MEWAs 2022

MEWAs

Multiple Employer Welfare Arrangements under the

Employee Retirement Income Security Act (ERISA):

A Guide to Federal and State Regulation

U.S. Department of Labor

Employee Benets Security Administration

This publication has been developed by the U.S. Department of Labor,

Employee Benets Security Administration.

To view this and other EBSA publications, visit the agency’s website at

www.dol.gov/ebsa.

To order publications or request assistance from a benets advisor,

contact EBSA electronically at www.askebsa.dol.gov or call toll free:

1-866-444-3272

This material will be made available in alternative format to persons with

disabilities upon request:

Voice phone: (202) 693-8664

TTY: (202) 501-3911

This booklet constitutes a small entity compliance guide for purposes of

the Small Business Regulatory Enforcement Fairness Act of 1996.

MEWAs

Multiple Employer Welfare Arrangements under the

Employee Retirement Income Security Act (ERISA):

A Guide to Federal and State Regulation

U.S. Department of Labor

Employee Benets Security Administration

Revised April 2022

Table of Contents

Foreword 1

Introduction 3

Regulation of Multiple Employer Welfare Arrangements under 5

ERISA

What is an “employee welfare benet plan”? 6

What is an “employer”? 7

What is an “employee organization”? 9

What types of plans are excluded from coverage under Title I of 10

ERISA?

What requirements apply to an employee welfare benet plan 11

under Title I of ERISA?

To what extent does ERISA govern the activities of MEWAs that 15

are not “employee welfare benet plans”?

Regulation of Multiple Employer Welfare Arrangements under 17

State Insurance Laws

of two or more employers?

What is the general scope of ERISA preemption? 17

What is a “multiple employer welfare arrangement”? 19

Does the arrangement oer or provide benets to the employees 20

Is the arrangement excluded from the denition of “MEWA”?

To what extent may States regulate ERISA-covered welfare plans

that are MEWAs?

Form M-1 Filing Requirement for MEWAs

ERISA Advisory Opinions

ERISA Enforcement 39

Appendix A - Advisory Opinions and Information Letters

Advisory Opinion 90-18A

Advisory Opinion 92-05A

Advisory Opinion 2007-06A

UEVEBA Letter

The Honorable George J. Chanos Letter

Appendix B - Advisory Opinion Procedure 59

Appendix C - Regulations 63

Foreword

This booklet was prepared by the Employee Benefits Security Administration

of the U.S. Department of Labor in an effort to address many of the questions

that have been raised concerning the effect of the Employee Retirement Income

Security Act (ERISA) on Federal and State regulation of “multiple employer

welfare arrangements” (MEWAs). It is the hope of the Department that the

information contained in this booklet will not only provide a better understanding

of the scope and effect of ERISA coverage, but also will serve to facilitate State

regulatory and enforcement efforts, as well as Federal-State coordination, in the

MEWA area.

Introduction

For many years, promoters and others have established and operated

multiple employer welfare arrangements (MEWAs), also described as “multiple

employer trusts” or “METs,” as vehicles for marketing health and welfare

benefits to employers for their employees. Promoters of MEWAs have typically

represented to employers and State regulators that the MEWA is an employee

benefit plan covered by the Employee Retirement Income Security Act (ERISA)

and, therefore, exempt from State insurance regulation under ERISA’s broad

preemption provisions.

By avoiding State insurance reserve, contribution and other requirements

applicable to insurance companies, MEWAs are often able to market insurance

coverage at rates substantially below those of regulated insurance companies,

thus, in concept, making the MEWA an attractive alternative for those small

businesses finding it difficult to obtain affordable health care coverage for their

employees. In practice, however, a number of MEWAs have been unable to pay

claims as a result of insufficient funding and inadequate reserves. Or in the worst

situations, they were operated by individuals who drained the MEWA’s assets

through excessive administrative fees and outright embezzlement.

Prior to 1983, a number of States attempted to subject MEWAs to

State insurance law requirements, but were frustrated in their regulatory and

enforcement efforts by MEWA-promoter claims of ERISA-plan status and

Federal preemption. In many instances MEWAs, while operating as insurers, had

the appearance of an ERISA-covered plan — they provided the same benefits as

ERISA-covered plans, benefits were typically paid out of the same type of tax-

exempt trust used by ERISA-covered plans, and, in some cases, filings of ERISA-

required documents were made to further enhance the appearance of ERISA-plan

status. MEWA-promoter claims of ERISA-plan status and claims of ERISA

preemption, coupled with the attributes of an ERISA plan, too often served to

impede State efforts to obtain compliance by MEWAs with State insurance laws.

Recognizing that it was both appropriate and necessary for States to be able

to establish, apply and enforce State insurance laws with respect to MEWAs,

the U.S. Congress amended ERISA in 1983, as part of Public Law 97-473, to

provide an exception to ERISA’s broad preemption provisions for the regulation

of MEWAs under State insurance laws.

While the 1983 ERISA amendments were intended to remove Federal

preemption as an impediment to State regulation of MEWAs, it is clear that

MEWA promoters and others have continued to create confusion and uncertainty

as to the ability of States to regulate MEWAs by claiming ERISA coverage

and protection from State regulation under ERISA’s preemption provisions.

Obviously, to the extent that such claims have the effect of discouraging or

delaying the application and enforcement of State insurance laws, the MEWA

promoters benefit and those dependent on the MEWA for their health care

coverage bear the risk.

The Patient Protection and Affordable Care Act (ACA) established a

multipronged approach to MEWA abuses. Improvements in reporting, together

with stronger enforcement tools, are designed to reduce MEWA fraud and abuse.

These include expanded reporting and required registration with the Department

of Labor prior to operating in a State. The additional information provided will

enhance the State and Federal governments’ joint mission to prevent harm and

take enforcement action. The ACA also strengthened enforcement by giving

the Secretary of Labor authority to issue a cease and desist order when a MEWA

engages in fraudulent or other abusive conduct and issue a summary seizure order

when a MEWA is in a financially hazardous condition.

This booklet is intended to assist State officials and others in addressing

ERISA-related issues involving MEWAs. The Employee Benefits Security

Administration has attempted in this booklet to provide a clear understanding of

ERISA’s MEWA provisions, and the effect of those provisions on the respective

regulatory and enforcement roles of the Department of Labor and the States in

the MEWA area. Such understanding should not only facilitate State regulation

of MEWAs, but should also enhance Federal-State coordination efforts with

respect to MEWAs and, in turn, ensure that employees of employers participating

in MEWAs are afforded the benefit of the safeguards intended under both ERISA

and State insurance laws.

The first part of this booklet, Regulation of Multiple Employer Welfare

Arrangements under ERISA, focuses on what constitutes an ERISA-covered

plan and the regulatory and enforcement authority of the Department of Labor

over such plans. The second part of the booklet, Regulation of Multiple

Employer Welfare Arrangements under State Insurance Laws, focuses on

what is and what is not a MEWA and the extent to which States are permitted to

regulate MEWAs that are also ERISA-covered welfare benefit plans.

Regulation of Multiple Employer Welfare

Arrangements under ERISA

The U.S. Department of Labor, through the Employee Benefits Security

Administration (EBSA), is responsible for the administration and enforcement of

the provisions of Title I of ERISA (29 U.S.C. §1001 et seq.). In general, ERISA

prescribes minimum participation, vesting and funding standards for private-

sector pension benefit plans and reporting and disclosure, claims procedure,

bonding and other requirements which apply to both private-sector pension plans

and private-sector welfare benefit plans. ERISA also prescribes standards of

fiduciary conduct which apply to persons responsible for the administration and

management of the assets of employee benefit plans subject to ERISA.

ERISA covers only those plans, funds, or arrangements that constitute

an “employee welfare benefit plan,” as defined in ERISA Section 3(1), or

an “employee pension benefit plan,” as defined in ERISA Section 3(2). By

definition, MEWAs do not provide pension benefits; therefore, only those

MEWAs that constitute “employee welfare benefit plans” are subject to ERISA’s

provisions governing employee benefit plans.

Prior to 1983, if a MEWA was determined to be an ERISA-covered plan,

State regulation of the arrangement would have been precluded by ERISA’s

preemption provisions. On the other hand, if the MEWA was not an ERISA-

covered plan, which was generally the case, ERISA’s preemption provisions did

not apply and States were free to regulate the entity in accordance with applicable

State law. As a result of the 1983 MEWA amendments to ERISA, discussed in

detail later in this booklet, States are now free to regulate MEWAs whether or not

the MEWA may also be an ERISA-covered employee welfare benefit plan.

Under current law, a MEWA that constitutes an ERISA-covered plan is

required to comply with the provisions of Title I of ERISA applicable to employee

welfare benefit plans, in addition to any State insurance laws that may be

applicable to the MEWA. If a MEWA is determined not to be an ERISA-covered

plan, the persons who operate or manage the MEWA may nonetheless be subject

to ERISA’s fiduciary responsibility provisions if such persons are responsible for,

or exercise control over, the assets of ERISA-covered plans. In both situations,

the Department of Labor would have concurrent jurisdiction with the State(s) over

the MEWA.

The following discussion provides a general overview of the factors

considered by the Department of Labor in determining whether an arrangement

is an “employee welfare benefit plan” covered by ERISA, the requirements

applicable to welfare plans under Title I of ERISA, and the regulation of persons

who administer and operate MEWAs as fiduciaries to ERISA-covered welfare

plans.

What is an “employee welfare benet plan”?

The term “employee welfare benefit plan” (or welfare plan) is defined in

Section 3(1) of ERISA, 29 U.S.C. §1002(1), as follows:

any plan, fund, or program which was heretofore or is hereafter

established or maintained by an employer or by an employee

organization, or by both, to the extent that such plan, fund, or

program was established or is maintained for the purpose of

providing for its participants or their beneficiaries, through the

purchase of insurance or otherwise, (A) medical, surgical, or

hospital care or benefits, or benefits in the event of sickness,

accident, disability, death or unemployment, or vacation benefits,

apprenticeship or other training programs, or day care centers,

scholarship funds, or prepaid legal services, or (B) any benefit

described in section 302(c) of the Labor Management Relations

Act, 1947 (other than pensions on retirement or death, and

insurance to provide such pensions). (Emphasis supplied.)

A determination as to whether a particular arrangement meets the statutory

definition of “welfare plan,” typically involves a two-step analysis. The first part

of the analysis involves a determination as to whether the benefit being provided

is a benefit described in Section 3(1). The second part of the analysis involves a

determination as to whether the benefit arrangement is established or maintained

by an “employer” or an “employee organization.” Each of these steps is discussed

below.

Is there a plan, fund or program providing a benet described in

Section 3(1)?

A plan, fund or program will be considered an ERISA-covered welfare plan

only to the extent it provides one or more of the benefits described in Section

3(1).

