participant may elect in writing not to receive ajoint and survivor annuity;

.02(k) Section 208, relating to mergers and con-

ERISA Proc. 76-1—Procedure for ERISAAdvisory Opinions.

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solidation of plans or transfer of plan assets;.02(1) Section 209(a)(1), relating to whether the

report required by section 209(a)(1) is sufficient to informthe employee of his accrued benefits under the plan, etc.

.02(m) Sections 302 through 305, relating to mini-mum funding standards;

.02(n) Section 403(c)(1), relating to the purposesfor which plan assets must be held;

.02(o) Section 404(a), relating to fiduciary dutiesas applied to particular conduct; and,

.02(p) Section 407(a)(2) and (3) and (c)(1), relat-ing to fair market value, as applied to whether the value ofany particular security or real property constitutes fair mar-ket value.

This list is not all inclusive and the Department maydecline to issue advisory opinions relating to other sectionsof the Act whenever warranted by the facts and circum-stances of a particular case. The Department may, when it isdeemed appropriate and in the best interest of sound admin-istration of the Act, issue information letters calling atten-tion to established principles under the Act, even though therequest that was submitted was for an advisory opinion.

.03 Pending the adoption of regulations (either tem-porary or final) involving the interpretation of the applica-tion of a provision of the Act, consideration will be given tothe issuance of advisory opinions relating to such provisionsof the Act only under the following conditions:

.03(a) If an inquiry presents an issue on which theanswer seems to be clear from the application of the provi-sions of the Act to the facts described, the advisory opinionwill be issued in accordance with the procedures containedherein.

.03(b) If an inquiry presents an issue on which theanswer seems reasonably certain but not entirely free fromdoubt, an advisory opinion will be issued only if it is estab-lished to the satisfaction of the Department, that a businessemergency requires an advisory opinion or that unusual hard-ship to the plan or its participants and beneficiaries will re-sult from failure to obtain an advisory opinion. In any casein which the individual or organization believes that a busi-ness emergency exists or that an unusual hardship to theplan or its participants and beneficiaries will result from thefailure to obtain an advisory opinion, the individual or orga-nization should submit with the request a separate letter set-ting forth the facts necessary for the Department to make adetermination in this regard. In this connection, the Depart-ment will not deem a “business emergency” to result fromcircumstances within the control of the individual or organi-zation such as, for example, scheduling within an inordi-nately short time the closing date of a transaction or a meet-ing of the Board of Directors or the shareholders of a corpo-ration.

.03(c) If an inquiry presents an issue that cannot bereasonably resolved prior to the issuance of a regulation, anadvisory opinion will not be issued.

.04 The Department ordinarily will not issue advi-sory opinions on the form or effect in operation of a plan,fund, or program (or a particular provision or provisionsthereof) subject to Title I of the Act. For example, the De-partment will not issue an advisory opinion on whether aplan satisfies the requirements of Parts 2 and 3 of Title I ofthe Act.

SEC. 6. Instructions to individuals and organiza-tions requesting advisory opinions from the Department. .01If an advisory opinion is desired, a request should be sub-

mitted to: Office of Regulations and Interpretations, RoomN5669, Pension and Welfare Benefits Administration, U.S.Department of Labor, 200 Constitution Avenue, N.W.,Washington, D.C. 20210.

.02 A request for an advisory opinion must containthe following information:

.02(a) The name and type of plan or plans (e.g.,pension, profit-sharing, or welfare plan); the Employer Iden-tification Number (EIN); the Plan Number (PN) used bythe plan in reporting to the Department of Labor on FormEBS-1 or a copy of the first two pages of the most recentForm EBS-1 filed with the Department.

.02(b) A detailed description of the act or acts ortransaction or transactions with respect to which an advi-sory opinion is requested. Where the request pertains to onlyone step of a larger integrated act or transaction, the facts,circumstances, etc., must be submitted with respect to theentire transaction. In addition, a copy of all documents sub-mitted must be included in the individual’s or organization’sstatement and not merely incorporated by reference, andmust be accompanied by an analysis of their bearing on theissue or issues, specifying the pertinent provisions.

.02(c) A discussion of the issue or issues presentedby the act or acts or transaction or transactions which shouldbe addressed in the advisory opinion.

.02(d) If the individual or organization is request-ing a particular advisory opinion, the requesting party mustfurnish an explanation of the grounds for the request, to-gether with a statement of relevant supporting authority. Eventhough the individual or organization is urging no particu-lar determination with regard to a proposed or prospectiveact or acts or transaction or transactions, the party request-ing the ruling must state such party’s views as to the resultsof the proposed act or acts or transaction or transactions andfurnish a statement of relevant authority to support suchviews.

