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Status of New Types of Plans

This article might seem like it should be named "No innovative deed goes unpunished." However, in defense of seemingly-stuffy government rules, ERISA was designed to be the ultimate consumer protection law, and its rules do achieve that goal, because sometimes something that sounds PEOs, Leasing and an assortment of other catchy terms & concepts are situations in which marketing terminology is several steps ahead of regulatory language. For example, insurance companies use terms like ASO and Minimum Premium and Experience-rated to describe certain products, but those terms are not in regulatory language and are not recognized in law as separate types of plans. So, the only two choices for type of funding are that an arrangement is fully-insured or self-funded, period. There is NOT a funding category called Partially Self-Funded. That is a slang term, not a legal term or recognized status. In the case of ERISA regulatory categories, a plan is a single-employer, multi-employer (Taft-Hartley collectively-bargained), or a MEWA (Multiple Employer Welfare Arrangement), period. The other problem is that terms such as Leasing & PEO have vastly different meanings to different people, and some of the "little" differences can make a gigantic regulatory difference. Also, for TPAs, there is not only the consideration of what state laws may apply to that kind of plan, but also what rules or limits might exist in state TPA licensing or regulation. Using PEO as an example term, let me walk through the questions & process will need to follow to determine its regulatory status SPBA's guru of state laws, Elizabeth Leight, says that none of the TPA state licensing laws mention PEOs, so we need to move from the PEO name to specifically how the plan an sponsoring entity is organized. How is the plan funded? Fully-insured (in which case the insurer is the regulated entity)? Self-funded by the PEO for its own workers...or by the work-site employer(s)? Assuming self-funded, now comes the tricky part. (1). What entity is the named sponsor of the plan in the plan document? (2). If the arrangement is a hybrid where the workers are sort of employees of the employment place, but listed as "employees" of the PEO sponsor for health insurance purposes, that won't fly, because DOL & ERISA & State laws don't recognize those kinds of hybrid situations. If you want it to be considered a single-employer plan, then the workers have to have all the attributes (W-2, FICA, hiring/firing, etc.) of working for ONE entity, and it is THAT entity which must be the official sponsor of the plan. So, it needs to either be a separate plan of each on-site employer,...or the PEO's plan and workers whom the PEO rents out to others to perform duties (while remaining employees of the PEO). If the PEO is the sponsor of the plan, and the workers have most of the attributes of employment with/from the various employers, then DOL & States would probably consider it to be a self-funded MEWA (which most states directly or indirectly disallow). And/or...sometimes States will declare that the sponsoring organization, such as the PEO, is an "unauthorized insurer", and they make it cease & desist instantly and either close or spend the millions of dollars necessary to become an insurance company with reserves. So, really, what you get down to is the MEWA issue. There are explanation pieces on the member-only website in the ERISA/MEWA section. I would recommend the one with "Wishful Thinking" in the title. Several years ago, several State Attorneys General asked me to write it as the definitive explanation of haw all these names and arrangements cause confusion. Then they sent it to the Attorney General of every state. I just mention that because if your client is thinking of applying wishful thinking, this is what the State may be using as their primer. You are free to print out or cut & paste & send the Wishful thinking piece to your client (but do not give anyone access to the member-only website, because there are some things on there about TPA legal vulnerabilities). There is one last question that could change the above: Is the PEO sponsor a governmental entity (state, county, etc. for government employees....such as a county school district for several schools) or by a religious entity (diocese etc.)? If so, and self-funded, they fall into a mostly-undefined arena. They are not included in any way in ERISA and since MEWA is an ERISA-related term, they are technically not "MEWAs" in a legal terminology sense (but States will apply the MEWA-like ban to them). States MAY, if they wish, regulate these public or religious plans. Most are pretty laid back, but you should check. If the information you derive from this e-mail and the website piece don't give you an answer or strategy (even if it is not what you hoped for), you could call the California office that regulates TPA licensing (since you would need to register as a CA TPA) to talk things through. The number is (916) 492-3033.