As reflected in the definition of “welfare plan,” the benefits included as

welfare plan benefits are broadly described and wide ranging in nature. By

regulation, the Department of Labor has provided additional clarifications as to

what are and are not benefits described in Section 3(1) (See: 29 CFR §2510.3-1).

In most instances, however, it will be fairly clear from the facts whether a benefit

described in Section 3(1) is being provided to participants.

For example, the provision of virtually any type of health, medical, sickness,

or disability benefit will be the provision of a benefit described in Section

3(1). Where there is an employer or employee organization providing one or

more of the described benefits, the Department has generally held that there is

a “plan,” regardless of whether the program of benefits is written or informal,

funded (i.e., with benefits provided through a trust or insurance) or unfunded

(i.e., with benefits provided from the general assets of the employer or employee

organization), offered on a routine or ad hoc basis, or is limited to a single

employee-participant.

If it is determined that a Section 3(1) benefit is being provided, a

determination then must be made as to whether the benefit is being provided by a

plan “established or maintained by an employer or by an employee organization,

or by both.” Under Section 3(1), a plan, even though it provides a benefit

described in Section 3(1), will not be deemed to be an ERISA-covered employee

welfare benefit plan unless it is established or maintained by an employer (as

defined in ERISA Section 3(5)), or by an employee organization (as defined in

ERISA Section 3(4)), or by both an employer and employee organization.

For example, MEWAs provide benefits described in Section 3(1) (e.g.,

medical and hospital benefits), but MEWAs generally are not established or

maintained by either an employer or employee organization and, for that reason,

do not constitute ERISA-covered plans.

What is an “employer”?

The term “employer” is defined in Section 3(5) of ERISA, 29 U.S.C.

§1002(5), to mean:

any person acting directly as an employer, or indirectly in the

interest of an employer, in relation to an employee benefit plan;

and includes a group or association of employers acting for an

employer in such capacity.

Under the definition of “employer,” an employee welfare benefit plan might

be established by a single employer or by a group or association of employers

acting on behalf of its employer-members with respect to the plan. “Employer”

status is rarely an issue where only a single employer is involved in the provision

of welfare benefits to employees. However, questions frequently are raised as to

whether a particular group or association constitutes an “employer” for purposes

of Section 3(5).

In order for a group or association to constitute an “employer” within

the meaning of Section 3(5), there must be a bona fide group or association of

employers acting in the interest of its employer-members to provide benefits for

their employees. In this regard, the Department has expressed the view that where

several unrelated employers merely execute identically worded trust agreements

or similar documents as a means to fund or provide benefits, in the absence of any

genuine organizational relationship between the employers, no employer group

or association exists for purposes of Section 3(5). Similarly, where membership

in a group or association is open to anyone engaged in a particular trade or

profession regardless of their status as employers (i.e., the group or association

members include persons who are not employers) or where control of the group or

association is not vested solely in employer members, the group or association is

not a bona fide group or association of employers for purposes of Section 3(5).

The following factors are considered in determining whether a bona fide

group or association of employers exists for purposes of ERISA: how members

are solicited; who is entitled to participate and who actually participates in the

association; the process by which the association was formed; the purposes for

which it was formed and what, if any, were the pre-existing relationships of its

members; the powers, rights and privileges of employer-members; and who

actually controls and directs the activities and operations of the benefit program.

In addition, employer-members of the group or association that participate in

the benefit program must, either directly or indirectly, exercise control over that

program, both in form and in substance, in order to act as a bona fide employer

group or association with respect to the benefit program. It should be noted that

whether employer-members of a particular group or association exercise control

in substance over a benefit program is an inherently factual issue on which the

Department generally will not rule.

Where no bona fide group or association of employers exists, the benefit

program sponsored by the group or association would not itself constitute an

ERISA-covered welfare plan; however, the Department would view each of

the employer-members that utilizes the group or association benefit program to

provide welfare benefits to its employees as having established separate, single-

employer welfare benefit plans subject to ERISA. In effect, the arrangement

sponsored by the group or association would, under such circumstances, be

viewed merely as a vehicle for funding the provision of benefits (like an insurance

company) to a number of individual ERISA-covered plans.

If a benefit program is not maintained by an employer, the program may

nonetheless be an ERISA-covered plan if it is maintained by an “employee

organization.”

What is an “employee organization”?

The term “employee organization” is defined in Section 3(4) of ERISA,

29 U.S.C. §1002(4). There are two types of organizations included within the

definition of “employee organization.” The first part of the definition includes:

any labor union or any organization of any kind, or any agency or

employee representation committee, association, group or plan,

in which employees participate and which exists for the purpose,

in whole or in part, of dealing with employers concerning an

employee benefit plan, or other matters incidental to employment

relationships; …

This part of the definition is generally limited to labor unions. In order for

an organization to satisfy this part of the definition of “employee organization,”

employees must participate in the organization (i.e., as voting members) and the

organization must exist, at least in part, for the purpose of dealing with employers

concerning matters relating to employment.

The second part of the definition of “employee organization” includes:

… any employees’ beneficiary association organized for the

purpose in whole or in part, of establishing such a plan.

While the term “employees’ beneficiary association” is not defined in

Title I of ERISA, the Department of Labor applies the same criteria it utilized

in construing that term under the Welfare and Pension Plans Disclosure Act,

which preceded ERISA’s enactment. Applying those criteria, an organization

or association would, for purposes of ERISA Section 3(4), be an “employees’

beneficiary association” only if: (1) membership in the association is conditioned

on employment status (i.e., members must have a commonality of interest

with respect to their employment relationships); (2) the association has a

formal organization, with officers, by-laws, or other indications of formality;

(3) the association generally does not deal with an employer (as distinguished

from organizations described in the first part of the definition of “employee

organization”); and (4) the association is organized for the purpose, in whole or

in part, of establishing an employee benefit plan. In order to be an employee

organization under either part of section 3(4) of ERISA, the functions and

activities of the organization must be in fact controlled by its members, either

directly or through the regular election of directors, officers, etc. See, e.g.

Advisory Opinion 1992-19A (participation in employees beneficiary association

means control).

It should be noted that the term “employees’ beneficiary association” used in

Section 3(4) of ERISA is not synonymous with the term “voluntary employees’

beneficiary association” used in Section 501(c)(9) of the Internal Revenue Code

(the Code). Code Section 501(c)(9) provides a tax exemption for a “voluntary

employees’ beneficiary association” providing life, sickness, accident, or other

benefits to its members or their dependents or beneficiaries. While many

trusts established under ERISA-covered welfare plans obtain an exemption

from Federal taxation by satisfying the requirements applicable to voluntary

employees’ beneficiary associations, satisfying such requirements under the

Internal Revenue Code is not in and of itself indicative of whether the entity is an

“employees’ beneficiary association” for purposes of ERISA Section 3(4).

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

ERISA?

There are certain arrangements that appear to meet the definition of an

“employee welfare benefit plan” but which nonetheless are not subject to the

provisions of Title I of ERISA.

Section 4(b) of ERISA, 29 U.S.C. §1003(b), specifically excludes from Title

I coverage the following plans: (1) governmental plans (as defined in Section

3(32)); (2) church plans (as defined in Section 3(33)); (3) plans maintained solely

to comply with workers’ compensation, unemployment compensation or disability

insurance laws; and (4) certain plans maintained outside the United States.

In addition, the Department of Labor has issued regulations, 29 CFR

§2510.3-1, which clarify the definition of “employee welfare benefit plan.”

Among other things, these regulations serve to distinguish certain “payroll

practices” from what might otherwise appear to be ERISA-covered welfare plans

(e.g., payments of normal compensation to employees out of the employer’s

general assets during periods of sickness or vacation).

What requirements apply to an employee welfare benet plan

under Title I of ERISA?

In general, an employee welfare benefit plan covered by ERISA is subject

to the reporting and disclosure requirements of Part 1 of Title I; the fiduciary

responsibility provisions of Part 4 of Title I; the administration and enforcement

provisions of Part 5 of Title I; the continuation coverage provisions of Part 6 of

Title I of ERISA and the health care provisions of Part 7 of Title I of ERISA. It is

important to note that, unlike ERISA-covered pension plans, welfare plans are not

subject to the participation, vesting, or funding standards of Parts 2 and 3 of Title

I of ERISA. It also is important to note that merely undertaking to comply with

the provisions of ERISA, such as with the reporting and disclosure requirements,

does not make an arrangement an ERISA-covered plan.

The following is a general overview of the various requirements applicable

to welfare plans subject to ERISA.

Under Part 1 of Title I, 29 U.S.C. §§1021 - 1031, the administrator of an

employee benefit plan is required to furnish participants and beneficiaries with a

summary plan description (SPD), which describes, in understandable terms, their

rights, benefits and responsibilities under the plan. If there are material changes

to the plan or changes in the information required to be contained in the summary

plan description, summaries of these changes are also required to be furnished to

participants.

The plan administrator also is required, under Part 1, to file with the

Department an annual report (the Form 5500 Series) each year which contains

financial and other information concerning the operation of the plan. The Form

5500 Series is a joint Department of Labor - Internal Revenue Service - Pension

Benefit Guaranty Corporation annual report form series. The forms are filed with

the Department of Labor, which processes the forms and furnishes the data to the

Internal Revenue Service. Pursuant to regulations issued by the Department, all

welfare plans required to file a Form M-1, Report for Multiple Employer Welfare

Arrangements (MEWAs) and Certain Entities Claiming Exception (ECEs), must

file an annual report with the Department regardless of the plan size or type

of funding, and include information on compliance with the Form M-1 filing

requirements as part of the Form 5500 filing. (See: page 31 for information

regarding the Form M-1 filing requirements.)

If a plan administrator is required to file an annual report, the administrator

also generally is required to furnish participants and beneficiaries with a summary

of the information contained in that annual report, i.e., a summary annual report.

The Department of Labor’s regulations governing the application, content

and timing of the various reporting and disclosure requirements are set forth at 29

CFR §2520.101-1, et seq.

Part 4 of Title I, 29 U.S.C. §§1101 - 1114, sets forth standards and rules

governing the conduct of plan fiduciaries. In general, any person who exercises

discretionary authority or control respecting the management of a plan or

respecting management or disposition of the assets of a plan is a “fiduciary”

for purposes of Title I of ERISA. Under ERISA, fiduciaries are required,

among other things, to discharge their duties “solely in the interest of plan

participants and beneficiaries and for the exclusive purpose of providing benefits

and defraying reasonable expenses of administering the plan.” In discharging

their duties, fiduciaries must act prudently and in accordance with documents

governing the plan, insofar as such documents are consistent with ERISA. (See:

ERISA Section 404.) Part 4 also describes certain transactions involving a plan

and certain parties, such as the plan fiduciaries, which, as a result of the inherent

conflicts of interest present, are specifically prohibited (See: ERISA Section

406). In certain instances there may be a statutory exemption or an administrative

exemption, granted by the Department, which permits the parties to engage in

what would otherwise be a prohibited transaction, if the conditions specified in

the exemption are satisfied (See: ERISA Section 408).

