Some observations from SPBA Active Past President Fred Hunt
IMPORTANT PREFACE: Let me say that I and many people recognize that careful well-run self-funded Multiple Employer Welfare Benefit Plans (MEWAs) would help the country greatly in providing cost-effective health coverage for businesses and minimizing the number of uninsured Americans. HOWEVER, decades of secret agendas against MEWAs and too many scandals among fly-by-night or misguided promoters have left multiple-employer plans as poisoned ground, politically. The Federal government cedes most authority over MEWAs to the States, and the majority of states directly or indirectly do not allow self-funded multiple employer plans. A few states have specific criteria or regulation that does allow self-funded MEWAs in those states. However, before anyone gets too excited, remember that most state laws apply to "any resident of the state ofƒ.", so even if you establish a MEWA in a state that welcomes MEWAs, what do you do when someone from another state is suddenly thrust into your plan via COBRA, QDRO, QMCSO, or just a new branch office of an employer or long-distance commuter? Various laws require the plan to cover the eligible out-of-state person, but it becomes problematic whether the MEWA is now also covered by the new state which prohibits MEWAs for "any resident of " the new state. Some proposals have been made that would allow some form of Association Health Plan (AHP). However, that kind of "solution" would apply to only very narrow situations, and with strict limits & requirements. Chances of actual passage into law of a useful "solution" are slim.
>>The point of this preface is to say that you should read it with an open mind. This is not propaganda against the concept of multiple employer plans. This is a reality check on some over-active wishful-thinking imaginations.
BACKGROUND: This piece was written when some State Attorneys General complained to the Dept. of Labor (DOL) that they were getting a lot of double-talk about multiple-employer plans & what is and is not a MEWA. The State Attorneys General asked DOL for a layman's explanation. DOL referred them to SPBA for the explanation. I drafted this piece, and it was informally reviewed & OK'd by the DOL official in charge of MEWA policy at the time. The State Attorneys General subsequently distributed this to every State Attorney General office in the country. As the title indicates, this issue spawns lots of wishful-thinking about why something isn't really a MEWA or whatever. Those people do not want to believe what is said in this memo. So, I mention that this is what is in the files of the State Attorney General's office, distributed to them by the natl. assn. of State Attorneys General, so that's the point from which state regulators & enforcers would be acting.
No issue generates as much off-the-wall wishful-thinking and blindness as self-funded multiple-employer plans. It seeps into all kinds of different areas of law & regulation. This article could easily be a thick book. Instead, I will try to be as brief and direct as possible. I am speaking only about self-funded plans. Fully-insured multiple employer plans are already regulated by states via the insurance company.
Name game: There are only three general kinds of self-funded plans in ERISA: Single employer...plus... multi-employer (based on collective bargaining agreement with a jointly-administered Board of Trustees. Multi-employer plans are often called "Taft-Hartley" after the law that allowed such arrangements)...plus...a multiple employer plan (MEWA, formerly known as an MET - Multiple Employer Trust). That's it. No amount of creative naming of schemes makes it different. "Multi-employer" is NOT a synonym for "multiple employer". An association or any grouping of employers who are not under the same operational "control group" (such as a holding company or subsidiary relationship) are still a MEWA, no matter what fancy names and wishful-thinking is applied. Just because something calls itself a "union" does not mean that it is magically automatically a Taft-Hartley multi-employer plan. In fact, the Department of Labor seems to be harshest in enforcement against "fake union" plans. So, always cut through the fluff and any creative terminology, and determine what kind of plan it really is: Single employer or Multi-employer, or Multiple employer.
Regulatory authority: Single employer and Taft-Hartley (multi) self-funded plans are generally recognized as full ERISA plans, subject to the fiduciary limitations, reporting, other requirements... and ERISA preemption of state insurance laws. Due to some unfortunate legislative compromises starting when ERISA was written, MEWAs (called Multiple Employer Trusts or METs before 1983) were given a hybrid status in the ERISA law. It is this hybrid status that causes the confusion and wishful-thinking trouble to this day.