.03 A request for an advisory opinion by or for anindividual or organization must be signed by the individualor organization or by the individual’s or organization’s au-thorized representative. If the request is signed by a repre-sentative of an individual or organization, or the representa-tive may appear before the Department in connection withthe request, the request must include a statement that therepresentative is authorized to represent the individual ororganization.

.04 A request for an advisory opinion that does notcomply with all the provisions of this procedure will be ac-knowledged, and the requirements that have not been metwill be noted. Alternatively, at the discretion of the Depart-ment, the Department will issue an information letter to theindividual or organization.

.05 If the individual or organization or the autho-rized representative, desires a conference in the event theDepartment contemplates issuing an adverse advisory opin-ion, such desire should be stated in writing when filing therequest or soon thereafter in order that the Department mayevaluate whether in the sole discretion of the Department, aconference should be arranged and at what stage of the con-sideration a conference would be most helpful.

.06 It is the practice of the Department to processrequests for information letters and advisory opinions in regu-lar order and as expeditiously as possible. Compliance witha request for consideration of a particular matter ahead of itsregular order, or by a specified time, tends to delay the dis-position of other matters. Requests for processing ahead of

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the regular order, made in writing (submitted with the re-quest or subsequent thereto) and showing clear need for suchtreatment, will be given consideration as the particular cir-cumstances warrant. However, no assurance can be giventhat any letter will be processed by the time requested. TheDepartment will not consider a need for expedited handlingto arise if the request shows such need has resulted fromcircumstances within the control of the person making therequest.

.07 An individual or organization, or the authorizedrepresentative desiring to obtain information relating to thestatus of his or her request for an advisory opinion may doso by contacting the Office of Regulatory Standards andExceptions, Pension and Welfare Benefit Programs, U.S.Department of Labor, Washington, D.C.

SEC. 7. Instructions to individuals and organiza-tions requesting advisory opinions relating to prohibitedtransactions and common definitions. .01 [Reserved]

.02 [Reserved]

.03 [Reserved]SEC. 8. Conferences at the Department of Labor. If

a conference has been requested and the Department deter-mines that a conference is necessary or appropriate, the indi-vidual or organization or the authorized representative willbe notified of the time and place of the conference. A confer-ence will normally be scheduled only when the Departmentin its sole discretion deems it will be necessary or appropri-ate in deciding the case. If conferences are being arrangedwith respect to more than one request for an opinion letterinvolving the same individual or organization, they will beso scheduled as to cause the least inconvenience to the indi-vidual or organization.

SEC. 9. Withdrawal of requests. The individual ororganization’s request for an advisory opinion may be with-drawn at any time prior to receipt of notice that the Depart-ment intends to issue an adverse opinion, or the issuance ofan opinion. Even though a request is withdrawn, all corre-spondence and exhibits will be retained by the Departmentand will not be returned to the individual or organization.

SEC. 10. Effect of Advisory Opinion. An advisoryopinion is an opinion of the Department as to the applica-tion of one or more sections of the Act, regulations promul-gated under the Act, interpretive bulletins, or exemptions.The opinion assumes that all material facts and representa-tions set forth in the request are accurate, and applies only tothe situation described therein. Only the parties described inthe request for opinion may rely on the opinion, and theymay rely on the opinion only to the extent that the requestfully and accurately contains all the material facts and rep-resentations necessary to issuance of the opinion and thesituation conforms to the situation described in the requestfor opinion.

SEC. 11. Effect of Information Letters. An infor-mation letter issued by the Department is informational onlyand is not binding on the Department with respect to anyparticular factual situation.

SEC. 12. Public inspection. .01 Advisory opinionsshall be open to public inspection at the Public DisclosureRoom, U.S. Department of Labor, 200 Constitution Av-enue, N.W., Washington, D.C. 20216.

.02 Background files (including the request for anadvisory opinion, correspondence between the Department

and the individual or organization requesting the advisoryopinion) shall be available upon written request. Backgroundfiles may be destroyed after three years from the date ofissuance.

.03 Advisory opinions will be modified to deletereferences to proprietary information prior to disclosure. Anyinformation considered to be proprietary should be so speci-fied in a separate letter at the time of request. Other thanproprietary information, all materials contained in the pub-lic files shall be available for inspection pursuant to section12.02.

.04 The cost of search, copying and deletion of anyreferences to proprietary information will be borne by theperson requesting the advisory opinion or the backgroundfile.

SEC. 13. Effective date. This procedure is effectiveAugust 27, 1976, the date of its publication in the FederalRegister.

Signed at Washington, D.C., this 24th day of Au-gust 1976.

James D. HutchinsonAdministrator of Pension and

Welfare Benefit ProgramsU.S. Department of Labor

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