Part 5 of Title I, 29 U.S.C. §§1131 - 1145, contains the administration and

enforcement provisions of ERISA. Among other things, these provisions describe

the remedies available to participants and beneficiaries, as well as the Department,

for violations of the provisions of ERISA (See: ERISA Sections 501 and 502).

With regard to benefit claims, Part 5, at Section 503, requires that each employee

benefit plan maintain procedures for the filing of benefit claims and for the appeal

of claims that are denied in whole or in part (See also: 29 CFR §2560.503-1).

Part 5 also sets forth, at Section 514, ERISA’s preemption provisions. In

general, Section 514(a) provides that provisions of ERISA shall supersede any

and all State laws insofar as they “relate to” any employee benefit plan. Section

514(b), however, saves certain State laws, as well as Federal laws, from ERISA

preemption, including an exception for the State regulation of MEWAs. These

provisions are discussed in detail later in this booklet.

Part 6 of Title I, 29 U.S.C. §§1161 - 1168, contains the “continuation

coverage” provisions, also referred to as the “COBRA” provisions because they

were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of

1985. In general, the continuation coverage provisions require that participants

and their covered dependents be afforded the option of maintaining coverage

under their health benefit plan, at their own expense, upon the occurrence of

certain events (referred to as “qualifying events”) that would otherwise result in a

loss of coverage under the plan. “Qualifying events” include, among other things:

-- death of the covered employee, termination (other

than by reason of an employee’s gross misconduct), or

reduction of hours of covered employment;

-- divorce or legal separation of the covered employee

from the employee’s spouse;

-- a dependent child ceasing to be a dependent under the

generally applicable requirements of the plan.

Continuation coverage may be maintained for periods up to 18 months,

36 months, or even longer depending on the qualifying event and other

circumstances.

It is important to note that while Title I of ERISA contains continuation

coverage requirements and participants and beneficiaries may enforce their

rights to continuation coverage in accordance with the remedies afforded them

under Section 502 of Title I of ERISA, the Department of Labor has limited

regulatory and interpretative jurisdiction with respect to the continuation coverage

provisions. Specifically, the Department of Labor has responsibility for the

COBRA notification and disclosure provisions, while the Internal Revenue

Service has regulatory and interpretative responsibility for all the other provisions

of COBRA under the Internal Revenue Code.

Part 7 of Title I of ERISA, 29 U.S.C.§1181 et seq., contains provisions

setting forth specific benefit requirements applicable to group health plans and

health insurance issuers under the Health Insurance Portability and Accountability

Act (HIPAA), the Newborns’ and Mothers’ Health Protection Act (Newborn’s

Act), the Mental Health Parity Act (MHPA), the Paul Wellstone and Pete

Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA),

the Women’s Health and Cancer Rights Act (WHCRA), the Genetic Information

Nondiscrimination Act (GINA), Michelle’s Law, and the Patient Protection and

Affordable Care Act (Affordable Care Act).

The HIPAA portability rules, at Section 701 of ERISA, place limitations

on a group health plan’s ability to impose preexisting condition exclusions and

provides special enrollment rights for certain individuals that lose other health

coverage or who experience a life change. Section 702 contains HIPAA’s

nondiscrimination rules that prohibit plans or issuers from establishing rules for

eligibility to enroll in the plan or charging individuals higher premium amounts

based on a health factor. In addition, Section 703 of Part 7 sets forth provisions

for guaranteed renewability in MEWAs and multiemployer plans.

The Newborns’ Act (in Section 711 of ERISA) generally requires group

health plans that offer maternity hospital benefits for mothers and newborns to

pay for at least a 48-hour hospital stay for the mother and newborn following

normal childbirth or a 96-hour hospital stay following a cesarean. MHPA, at

Section 712, provides for parity in the application of annual and dollar limits

on mental health benefits with annual lifetime dollar limits on medical/surgical

benefits. MHPAEA generally requires employment-based group health plans

and health insurance issuers that provide group health coverage for mental

health/substance use disorders to maintain parity between such benefits and

their medical/surgical benefits. WHCRA, at Section 713, provides protections

for patients who elect breast reconstruction or certain other follow-up care

in connection with a mastectomy. GINA expands the genetic information

nondiscrimination protections included in HIPAA. Under GINA, group health

plans and health insurance issuers cannot base premiums for a plan or a group of

similarly situated individuals on genetic information. GINA generally prohibits

plans and issuers from requesting or requiring an individual to undergo genetic

testing, and prohibits a plan from collecting genetic information (including family

medical history) prior to or in connection with enrollment, or for underwriting

purposes. Michelle’s Law prohibits group health plans and issuers from

terminating coverage for a dependent child, whose enrollment in the plan requires

student status at a postsecondary educational institution, if student status is lost as

a result of a medically necessary leave of absence.

The Affordable Care Act added a new Section 715 of ERISA to incorporate

the market reform provisions of the Public Health Service (PHS) Act into

ERISA and the Code, and make them applicable to group health plans and health

insurance issuers providing group health insurance coverage. The Affordable

Care Act also amended Section 101(g) of ERISA to mandate that the Secretary

of Labor require MEWAs to register prior to operating in a state. Section 6605

of the Affordable Care Act added Section 521 to ERISA which authorizes the

Secretary to issue a cease and desist order without prior notice or hearing when it

appears that the conduct of a MEWA is fraudulent, creates an immediate danger

to the public safety or welfare, or is causing or can be reasonably expected

to cause significant, imminent, and irreparable public injury. It also provides

for issuance of a summary seizure order when it appears that a MEWA is in a

financially hazardous condition.

To what extent does ERISA govern the activities of MEWAs that

are not “employee welfare benet plans”?

The Department’s authority is not limited to MEWAs that are employee

welfare benefit plans. When the sponsor of an ERISA-covered single-employer

plan purchases health care coverage for its employees from a MEWA the persons

operating the MEWA typically exercise discretionary authority or control over

the management of those ERISA-covered plans or control over the assets of

such plans, such as in the payment of administrative expenses and in the making

of benefit claim determinations. In doing so, the persons operating the MEWA

would be performing fiduciary acts that are governed by ERISA’s fiduciary

provisions. Where a fiduciary breaches statutorily mandated duties under ERISA,

or where a person knowingly participates in such breach, the U.S. Department of

Labor may pursue civil sanctions.

Moreover, a MEWA that offers benefits in connection with one or more

ERISA-covered plans may be subject to other enforcement actions under ERISA.

When it appears that a MEWA is engaging in conduct that is fraudulent, creates

an immediate danger to the public safety or welfare, or is causing or can be

reasonably expected to cause significant, imminent, and irreparable public injury

the Department may issue an ex parte cease and desist order. (See: ERISA

Section 521(a) and 29 C.F.R. §2560.521-1(c).) MEWAs may also be subject

to summary seizure orders if it appears that they are in a financially hazardous

condition. (See: ERISA Section 521(e) and 29 C.F.R. §2560.521-1(f).) Criminal

penalties may also apply, including if they make false statements in connection

with the sale or marketing of the MEWA. (See: ERISA Sections 501(b) and 519.)

While the Department may pursue enforcement actions with respect to

MEWAs, it is important to note that, in many instances, States may be able to

take quicker action than the Department upon determining that the MEWA has

failed to comply with licensing, contribution or reserve requirements under State

insurance laws. Because of the factual and transactional nature of fiduciary

breach determinations in particular, investigations of possible fiduciary breaches

tend to be very complex and time-consuming and thus, may take considerably

longer.

Regulation of Multiple Employer Welfare

Arrangements under State Insurance Laws

As noted in the introduction, States, prior to 1983, were effectively precluded

by ERISA’s broad preemption provisions from regulating any employee benefit

plan covered by Title I of ERISA. As a result, a State’s ability to regulate

MEWAs was often dependent on whether the particular MEWA was an ERISA-

covered plan. In an effort to address this problem, the U.S. Congress amended

ERISA in 1983 to establish a special exception to ERISA’s preemption provisions

for MEWAs. This exception, which is discussed in detail below, was intended to

eliminate claims of ERISA-plan status and Federal preemption as an impediment

to State regulation of MEWAs by permitting States to regulate MEWAs that are

ERISA-covered employee welfare benefit plans.

The following discussion relating to ERISA’s preemption provisions and

the 1983 MEWA amendments is intended to clarify what is and what is not a

“multiple employer welfare arrangement” within the meaning of ERISA Section

3(40), and the extent to which States may regulate MEWAs, as provided by

ERISA Section 514(b)(6).

What is the general scope of ERISA preemption?

Under the general preemption clause of ERISA Section 514(a), 29 U.S.C.

§1144(a), ERISA preempts any and all State laws which “relate to” any employee

benefit plan subject to Title I of ERISA. However, there are a number of

exceptions to the broad preemptive effect of Section 514(a) set forth in ERISA

Section 514(b), 29 U.S.C. §1144(b), referred to as the “savings clause.”

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

Except as provided in subsection (b) of this section [Section 514],

the provisions of this title [Title I] … supersede any and all State

laws insofar as they may now or hereafter relate to any employee

benefit plan ….

In determining whether a State law may “relate to” an employee benefit

plan, the U.S. Supreme Court has determined that the words “relate to” should

be construed expansively. In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-

97 (1983), the Court held that “[a] law ‘relates to’ an employee benefit plan, in

the normal sense of the phrase, if it has a connection with or reference to such a

plan.” (See also: Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S.

724 (1985)).

As noted above, however, while a State law may be found to “relate to” an

employee benefit plan, within the meaning of Section 514(a) of ERISA, the law

may nonetheless be saved from ERISA preemption to the extent that an exception

described in Section 514(b) applies.

With regard to the application of State insurance laws to ERISA-covered

plans, Section 514(b)(2) contains two relevant exceptions. This section provides,

in relevant part, that:

(A) Except as provided in subparagraph (B), nothing in this title

[Title I] shall be construed to exempt or relieve any person from any

law of any State which regulates insurance….

(B) Neither an employee benefit plan…, nor any trust established

under such a plan, shall be deemed to be an insurance company or

other insurer… for purposes of any law of any State purporting to

regulate insurance companies, insurance contracts,….

Section 514(b)(2)(A) referred to as the “savings clause” essentially preserves

to the States the right to regulate the business of insurance and persons engaged

in that business (See: Metropolitan Life Insurance Co. v. Massachusetts, cited

above, for a discussion of the criteria applied by the U.S. Supreme Court in

determining whether a State law is one that “regulates insurance.”). However,

while Section 514(b)(2)(A) saves from ERISA preemption State laws that regulate

insurance, Section 514(b)(2)(B), referred to as the “deemer clause,” makes clear

that a State law that “purports to regulate insurance” cannot deem an employee

benefit plan to be an insurance company.