Originally (1974), MET (MEWAs) were allowed to be full ERISA plans and have preemption of state laws if and only if they had specific case-by-case approval from the Secretary of Labor. However, that language in ERISA was accompanied by a huge unwritten agreement that no such approvals would ever be made by the Secretary of Labor. To this day, DOL has not given such specific approval for any MEWA to be a full ERISA plan, so if anyone claims to have such a full approval, it is either fake or a museum piece. In 1983, there was legislation intended to "clarify" (which means to further confuse in Congressional lingo) the issue. What was described as an easing actually locked the door for any specific approvals to be issued by DOL to allow a MEWA to be a full ERISA plan.
So, what is MEWA's hybrid regulatory status??? A MEWA (including all participating employers and the administrators/sponsor/promoters) are subject to all the strict ERISA fiduciary limits and requirements. (ERISA fiduciary responsibility, which casts a very broad net to apply to some degree to anyone who has any "discretionary authority" over the plan or assets, should not be glossed-over.) A MEWA is also obligated to file a Form 5500. (But do not think that filing Form 5500 makes it a full ERISA plan. Remember, this is a hybrid situation!)
So, MEWAs have some duties under ERISA. However, the Department of Labor also gives states authority to regulate MEWAs to any degree "not inconsistent with Title I of ERISA". So, 90% of the nitty-gritty regulatory authority over MEWAs.(including prohibiting them from existing) rests with the states. Go back and re-read the last two paragraphs, to be sure that this dual hybrid regulatory status is clear in your mind.
Confusing situations: Even with the previous two paragraphs and the warnings against imaginative language & wishful thinking firmly in your mind, some confusing situations arise in complex modern business life. If you called the Department of Labor and asked them to tell you whether something is a MEWA, they would say, that the answer depends on the facts & circumstances of each situation. So, unless you have a specific formal Opinion Letter signed by DOL, it's still unofficial personal opinion in the brain-storming stage.
"Control Group" is the main factor for determining whether a group of employers is a single-employer or MEWA. Defining the concept of "control group" (and thus what constitutes a MEWA....versus a grouping of commonly-controlled subsidiaries) has not been DOL's finest hour for clarity. It's not really their fault. They know that their rules have to be applied to all sorts of unusual scenarios. At various times, you will hear from DOL that common-ownership at rates from 25% to 80% constitutes the requirement to be a single "control group". So, if one business owns at least 25% (or 80%) of all the other businesses, or there is a single holding company that owns at least 25% (or 80%) of all, there is usually a "control group", and thus eligible to form a single-employer plan for all the businesses.
Let me mention some pitfalls of confusion:
>>All in the family: Not all shared ownership scenarios constitute a single "control group" allowed to form an ERISA single-employer plan. Contrasted to the example above of subsidiaries or a single holding company, there are often family arrangements. It arises whether it is a bunch of Mom & Pop businesses....or Fortune 500 semi-affiliated firms. Example: Mom, Dad, Son, and Daughter live together and have various businesses and cross-ownerships. Dad owns 80% of the dry cleaner, and 10% of Mom's beauty salon. Mom owns 80% of the beauty salon and 5% of the dry cleaner and 5% of the gas station and 15% of the florist. Son owns 90% of the gas station, and 5% of the dry cleaner and the beauty salon and the florist. Daughter owns 80% of the florist, and 5% of all the others. (I hope the math adds up, but the important point is you've got the picture of a close family where they all combine their efforts for business success in the various ventures.) If they want to start a health plan for all of them and their workers, is it a single employer or a multiple employer??? In this scenario, it would be a MEWA. There is lots of cross-ownership, but there is no central "control group" that owns at least 25% (ors 80%) of all of the businesses. It also appears that it is individual investment, not one business owning another.
>>Leased employees and variously-named arrangements have workers employment status (source of the W-2) technically shifted from the workplace "employer" to some central entity (leasing company, etc.). A true pure leasing company is a single-employer plan. HOWEVER, the market pressure in the leasing market forces many leasing companies to let the workplace "employer" retain many of the powers and attributes of being the official "employer". There is some unwritten common-sense line where the workplace "employer" is seen as the true employer, and the "leasing" arrangement for benefits looks like a sham arrangement or a MEWA. I have a common sense test to help you understand and make this judgement. I call it the Hertz test. When you lease a car from Hertz, you drive it anywhere you want to go. You are the equivalent of the workplace "employer". However, there is no doubt in your mind that that car belongs to Hertz. Hertz bought it, and decided how much to pay for it. Hertz will decide when to sell it. Hertz chose the color. Hertz does repairs & maintenance. A true leased-employee situation (like the rental car example) would be a single-employer plan. However, the more that the workplace "employer" gets to take employer-like actions, the more it moves towards being a MEWA.