While plans purchasing insurance are, as a practical matter, indirectly

affected by State insurance laws (inasmuch as the insurance contracts purchased

by the plans are subject to State insurance law requirements), the “deemer clause,”

prior to 1983, effectively prevented the direct application of State insurance

laws to ERISA-covered employee benefit plans. In 1983, however, ERISA was

amended, as part of Public Law 97-473 (January 14, 1983), to add Section 514(b)(6)

to ERISA’s preemption provisions.

In general, Section 514(b)(6) provides a special exception for the application

of State insurance laws to ERISA-covered welfare plans that are “multiple

employer welfare arrangements” (MEWAs). Because the application of

Section 514(b)(6) is limited to benefit programs that are MEWAs, the following

discussion first reviews what is and what is not a MEWA for purposes of the

Section 514(b)(6) exception, followed by a detailed review of the exception and

its effect on State regulation of MEWAs.

What is a “multiple employer welfare arrangement”?

The term “multiple employer welfare arrangement” is defined in ERISA

Section 3(40), 29 U.S.C. §1002(40). Section 3(40)(A) provides as follows:

(A) The term “multiple employer welfare arrangement” means

an employee welfare benefit plan, or any other arrangement

(other than an employee welfare benefit plan) which is established

or maintained for the purpose of offering or providing any benefit

described in paragraph (1) [welfare plan benefits] to the employees

of two or more employers (including one or more self-employed

individuals), or to their beneficiaries, except that such term does

not include any such plan or arrangement that is established or

maintained -

(i) under or pursuant to one or more agreements which the

Secretary nds to be collective bargaining agreements,

(ii) by a rural electric cooperative, or

(iii) by a rural telephone cooperative association

(Emphasis supplied.)

As reflected above, the definition of MEWA includes both ERISA-covered

employee welfare benefit plans and other arrangements which offer or provide

medical, surgical, hospital care or benefits, or benefits in the event of sickness,

accident, disability, or any other benefit described in ERISA Section 3(1) (See:

definition of “employee welfare benefit plan” on page 6 for a complete list of

benefits). Therefore, whether a particular arrangement is or is not an employee

welfare benefit plan subject to ERISA is irrelevant for purposes of determining

whether the arrangement is a MEWA. In order to constitute a MEWA, however, a

determination must be made that:

-- the arrangement offers or provides welfare benefits to the

employees of two or more employers or to the beneficiaries of

The Rural Telephone Cooperative Associations ERISA Amendments Act of 1991 (Public

Law No. 102-89) amended the denition of “multiple employer welfare arrangement” to

exclude ERISA-covered welfare plans established or maintained by “rural telephone coopera-

tive associations,” as dened in ERISA section 3(40)(B)(v), eective August 14, 1991, the

date of enactment.

such employees (i.e., the arrangement is not a single employer

plan); and

-- the arrangement is not excepted from the definition of MEWA

as established or maintained under or pursuant to one or

more collective bargaining agreements, or by a rural electric

cooperative, or by a rural telephone cooperative association.

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

a MEWA determination.

Does the arrangement oer or provide benets to the employees

of two or more employers?

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

under common control

If a plan is maintained by a single employer for the exclusive purpose

of providing benefits to that employer’s employees, former employees (e.g.,

retirees), or beneficiaries (e.g., spouses, former spouses, dependents) of such

employees, the plan will be considered a single employer plan and not a MEWA

within the meaning of ERISA Section 3(40). For purposes of Section 3(40),

certain groups of employers which have common ownership interests are treated

as a single employer. In this regard, Section 3(40)(B)(i) provides that:

two or more trades or businesses, whether or not incorporated, shall

be deemed a single employer if such trades or businesses are within

the same control group.

In determining whether trades or businesses are within the “same control

group,” Section 3(40)(B)(ii) provides that the term “control group” means a

group of trades or businesses under “common control.” Pursuant to Section

3(40)(B)(iii), whether a trade or business is under “common control” is to be

determined under regulations issued by the Secretary applying principles similar

to those applied in determining whether there is “common control” under Section

4001(b) of Title IV of ERISA, except that common control shall not be based

on an interest of less than 25 percent. Accordingly, trades or businesses with

less than a 25 percent ownership interest will not be considered under “common

control” and, therefore, will not be viewed as a single employer for purposes of

determining whether their plan provides benefits to the employees of two or more

employers under Section 3(40).

With regard to situations where there is a 25 percent or more ownership

interest, it should be noted that the Department has not adopted regulations

under Section 3(40)(B)(iii). Section 4001(b) of Title IV of ERISA and 29 CFR

§4001.3(a) provide, however, the PBGC will determine that trades or businesses

(whether or not incorporated) are under common control if they are “two or more

trades or businesses under common control” as defined in regulations prescribed

under Section 414(c) of the Internal Revenue Code. The regulations issued under

Section 414(c) of the Code (See: 26 CFR §1.414(c)-2) provide that “common

control” generally means, (i) in the case of a parent-subsidiary group, the entities

are connected through at least an 80 percent ownership interest or (ii) in the case

of a brother-sister group: (a) five or fewer persons own at least an 80 percent

interest in each entity, and (b) the same five or fewer persons together own a

greater than 50 percent interest in each entity, taking into account the ownership

of each person only to the extent such ownership is identical with respect to each

organization.

In the absence of regulations under section 3(40)(B)(iii), the Department

would generally follow the Code and Title IV common control rules in

interpreting ERISA’s MEWA preemption provisions. The Department, however,

believes it is important in interpreting section 3(40)(B)(i) to keep in mind the

different policies underlying the section 4001(b) single employer concept and

the single employer provision in section 3(40) of ERISA. The effect of single

employer treatment under ERISA section 4001(b) and Code section 414(c) is to

ignore separate formal business structures of an employer and of businesses under

common control with the employer in order to expand with respect to a particular

plan the range of businesses subject to certain PBGC liabilities and the range of

businesses to which the tax qualification rules would apply. See H. Conf. Rep.

1280, 93d Cong., 2d Sess. 266, 376 (1974); H. Rep. 807, 93d Cong., 2d Sess.

50 (1974). In contrast, Congress’s objective in enacting the MEWA preemption

provisions was to remove impediments to the States’ ability to regulate multiple

employer welfare arrangements and assure the financial soundness and timely

payment of benefits under such arrangements. See 128 Cong. Rec. E2407

(1982) (statement of Congressman Ehrlenborn on the purpose of Pub. L. 97-473

which added ERISA section 3(40) and ERISA section 514(b) reducing the scope

of ERISA preemption of State law applicable to ERISA-covered plans that are

MEWAs). See Information Letter to The Honorable Mike Kreidler, Insurance

Commissioner, Washington Office of Insurance Commissioner (March 1, 2006).

2. Plans maintained by groups or associations of unrelated

employers

Questions have been raised as to whether a plan sponsored by a group or

association acting on behalf of its employer-members, which are not part of

a control group, constitutes a “single employer” for purposes of the MEWA

definition. The question is premised on the fact that the term “employer” is

defined in Section 3(5), 29 U.S.C. §1002(5), to mean “any person acting directly

as an employer, or indirectly in the interest of an employer, in relation to an

employee benefit plan; and includes a group or association of employers acting

for an employer in such capacity.” As discussed earlier, the Department has taken

the position that a bona fide group or association of employers would constitute

an “employer” within the meaning of ERISA Section 3(5) for purposes of having

established or maintained an employee benefit plan. (See: page 8).

However, unlike the specified treatment of a control group of employers as a

single employer, there is no indication in Section 3(40), or the legislative history

accompanying the MEWA provisions, that Congress intended that such groups

or associations be treated as “single employers” for purposes of determining the

status of such arrangements as a MEWA. Moreover, while a bona fide group or

association of employers may constitute an “employer” within the meaning of

ERISA Section 3(5), the individuals typically covered by the group or association-

sponsored plan are not “employed” by the group or association and, therefore, are

not “employees” of the group or association. Rather, the covered individuals are

“employees” of the employer-members of the group or association. Accordingly,

to the extent that a plan sponsored by a group or association of employers

provides benefits to the employees of two or more employer-members (and such

employer-members are not part of a control group of employers), the plan would

constitute a MEWA within the meaning of Section 3(40).

3. Plans maintained by employee leasing organizations

When a health benefit plan is maintained by an employee leasing

organization, there is often a factual question as to whether the individuals

covered by the leasing organization’s plan are employees of the leasing

organization or employees of the client (often referred to as the “recipient”)

employers. If all the employees participating in the leasing organization’s plan

are determined to be employees of the leasing organization, the plan would

constitute a “single employer” plan and not a MEWA. On the other hand, if the

employees participating in the plan include employees of two or more recipient

employers or employees of the leasing organization and at least one recipient

employer, the plan would constitute a MEWA because it would be providing

benefits to the employees of two or more employers.

Like a bona fide group or association of employers, an employee leasing

organization may be an “employer” within the meaning of ERISA Section 3(5)

to the extent it is acting directly or indirectly in the interest of an employer.

However, as with bona de groups or associations of employers, “employer”

status under Section 3(5) does not in and of itself mean the individuals covered

by the leasing organization plan are “employees” of the leasing organization. As

discussed below, in order for an individual to be considered an “employee” of

an “employer” for purposes of the MEWA provisions, an employer-employee

relationship must exist between the employer and the individual covered by the

plan. In this regard, the payment of wages, the payment of Federal, State and

local employment taxes, and the providing of health and/or pension benefits

are not solely determinative of an employer-employee relationship. Moreover,

a contract purporting to create an employer-employee relationship will not be

determinative where the facts and circumstances establish that the relationship

does not exist.

4.Plans maintained by professional employer organizations

[Updated as of April 2022]

The term professional employer organization (PEO) generally refers to an

organization that contracts with client employers to provide a range of human

resource management, payroll, administrative, and employee benefit services

to client employers and the employees of the client employers. A PEO plan

or arrangement that offers or provides health coverage to employees of two or

more client employers, or employees of both the PEO and one or more client

employers, is a MEWA under Section 3(40) because it offers or provides benefits

to employees of two or more employers. A PEO’s status or responsibilities as

“co-employer” under laws other than ERISA are not determinative for purposes of

identifying the PEO as a single employer to the exclusion of others for purposes

of ERISA Section 3(40). Rather, if the PEO’s client employers remain, in any

respect, employers of the employees covered by the PEO’s plan or arrangement,

then the PEO’s plan or arrangement would cover the employees of two or more

employers and would be a MEWA. (See, e.g., Information Letter to George J.

Chanos, Attorney General, Nevada Department of Justice (May 8, 2006)).

Depending on the facts, a PEO-sponsored MEWA may be an arrangement

that provides benefits, similar to an insurance company, to a collection of

separate ERISA-covered single employer plans sponsored by the individual

client employers, or the PEO-sponsored MEWA may itself be an ERISA-covered

multiple employer plan. As explained elsewhere in this booklet, if a MEWA is

itself an ERISA-covered multiple employer plan that is fully insured within the

meaning of Section 514(b)(6)(D) of ERISA, state insurance law may apply to

the extent it provides standards requiring the maintenance of specified levels of

reserves and contributions, and provisions to enforce such standards (See: Section

514(b)(6)(A)(i)). If the MEWA plan is not fully insured, any law of any state

which regulates insurance may apply to the extent such law is not inconsistent

with Title I of ERISA (See: ERISA Section 514(b)(6)(A)(ii)). To the extent a

PEO MEWA is an arrangement that is not itself an ERISA plan, ERISA does not

preempt state regulation of the arrangement under state insurance law.

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

As discussed above, the term “employer” is defined to encompass not only

persons with respect to which there exists an employer-employee relationship

between the employer and individuals covered by the plan (i.e., persons acting

directly as an employer), but also certain persons, groups and associations,

which, while acting indirectly in the interest of or for an employer in relation

to an employee benefit plan, have no direct employer-employee relationship

with the individuals covered under an employee benefit plan. Therefore,

merely establishing that a plan is maintained by a person, group or association

constituting an “employer” within the meaning of ERISA Section 3(5) is not in

and of itself determinative that the plan is a single employer plan, rather than a

plan that provides benefits to the employees of two or more employers (i.e., a

MEWA). A determination must be made as to the party or parties with whom the

individuals covered by the plan maintain an employer-employee relationship.

The term “employee” is defined in Section 3(6) of ERISA, 29 U.S.C.

§1002(6), to mean “any individual employed by an employer.” (Emphasis

supplied.) The Department has taken the position that an individual is “employed”

by an employer, for purposes of Section 3(6), when an employer-employee

relationship exists. While in most instances the existence, or absence, of an

employer-employee relationship will be clear, there may be situations when the

relationship is not entirely free from doubt.

In general, whether an employer-employee relationship exists is a question

that must be determined on the basis of the facts and circumstances involved.

It is the position of the Department that, for purposes of Section 3(6), such

determinations must be made by applying common law of agency principles.

applying common law principles, consideration must be given to, among other

things, whether the person for whom services are being performed has the right

to control and direct the individual who performs the services, not only as to the

result to be accomplished by the work but also as to the details and means by

which the result is to be accomplished; whether the person for whom services are

being performed has the right to discharge the individual performing the services;

whether the individual performing the services is as a matter of economic

reality dependent upon the business to which he or she renders service, etc. In

this regard, it should be noted that a contract purporting to create an employer-

employee relationship will not control where common law factors (as applied to

While common law of agency factors typically have been applied in determining whether a

person is an employee or independent contractor, common law principles are equally applicable

to determining by whom an individual is employed. See: Professional & Executive Leasing, Inc.

v. Commissioner, 89 TC No. 19(1987). Also see: Nationwide Mutual Insurance Co. et al. v.

Darden, 503 U.S., 318, 112 S. Ct. 1344(1992).

the facts and circumstances) establish that the relationship does not exist. (See:

Advisory Opinion No. 92-05, Appendix A.)

Is MEWA status conditioned upon the plan being established or

maintained by an employer(s)?

While the definition of MEWA refers to arrangements that offer or provide

benefits to the employees of two or more employers, the definition of MEWA

is not limited to arrangements established or maintained by an employer. In

fact, Section 3(40) does not condition MEWA status on the arrangement being

established or maintained by any particular party. Accordingly, the MEWA status

of an arrangement is not affected by the absence of any connection or nexus

between the arrangement and the employers whose employees are covered by

the arrangement. For example, in Advisory Opinion No. 88-05, the Department

of Labor concluded that an arrangement established by an association to provide

health benefits to its members, who were full-time ministers and other full-time

employees of certain schools and churches, constituted a MEWA even though

there was no employer involvement with the association’s plan.

Is the arrangement excluded from the denition of MEWA?

Once it has been determined that an ERISA-covered welfare plan provides

benefits to the employees of two or more employers, a determination must

be made as to whether any of the exclusions from MEWA status apply to the

arrangement. Pursuant to ERISA Section 3(40)(A), three types of arrangements

are specifically excluded from the definition of “multiple employer welfare

arrangement,” even though such arrangements may provide benefits to the

employees of two or more employers. Each of these types of arrangements is

discussed in general terms below.

1. Plans maintained pursuant to collective bargaining

agreements

Section 3(40)(A)(i) of ERISA specifically excludes from the MEWA

definition any plan or other arrangement that is established or maintained “under

or pursuant to one or more agreements which the Secretary finds to be collective

bargaining agreements.” The Department has concluded that the exception under

Section 3(40)(A)(i) should be limited to plans providing coverage primarily to

those individuals covered under collective bargaining agreements. Criteria for

what constitutes a plan established or maintained under or pursuant to collective

bargaining is set forth in the Department’s regulation at §29 CFR 2510.3-40(b).

(See: Appendix C.) The criteria are intended to ensure that the statutory exception

is only available to plans whose participant base is predominantly comprised of

the bargaining unit employees on whose behalf such benefits were negotiated and

other individuals with a close nexus to the bargaining unit or the employer(s) of

the bargaining unit employees.

The regulation provides that the entity will be treated as established or

maintained under or pursuant to collective bargaining for purposes of the

exception in Section 3(40)(A)(i) if it meets three affirmative requirements and

does not fall within three exclusions. The affirmative requirements are:

-- the arrangement itself is an employee welfare benefit plan within

the meaning of Section 3(1) of ERISA;

-- at least 85 percent of the participants in the plan who are employed

under one or more collective bargaining agreements meeting

the requirements of the regulation or who otherwise fall within

one of the other categories of persons identified in the regulation

as having a “nexus” to the bargaining unit or employers of the

bargaining unit employees; and

-- the plan is incorporated or referenced in a written agreement

between one or more employers and one or more employee

organizations, which agreement, itself or together with other

agreements among the same parties, is the product of a bona fide

collective bargaining relationship between the employer(s) and the

employee organization(s) and contains certain terms that ordinarily

are in collective bargaining agreements.

The regulation sets forth eight factors indicative of bona fide collective

bargaining. The regulation provides that if four of the eight factors are met, there

is a rebuttable presumption that the bargaining was bona fide. In addition, the

regulation lists a variety of factors that may be examined to rebut the presumption

regarding a plan that meets four of the eight factors, or to prove a plan is in fact

collectively bargained despite its failure to meet four of eight factors.

The regulation provides, however, that a plan will be deemed to be a MEWA

even if it ostensibly meets the affirmative criteria described above, if: (1) the

plan is self-funded or partially self-funded and is marketed to employers or

sole proprietors; (2) the principal intent of the purported collective bargaining

agreement is to evade compliance with State law and regulations applicable to

insurance; or (3) there is fraud, forgery, or willful misrepresentation that the plan

satisfies the affirmative criteria in the regulation.

The Department also has promulgated regulations at 29 CFR part 2570,

subpart H, providing for administrative hearings to obtain a determination by

the Secretary of Labor as to whether a particular entity is an employee welfare

benefit plan established or maintained under or pursuant to one or more collective

bargaining agreements for purposes of Section 3(40) of ERISA. The hearing

procedure is available only in situations where the jurisdiction or law of a State

has been asserted against a plan or other arrangement that contends it meets the

exception in section 3(40)(A)(i) for collectively bargained plans. A petition for a

hearing may be initiated only by the plan or other arrangement. The regulations

specifically provide that filing a petition for a hearing is not intended to provide a

basis for delaying or staying a State proceeding against the plan or arrangement.

2. Rural Electric Cooperatives

Section 3(40)(A)(ii) specifically excludes from the definition of MEWA any

plan or other arrangement that is established or maintained by a “rural electric

cooperative.”

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

(I) any organization which is exempt from tax under Section 501(a) of

the Internal Revenue Code of 1986 and which is engaged primarily

in providing electric service on a mutual or cooperative basis, and

(II) any organization described in paragraph (4) or (6) of Section 501(c)

of the Internal Revenue Code of 1986 which is exempt from tax

under Section 501(a) of such Code and at least 80 percent of the

members of which are organizations described in subclause (I).

3. Rural Telephone Cooperative Associations

Section 3(40)(A)(iii) specifically excludes from the definition of MEWA any

plan or other arrangement that is established or maintained by a “rural telephone

cooperative association.” This exception to MEWA status for rural telephone

cooperative associations became effective on August 14, 1991, the enactment date

of the Rural Telephone Cooperative Associations ERISA Amendments Act of 1991

(Public Law No. 102-89).

Section 3(40)(B)(v), also added to ERISA by Public Law No. 102-89,

defines the term “rural telephone cooperative association” to mean an organization

described in paragraph (4) or (6) of Section 501(c) of the Internal Revenue Code

of 1986 which is exempt from tax under Section 501(a) and at least 80 percent of

the members of which are organizations engaged primarily in providing telephone

service to rural areas of the United States on a mutual, cooperative, or other basis.

To restate the definition of MEWA somewhat differently, a MEWA, within the

meaning of Section 3(40), includes any ERISA-covered employee welfare benefit

plan which is not:

(1) a single employer plan (which includes employers within the same

control group);

(2) a plan established or maintained under or pursuant to a collective

bargaining agreement;

(3) a plan established or maintained by a rural electric cooperative; or

(4) a plan established or maintained by a rural telephone cooperative

association.

If an ERISA-covered employee welfare benefit plan is a MEWA, States may, as

discussed below, apply and enforce State insurance laws with respect to the plan in

accordance with the exception to ERISA preemption under Section 514(b)(6).

To what extent may States regulate ERISA-covered welfare plans

that are MEWAs?

If an ERISA-covered welfare plan is a MEWA, States may apply and enforce

their State insurance laws with respect to the plan to the extent provided by ERISA

Section 514(b)(6)(A), 29 U.S.C. §1144(b)(6)(A). In general, Section 514(b)(6)(A)

provides an exception to ERISA’s broad preemption provisions for the application

and enforcement of State insurance laws with respect to any employee welfare

benefit plan that is a MEWA within the meaning of ERISA Section 3(40).

In effect, Section 514(b)(6)(A) serves to provide an exception to the “deemer

clause” of Section 514(b)(2)(B), which otherwise precludes States from deeming an

ERISA-covered plan to be an insurance company for purposes of State insurance

laws, by permitting States to treat certain ERISA-covered plans (i.e., MEWAs)

as insurance companies, subject to a few limitations. While the range of State

insurance law permitted under Section 514(b)(6)(A) is subject to certain limitations,

the Department of Labor believes that these limitations should have little, if any,

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

laws.

There is nothing in Section 514(b)(6)(A) that limits the applicability of

State insurance laws to only those insurance laws which specifically or otherwise

reference “multiple employer welfare arrangements” or “MEWAs.” Similarly,

while the specific application of a particular insurance law to a particular MEWA

is a matter within the jurisdiction of the State, there is nothing in Section 514(b)(6)

that would preclude the application of the same insurance laws that apply to any

insurer to ERISA-covered plans which constitute MEWAs, subject only to the

limitations set forth in Section 514(b)(6)(A).