>>Independent contractor or employee? This seems to come up most often with truckers & doctors. For tax and other reasons, the owner-operator trucker (or doctor or consultant or whatever) definitely wants to be an independent contractor business, and take the business tax deductions as such. Fine. However that same trucker or whatever also says that since all or most of his work is for one company (or hospital or whatever), why can't the company just add him on as an employee under the company's single-employer health plan. Alarm buzzers in your brain should be going off now, telling you that a person can't claim to be an independent stand-alone business and also, simultaneously, a mere employee of the client. Two unhappy things can happen if the single-employer plan does the "kind" thing of taking the independent contractor into the plan. First, the single-employer plan just became a MEWA because it is composed of two employers (the doctor's office, and the hospital) not in the same control group. Second, the independent contractor person who pleaded to be allowed into the plan suddenly becomes furious, because the IRS rejects all his huge tax deductions for his "business". Why? Well, the IRS to whom the independent contractor is claiming to be independent, is the same IRS receiving documentation from the plan showing that he is not independent, but a mere employee of the client employer. You can't have your cake and eat it too. If there were a true (not sham) second job situation, with W-2 forms etc. (such as the trucker who also works part-time as a store sales clerk), the store's single-employer plan status would not be undercut because an employee also had a side business of his own. The store clerk earned coverage solely from the store job.
>>VEBA 501(c)(9): VEBA ("vee-baa") wins the prize as most misunderstood and mis-used term in all of employee benefits. People think that the mere mention of the word is a magic passport and exemption. In truth, VEBA is not an ERISA term and is not even a Department of Labor or insurance term. So, saying "VEBA" in a discussion about ERISA status or regulation is like mentioning the irrelevant fact that you are wearigbn a sweater. "VEBA" is also not a synonym for a "trust". VEBA (Voluntary Employees' Beneficiary Association) is simply a minor IRS tax term. All VEBA status does is to make the interest earned on the plan assets tax exempt (as opposed to taxable in a regular trust account). In the days of huge reserves and high interest rates, VEBA status made lots of financial sense, but in 1984 Congress legislated little or no plan reserves in health plans, and interest rates are low, so VEBA doesn't make sense for most plans. In fact, paying the IRS "user fee" to get VEBA status may cost more than the tax on the interest. In any case, VEBA means nothing in ERISA.
>> Fortune 500 MEWAs: Finally, most people think of MEWA as a small-employer issue. However, several years ago, the Congressional Research Service estimated that 62% of Fortune 500 firms have MEWAs. Those big companies had no idea then, and have no idea now that some of their plans are self-funded MEWAs in states that don't allow them. However, when you stop to think of all the partial ownership and relationships among major corporations & conglomerates, it is easy to imagine how/why many fail to meet the single "control group" requirement to be considered a single employer, so that leaves them to be MEWAs. I mention this only as a point of interest. Do not expect a regulatory crackdown on MEWAs in the large companies, even though ERISA was passed in reaction to the collapse of the major corporation Studebaker, and we have seen other large collapses. Large corporate entities are too complex to figure out what's what; they have resources to out-gun the regulators; and... they can apply political pressure in states and on the federal scene.
Who loses? Why should agents, brokers, TPAs, promoters and others care about what happens? Remember, ERISA fiduciary (and MEWAs are subject to fiduciary responsibility) applies to anyone who has discretionary power over the plan or assets. This is also sometimes described as anyone who knew or should have known about something not prudent for the plan & covered lives. If the plan goes bust, the Department of Labor is able to bring civil and/or criminal (jail time) charges against anyone it thinks was not prudent. States will bring their own penalties. Worst of all, lots of employers and hundreds or thousands of individuals are left with the damage of unpaid bills. It gets ugly fast.
So, the moral of this story to understand MEWAs and determine what is and is not one is keeping in mind a few key facts, and then proceeding without letting wishful-thinking or "imaginative" vocabulary distract your thinking.
SPBA is the national association of Third Party Administration (TPA) firms. Nothing written or spoken from SPBA should ever be considered legal advice.