Under Section 514(b)(6)(A), the extent to which State insurance laws may be

applied to a MEWA that is an ERISA-covered plan is dependent on whether or not

the plan is fully insured.

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

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

in the case of an employee welfare benefit plan which is a multiple

employer welfare arrangement and is fully insured (or which is

a multiple employer welfare arrangement subject to an exemption

under sub-paragraph (B)), any law of any State which regulates

insurance may apply to such arrangement to the extent such law

provides --

i. standards, requiring the maintenance of specified levels

of reserves and specified levels of contributions, which any

such plan, or any trust established under such a plan, must meet

in order to be considered under such law able to pay benefits in

full when due, and

ii. provisions to enforce such standards… (Emphasis supplied.)

Under Section 514(b)(6)(A)(i), it is clear that, in the case of fully insured

MEWAs, States may apply and enforce any State insurance law requiring

the maintenance of specific reserves or contributions designed to ensure that

the MEWA will be able to satisfy its benefit obligations in a timely fashion.

Moreover, it is the view of the Department of Labor that 514(b)(6)(A)(i) clearly

enables States to subject MEWAs to licensing, registration, certification, financial

reporting, examination, audit and any other requirement of State insurance law

necessary to ensure compliance with the State insurance reserves, contributions

and funding requirements.

What is a “fully insured” MEWA?

Section 514(b)(6)(D) provides that, for purposes of Section 514(b)(6)(A),

“a multiple employer welfare arrangement shall be considered fully insured only

if the terms of the arrangement provide for benefits the amount of all of which

the Secretary determines are guaranteed under a contract, or policy of insurance,

issued by an insurance company, insurance service, or insurance organization,

qualified to conduct business in a State.” In this regard, a determination by the

Department of Labor as to whether a particular MEWA is “fully insured” is not

required in order for a State to treat a MEWA as “fully insured” for purposes of

applying State insurance law in accordance with Section 514(b)(6).

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

fully insured?

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

in the case of any other employee welfare benefit plan which is a

multiple employer welfare arrangement, in addition to this title [Title

I], any law of any State which regulates insurance may apply to the

extent not inconsistent with the preceding sections of this title [Title

I]. (Emphasis supplied)

Accordingly, if a MEWA is not “fully insured,” the only limitation on

the applicability of State insurance laws to the MEWA is that the law not be

inconsistent with Title I of ERISA.

Under what circumstances might a State insurance law be

“inconsistent” with Title I of ERISA?

In general, a State law would be inconsistent with the provisions of Title

I to the extent that compliance with such law would abolish or abridge an

affirmative protection or safeguard otherwise available to plan participants and

beneficiaries under Title I or would conflict with any provision of Title I, making

compliance with ERISA impossible. For example, any State insurance law

which would adversely affect a participant’s or beneficiary’s right to request or

receive documents described in Title I of ERISA, or to pursue claims procedures

established in accordance with Section 503 of ERISA, or to obtain and maintain

continuation health coverage in accordance with Part 6 of ERISA would be

viewed as inconsistent with the provisions of Title I. Similarly, a State insurance

law that would require an ERISA-covered plan to make imprudent investments

would be inconsistent with the provisions of Title I.

On the other hand, a State insurance law generally will not be deemed

“inconsistent” with the provisions of Title I if it requires ERISA-covered plans

constituting MEWAs to meet more stringent standards of conduct, or to provide

more or greater protection to plan participants and beneficiaries than required by

ERISA. The Department has expressed the view that any State insurance law

which sets standards requiring the maintenance of specified levels of reserves

and specified levels of contributions in order for a MEWA to be considered,

under such law, able to pay benefits will generally not be “inconsistent” with the

provisions of Title I for purposes of Section 514(b)(6)(A)(ii). The Department

also has expressed the view that a State law regulating insurance which requires

a license or certificate of authority as a condition precedent or otherwise to

transacting insurance business or which subjects persons who fail to comply with

such requirements to taxation, fines and other civil penalties, including injunctive

relief, would not in and of itself be “inconsistent” with the provisions of Title I for

purposes of Section 514(b)(6)(A)(ii). (See: Advisory Opinion 90-18, Appendix

A).

Has the Department of Labor granted any exemptions from State

regulation for MEWAs which are not fully insured?

Pursuant to Section 514(b)(6)(B), the Secretary of Labor may, under

regulations, exempt from Section 514(b)(6)(A)(ii) MEWAs which are not fully

insured. Such exemptions may be granted on an individual or class basis. While

the Department has the authority to grant exemptions from the requirements of

Section 514(b)(6)(A)(ii), such authority does not extend to the requirements of

Section 514(b)(6)(A)(i) relating to the maintenance of specified levels of reserves

and specified levels of contributions under State insurance laws.

The Department has neither prescribed regulations for such exemptions nor

granted any such exemptions since the enactment of the MEWA provisions in

1983.

Form M-1 Filing Requirement for MEWAs

The Form M-1 is a reporting form of the Employee Benefits Security

Administration (EBSA) for MEWAs and for certain collectively bargained

arrangements, called entities claiming exception (ECEs). It was developed

under the Health Insurance Portability and Accountability Act (HIPAA) and

corresponding regulations to provide EBSA with information concerning

compliance by MEWAs with the requirements of Part 7 of ERISA. MEWAs and

ECEs have been required to submit annual filings on the Form M-1 since 2003.

The Affordable Care Act extended reporting requirements for MEWAs. As a

result, under the Affordable Care Act and corresponding regulations, MEWAs are

also required to register prior to operating in a State.

For MEWAs, generally, the Form M-1 is required to be filed annually by

March 1 following each calendar year during all or part of which the MEWA is

operating. Filers will generally be granted an automatic 60-day extension if they

request one. For ECEs, generally, the Form M-1 is required to be filed annually

by March 1 for the three calendar years following an origination event, described

below, during all or part of which the ECE is operating.

In addition to the annual filing requirement, administrators of both plan and

non-plan MEWAs also must file the Form M-1 within a certain time upon the

following five registration events:

1. 30 days prior to operating in any State.

2. Within 30 days of knowingly operating in any additional State or

States that were not indicated on a previous Form M-1 filing.

3. Within 30 days of operating with regard to the employees of an

additional employer (or employers, including one or more self-

employed individuals) after a merger with another MEWA.

4. Within 30 days of the date the number of employees receiving

coverage for medical care under the MEWA is at least 50 percent

greater than the number of such employees on the last day of the

previous calendar year.

5. Within 30 days of experiencing a material change as defined in the

Form M-1 instructions.

Administrators of ECEs are required to submit a Form M-1 within a certain

time when an origination occurs:

1. 30 days prior to when the ECE begins operating with regard to the

employees of two or more employers (including one or more self-

employed individuals);

2. Within 30 days of when the ECE begins operating following a merger

with another ECE (unless all of the ECEs that participate in the merger

previously were last originated at least three years prior to the merger);

3. Within 30 days of when the number of employees receiving coverage

for medical care under the ECE is at least 50 percent greater than the

number of such employees on the last day of the previous calendar

year (unless the increase is due to a merger with another ECE under

which all ECEs that participate in the merger were last originated three

years prior to the merger).

Administrators of ECEs are generally required to file the Form M-1 for the

first three years after an origination event only. However, two of these events will

extend or restart the three year period:

1. the ECE experiences a merger with another ECE(unless all of the

ECEs that participate in the merger previously were last originated at

least three years prior to the merger);

2. the number of employees receiving coverage for medical care

under the ECE increases by at least 50 percent based on number of

employees on the last day of the previous calendar year. If either of

these two events occur, an ECE must file a Form M-1 even if it falls

outside of the three-year period.

ECEs must also update the Form M-1 within 30 days of experiencing

a special filing event. A special filing event occurs if, during the three year

origination period, the ECE experiences a material change or knowingly begins

operating in an additional State or States that were not indicated on a previous

Form M-1 filing.

For MEWAs that are not plans, ERISA Section 502(c)(5) provides for the

assessment of civil penalties for failure to comply with the Form M-1 filing

requirements. Welfare plans that are MEWAs or ECEs required to file the Form

M-1 are required to file an annual report under the Form 5500 series, regardless

of size or type of funding, and to complete the Form M-1 compliance questions.

Failure to comply with these annual reporting requirements may subject the plan

to civil penalties assessed pursuant to ERISA Section 502(c)(2).

The Form M-1 must be filed electronically at www.askebsa.dol.gov/mewa.

More detailed information on the electronic filing system is available at http://

www.askebsa.dol.gov/mewa/Home/FAQ. For questions regarding the electronic

filing system, contact the EBSA computer help desk at (202) 693-8600. If you

need any assistance in completing the Form M-1, please call the EBSA Form M-1

help desk at (202) 693-8360.

The Form 5500 also must be filed electronically. More information is

available at the EFAST2 website at www.efast.dol.gov. For more information on

electronically filing the Form 5500 or related questions, call the EFAST2 Help

Line toll-free at 1-866-GO-EFAST (1-866-463-3278). The EFAST2 Help Line is

available Monday through Friday from 8:00 am to 8:00 pm EST. You can access

the EFAST2 website 24 hours a day.

ERISA Advisory Opinions

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

Benefits Security Administration and represent the official views of the U.S.

Department of Labor on the interpretation and application of the provisions of

ERISA. Advisory opinions are issued pursuant to ERISA Procedure 76-1, which,

among other things, describes the circumstances under which the Department

will and will not rule on particular matters and the effect of advisory opinions

generally. A copy of ERISA Procedure 76-1 is reprinted as Appendix B. Pursuant

to Section 12 of ERISA Procedure 76-1, advisory opinions, as well as advisory

opinion requests, accompanying documentation, and related correspondence are

available to the general public.

It should be noted that the advisory opinion process is not a fact-finding

process. Advisory opinions are generally based solely on the facts and

representations submitted to the Department by the party or parties requesting the

opinion. Therefore, advisory opinions should not be viewed as determinations by

the Department as to the accuracy of any of the facts and representations provided

by the requesting party and cited in such opinions.

Is an advisory opinion on the MEWA status of an arrangement

necessary in order for a State to exercise jurisdiction over the

arrangement?

No. First, there is nothing in ERISA Section 3(40) which conditions

MEWA status on the obtaining of an opinion from the Department. Second, in

most instances, the question of whether a particular arrangement is a MEWA

will require factual, rather than interpretative, determinations. That is, if the

arrangement meets the definition of a MEWA - because it is providing health

or similar benefits to the employees of more than one employer (i.e., the

arrangement is not a single-employer plan) and the arrangement is not established

or maintained under or pursuant to a collective bargaining agreement or by a

rural electric cooperative, or by a rural telephone cooperative association - the

arrangement is, by definition, a MEWA, whether or not the Department rules on

the matter.

Is it necessary to determine by advisory opinion whether a

MEWA is an ERISA-covered employee benet plan?

In most cases, no. While the MEWA exception to ERISA’s preemption

provisions does impose a few limitations on the ability of States to regulate

MEWAs that are ERISA-covered plans, these limitations, as discussed earlier

and in Advisory Opinion No. 90-18 (See: Appendix A), should not, as a practical

matter, have any significant effect on a State’s application and enforcement of

its insurance laws with respect to a MEWA which is an ERISA-covered plan.

Accordingly, a determination as to whether or not a MEWA is an ERISA-covered

plan is not necessary in most instances.

If it is determined that an advisory opinion is necessary, what

information is required in order for the Department to issue a

ruling?

If a MEWA determination is needed, the advisory opinion request should

include sufficient acts and representations to conclude whether the arrangement is

providing benefits described in Section 3(1) of ERISA (See: pages 5-6), whether

benefits are being provided to the employees of two or more employers, whether

the employers of covered employees are members of the same control group of

employers, and whether the arrangement is established or maintained pursuant to

or under a collective bargaining agreement or by a rural electric cooperative or

rural telephone cooperative association.

If an ERISA-coverage determination is needed, the advisory opinion request

should also include sufficient information to determine whether the arrangement

is established or maintained by an employer, employee organization, or by

both (See: pages 6-10). An advisory opinion request for such a determination

should include copies of plan and trust documents, constitutions and by-laws, if

any, administrative agreements, employer-participation agreements, collective

bargaining agreements, if applicable, and any other documents or correspondence

that might have a bearing on the status of the arrangement for ERISA purposes.

Where should advisory opinion requests be sent?

Requests for advisory opinions involving MEWAs should be sent to the

following address:

Oce of Regulations and Interpretations

Employee Benets Security Administration

U.S. Department of Labor

200 Constitution Avenue, NW, Suite N-5655

Washington, DC 20210

ERISA Enforcement

Enforcement of the provisions of Title I of ERISA and related criminal sections

of Title 18 of the United States Code is carried out by the Employee Benefits

Security Administration (EBSA). EBSA’s national office provides policy direction

and technical and management support for regional and district offices which

investigate potential violations. MEWA investigations are conducted by these

regional offices under the supervision of a regional director with oversight and

coordination provided by the national office.

In an effort to facilitate State and Federal enforcement efforts in the MEWA

area, EBSA’s regional offices have established, or are in the process of pursuing,

cooperative arrangements with the States in their jurisdiction pursuant to which the

offices will share and discuss cases opened and closed by EBSA involving MEWAs.

In addition, regional offices will, in accordance with such agreements, make

available documents obtained through voluntary production or pursuant to a civil

subpoena. In order to ensure proper coordination of MEWA-related initiatives, State

officials should direct information and/or inquiries (other than advisory opinion

requests) to the director of the EBSA regional office responsible for their particular

State.

For more information or to locate the regional office nearest you, contact EBSA

electronically at www.askebsa.dol.gov or by calling toll free 1-866-444-3272.

View this and other free EBSA compliance assistance publications at

www.dol.gov/agencies/ebsa.

Appendix A

Advisory Opinions

and

Information Letters

July 2, 1990

U.S. Department of Labor

Pension and Welfare Benefits Administration

Washington, DC 20210

Mr. J. Scott Kyle

Texas State Board of Insurance

1110 San Jacinto

Austin, Texas 78701-1998

90-18A

ERISA SEC

514(b)(6)(A)(ii)

Dear Mr. Kyle:

This responds to your letter of May 8, 1990, regarding MDPhysicians and Associates, Inc. Em-

ployee Benefit Plan (MDPEBP). You request the views of the Department of Labor concerning is-

sues that arise, as described below, under section 514(b)(6)(A) of the Employee Retirement Income

Security Act of 1974 (ERISA).

In Opinion 90-10A, the Department of Labor (the Department) concluded that MDPEBP is a

multiple employer welfare arrangement (MEWA) within the meaning of section 3(40) of ERISA

and, therefore, is subject to State regulation at least to the extent provided in section 514(b)(6)(A)

of ERISA, regardless of whether MDPEBP is an employee benefit plan covered by title I of ERISA.

You State in your letter that MDPhysicians and Associates, Inc., which administers MDPEBP, has

filed suit against the Texas State Board of Insurance and Texas Attorney General for a declaratory

judgment relating to the ability of the State of Texas to regulate or prohibit MDPEBP. MDPhysi-

cians and Associates, Inc. contends in its complaint that, among other things, any attempt by the

State of Texas to regulate MDPEBP by requiring licensure of MDPEBP as an insurer would be

inconsistent with title I of ERISA, and that the State of Texas lacks statutory authority to regulate

MDPEBP in any respect in the absence of enabling legislation respecting the regulation of self-

insured MEWAs.

You State that Texas does not have legislation specifically aimed at regulation of self-funded

MEWAs which are employee welfare benefit plans covered by title I of ERISA. It is the position of

the State Board of Insurance that such plans are doing an insurance business and are subject to the

same requirements as any other insurer operating in Texas. You further State that the Texas Insur-

ance Code provides that no person or insurer may do the business of insurance in Texas without

specific authorization of statute, unless exempt under the provisions of Texas or federal law. The

Code establishes procedures for issuance of certificates of authority to insurers who meet statutory

requirements. Persons who transact insurance business in Texas without a certificate of authority

or valid claim to exemption are subject to taxation, fines, and other civil penalties, including injunc-

tive relief to effect cessation of operation.

Assuming, arguendo, that MDPEBP is an employee welfare benefit plan covered by title I of

ERISA, you request the Department’s views as to whether or not a requirement by the State of

Texas that MDPEBP (or any similar plan which might be found to be both an employee welfare

benefit plan and a MEWA as defined by ERISA) obtain a certificate of authority to transact insur-

ance business in Texas, and be subject to statutory penalties and injunction should it operate with-

out a certificate of authority, would be inconsistent with title I of ERISA.

Section 514(b)(6)(A) of ERISA provides an exception to preemption under ERISA section 514(a)

for any ERISA-covered employee welfare benefit plan that is a MEWA. In general, the exception

permits application of State insurance law to a MEWA as follows: If the MEWA is “fully insured”

within the meaning of section 514(b)(6)(D) of ERISA, State insurance law may apply to the extent it

provides standards requiring the maintenance of specified levels of reserves and contributions, and

provisions to enforce such standards (See section 514(b)(6)(A)(i)). If the MEWA is not fully insured,

any law of any State which regulates insurance may apply to the extent not inconsistent with title

I of ERISA (See 514(b)(6)(A)(ii)). It appears from your letter that the parties do not dispute that

MDPEBP is not fully insured within the meaning of ERISA section 514(b)(6)(D).

We hope the following is responsive to your request.

First, it is the view of the Department of Labor that section 514(b)(6)(A) saves from ERISA preemp-

tion any law of any State which regulates insurance, without regard to whether such laws specifi-

cally or otherwise reference MEWAs or employee benefit plans which are MEWAs, subject only to

the limitations set forth in subparagraphs (A)(i) and (A)(ii) of that section. Similarly, while we are

unable to rule on the specific application of the T

exas Insurance Code to MDPEBP, a matter within

the jurisdiction of the Texas State Board of Insurance, it is the view of the Department that, with the

exception of the aforementioned limitations, there is nothing in ERISA which would preclude the

application of the same State insurance laws which apply to any insurer which is not an ERISA-

covered plan to ERISA-covered plans which constitute MEWAs within the meaning of ERISA

section 3(40).

Second, it is the view of the Department that Congress, in enacting the MEWA provisions, recog-

nized that the application and enforcement of State insurance laws to ERISA-covered MEWAs 1/

provide both appropriate and necessary protection for the participants and beneficiaries covered by

such plans, in addition to those protections afforded by ERISA. For this reason, the Department is

of the opinion that in the context of section 514(b)(6)(A)(ii), which, in the case of a MEWA which is

not fully insured, sav

es from ERISA preemption any law of any State which regulates insurance to

the extent such law is not inconsistent with the provisions of title I of ERISA, a State law which reg-

ulates insurance would be inconsistent with the provisions of title I to the extent that compliance

with such law would abolish or abridge an affirmative protection or safeguard otherwise available

to plan participants and beneficiaries under title I of ERISA,

2/ or conflict with any provision of title

I of ERISA. 3/ For example, State insurance law which would require an ERISA-covered MEWA

to make imprudent investments would be deemed to be “inconsistent” with the provisions of title

I of ERISA because compliance with such a law would “conflict” with the fiduciary responsibility

provisions of ERISA section 404, and, as such, would be preempted pursuant to the provisions of

ERISA section 514(b)(6)(A)(ii). 4/

1/ The principles discussed in this letter apply to those MEWAs which are also title I plans, and, thus, such

MEWAs will be referred to as “ERISA-covered MEWAs”.

2/ For example, any State insurance law which would adversely affect a participant’s or beneficiary’s rights

under title I of ERISA to review or receive documents to which the participant or beneficiary is otherwise

entitled would be viewed as inconsistent with the provisions of title I. Similarly, any State insurance law which

would adversely affect a participant’s or beneficiary’s right to continuation of health coverage in accordance

with Part 6 of title I or to pursue claims procedures established in accordance with section 503 of title I would be

viewed as inconsistent with the provisions of title I of ERISA.

3/ In this regard, the Department believes an actual conflict with the provisions of ERISA will occur when State

insurance law makes compliance a “physical impossibility”. See Florida Lime & Avocado Growers. Inc., v.

Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963).

4/ While certain permissive State insurance laws may not be “inconsistent” with the provisions of title I of

ERISA as here defined, the behavior permitted under such laws may yet be denied to ERISA-covered MEWAs

and their fiduciaries pursuant to ERISA section 514(b)(6)(A)(ii), which applies the provisions of title I as well as

State insurance laws which are not inconsistent with the provisions of title I of ERISA to such MEWAs. For

example, neither ERISA-covered MEWAs nor their fiduciary managers may take advantage of laws which

would permit an ERISA-covered MEWA to engage in transactions which are prohibited under the provisions of

ERISA section 406; to effectuate exculpatory provisions relieving a fiduciary from responsibility or liability for

any responsibility, obligation, or duty under ERISA; or, to fail to meet the reporting and disclosure requirements

contained in part 1 of title I of ERISA.

However, a State insurance law will, generally, not be deemed “inconsistent” with the provisions

of title I of ERISA if it requires ERISA-covered MEWAs to meet more stringent standards of

conduct, or to provide more or greater protections to plan participants and beneficiaries, than

required by ERISA. For example, State insurance laws which would require more informational

disclosure to plan participants of an ERISA-covered MEWA will not be deemd by the Department

to be “inconsistent” with the provisions of ERISA. Similarly, a State insurance law prohibiting a

fiduciary of an ERISA-covered MEWA from availing himself of an ERISA statutory or administra-

tively-granted exemption permitting certain behavior will not be deerned by the Department to be

“inconsistent” with the provisions of ERISA.

Finally, the Department also notes that, in its opinion, any State insurance law which sets standards

requiring the maintenance of specified levels of reserves and specified levels of contributions to be

met in order for a MEWA to be considered, under such law, able to pay benefits in full when due

will generally not be considered to be “inconsistent” with the provisions of title I of ERISA pursu-

ant to ERISA section 514(b) (6)(A) (ii).

Thus, it is the opinion of the Department that a State law regulating insurance which requires the

obtaining of a license or certificate of authority as a condition precedent or otherwise to transact-

ing insurance business or which subjects persons who fail to comply with such requirements

to taxation, fines, and other civil penalties, including injunctive relief, would not in and of itself

adversely affect the protections and safeguards Congress intended to be available to participants

and beneficiaries or conflict with any provision of title I of ERISA, and, therefore, would not, for

purposes of section 514(b)(6)(A)(ii), be inconsistent with the provisions of title I. Moreover, given

the clear intent of Congress to permit States to apply and enforce their insurance laws with respect

to ERISA-covered MEWAs, as evidenced by the enactment of the MEWA provisions, it is the view

of the Department that it would be contrary to Congressional intent to conclude that States, while

having the authority to apply insurance laws to such plans, do not have the authority to require

and enforce registration, licensing, reporting and similar requirements necessary to establish and

monitor compliance with those laws.

Finally, we would note that while section 514(b)(6)(B) of ERISA provides that the Secretary of

Labor may prescribe regulations under which .the Department may exempt MEWAs from State

regulation under section 514(b)(6)(A)(ii), the Department has neither prescribed regulations in this

area, nor granted any such exemptions.

This letter constitutes an advisory opinion under ERISA Procedures 76.

Sincerely,

Robert J. Doyle

Director of Regulations

and Interpretations

January 27, 1992

Mr. Chuck Huff

Georgia Insurance Department

Floor, West Tower

Floyd Building

2 Martin Luther King, Jr., Drive

Atlanta, Georgia 30334

92-05A

ERISA Section

3(40), 514(b)(6)

Dear Mr. Huff:

This is in response to your request regarding the status of a self-funded health benefit program

sponsored by Action Staffing, Inc. (Action) under title I of the Employee Retirement Income

Security Act (ERISA). Specifically, you have requested an opinion as to whether the Action health

benefit program is an employee welfare benefit plan within the meaning of section 3(1) of title I of

ERISA, and whether the Action health benefit program is a multiple employer welfare arrangement

(MEWA), within the meaning of ERISA section 3(40) and, therefore, subject to applicable State

insurance laws at least to the extent permitted under section 514(b)(6)(A) of title I of ERISA.

According to your letter, Action identifies its operations as those of a “staff leasing” company.

Action markets its services and issues proposals to potential client employers in a variety of trades

and businesses. If a client employer agrees to the terms of the proposal, an Agreement for Services

is executed with Action. Under the terms of the Agreement for Services, a specimen copy of which

accompanied your request, Action agrees to lease personnel to the client employer, subject to the

payment of certain fees being paid by the client employer. Pursuant to the “Services” section of the

Agreement for Services, it is provided that:

Action shall … provide the following services with regard to the leased employees:

The recruitment, hiring, directing and controlling of employees in their day-to-day

assignments; the disciplining, replacing, termination and the designation of the date of

separation from employment; the promotion, reward, evaluation and from time to time

the redetermination of the wages, hours and other terms and conditions of employment

of the employees…

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

With regard to its health benefit program, Action represents that the program is an ERISA-covered

employee welfare benefit plan maintained by a single employer, i.e., Action.

Information submitted with your request, however, indicates that, in at least one instance, an

Action client, with employees participating in the Action health benefit program, hired Action to

enable employees to participate in the Action health benefit program. According to the information

provided, the client, rather than Action, retains the right to control, evaluate, direct, hire and fire all

employees.

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

… an employee welfare benefit plan, or any other arrangement (other than an employee

welfare benefit plan) which is established or maintained for the purpose of offering or

providing any benefit described in paragraph (1) to the employees of two or more employers

(including one or more self-employed individuals), or to their beneficiaries, except that such

arrangement does not include any plan or arrangement which is established or maintained --

(i) under or pursuant to one or more agreements which the Secretary finds to

be collective bargaining agreements,

(ii) by a rural electric cooperative, or

(iii) by a rural telephone cooperative association.

Inasmuch as there is no indication that the Action health benefit program is established or

maintained under or pursuant to one or more collective bargaining agreements, by a rural electric

cooperative, or by a rural telephone cooperative association, the only issue relating to the health

program’s status as a MEWA appears to be whether the program provides benefits, as described

in ERISA section 3(1), “to the employees of two or more employers.” The resolution of this issue is

dependent on whether, for purposes of ERISA section 3(40), the employees covered by the Action

health benefit program are employees of a single employer (i.e., Action) or more than one employer

(i.e., Action’s clients).

ERISA section 3(5) defines the term “employer” to mean:

… any person acting directly as an employer, or indirectly in the interest of

an employer, in relation to an employee benefit plan; and includes a group or

association of employers acting for an employer in such capacity.

As reflected above, the term “employer”, for purposes of title I of ERISA, encompasses not only

persons with respect to whom there exists an employer-employee relationship between the

employer and individuals covered by the plan (i.e., persons acting directly as an employer), but

also certain persons, groups and associations, which, while acting indirectly in the interest of

or for an employer in relation to an employee benefit plan, have no direct employer-employee

relationship with the individuals covered under an employee benefit plan. Therefore, merely

because a person, group or association may be determined to be an “employer” within the meaning

of ERISA section 3(5) does not mean that the individuals covered by the plan with respect to which

the person, group or association is an “employer” are “employees” of that employer.

The term “employee” is defined in ERISA section 3(6) to mean “any individual employed by an

employer.” (Emphasis added). An individual is “employed” by an employer, for purposes of

section 3(6), when an employer-employee relationship exists. For purposes of section 3(6), whether

an employer-employee relationship exists will be determined by applying common law principles

and taking into account the remedial purposes of ERISA. In making such determinations,

therefore, consideration must be given to whether the person for whom services are being

performed has the right to control and direct the individual who performs the services, not only

as to the result to be accomplished by the work, but also as to the details and means by which the

result is to be accomplished; whether the person for whom services are being performed has the

right to discharge the individual performing the services; and whether the individual performing

the services is as a matter of economic reality dependent upon the business to which he or she

renders services, among other considerations.

While the Action Agreement for Services submitted with your request purports, with respect to

the leased employees, to establish in Action the authority and control associated with a common

law employer-employee relationship, your submission indicates that in at least one instance the

client employer, rather than Action, actually retained and exercised such authority and control.

(Although we conclude in this situation that some of the individuals participating as “employees”

in the health benefit program are “employees” of the client employers, the Department notes that

Action may also considered an “employer” within the meaning of ERISA section 3(5).)

*Although we conclude in this situation that some of the individuals participating as “employees” in the

health benet program are “employees” of the client employers, the Department notes that Action may also

considered an “employer” within the meaning of ERISA section 3(5).

In this regard, it should be noted that a contract purporting to create an employer-employee

relationship will not control where common law factors (as applied to the facts and circumstances)

establish that the relationship does not exist.

It should also be noted that it is the view of the Department that where the employees participating

in the plan of an employee leasing organization include “employees” of two or more client (or

“recipient”) employers, or employees of the leasing organization and at least one client employer,

the plan of the leasing organization would, by definition, constitute a MEWA because the plan

would be providing benefits to the employees of two or more employers.

On the basis of the information provided, the Action health benefit program covered at least one

client’s employees with respect to whom Action did not have an employer-employee relationship

and, accordingly, were not “employees” of Action within the meaning of ERISA section 3(6).

Therefore, in the absence of any indication that Action and its client employers constitute a “control

group” within the meaning of ERISA section 3(40)(B)(i), it is the view of the Department that

the Action health benefit program provides benefits to the employees of two or more employers

and is, therefore, a multiple employer welfare arrangement within the meaning section 3(40)

(A). Accordingly, the preemption provisions of ERISA would not preclude State regulation of

the Action health benefit program to the extent provided in ERISA section 514(b)(6)(A). In this

regard, we are enclosing, for your information, a copy of Opinion 90-18A (dated July 2, 1990) which

discusses the scope of the States’ authority to regulate MEWAs pursuant to section 514(b)(6)(A) of

ERISA.

Because your request for an opinion was concerned primarily with the issue of whether or not

the Action health benefit program is subject to the applicable regulatory authority of the State of

Georgia’s insurance laws or is saved from such authority under the general preemption provision

of section 514(a) of title I of ERISA, and because of the opinion above, we have determined it is not

necessary at this time to render an opinion as to whether the Action health benefit program is an

employee welfare benefit plan within the meaning of section 3(1) of that title.

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, it is issued

subject to the provisions of that procedure, including section 10 thereof relating to the effect of

advisory opinions.

Sincerely,

Robert J. Doyle

Director of Regulations

and Interpretations

Enclosure

August 16, 2007

Edward L. Wender

Venable LLP

Two Hopkins Plaza, Suite 1800

Baltimore, MD 21201-2978

2007-06A

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

Dear Mr. Wender:

This is in reply to your request on behalf of the Custom Rail Employer Welfare Trust Fund (“CREW” or “CREW

Welfare Trust”) for an advisory opinion regarding Title I of the Employee Retirement Income Security Act of

1974 (ERISA). Specically, you asked for the view of the Department of Labor (Department) on whether CREW

is an “employee welfare benet plan” within the meaning of section 3(1) of ERISA, and whether it is a “multiple

employer welfare arrangement” (MEWA), within the meaning of section 3(40), that is “fully insured” within the

meaning of section 514(b)(6)(A) of ERISA.

The following summary of facts and representations is based on the materials submied in support of your

request and information on CREW’s web site at www.crew-benets.com. CREW is marketed to members of

the Small Railroad Business Owners Association of America, Inc. (Association) as an employee welfare benet

plan designed to provide medical, surgical, hospital, and disability benets exclusively to members’ employees

and dependents. The Association’s Articles of Incorporation provide that the Association “shall be operated

exclusively as a nonstock not-for-prot organization and specically for the following purposes: (i) To function

as a trade association of short line and small railroads in the United States and Canada; . . . and (iv) To provide

for insurance and other employee benets and welfare plans to employees of members of the Association.”

The Association’s By-Laws provide that “[m]embership will be open to all railroads and railroad related entities

that employ at least one (1) person and that otherwise are engaged in [activities]” including “the operation

of interstate freight, and intrastate scenic and tourist railroads and who otherwise pursue the purposes of the

Association. . . .” The Association’s Articles of Incorporation and By-Laws have been construed “so that only

(a) railroad contractors who maintain the railroad track right away [sic] and whose operations may result in

them being subject to FELA [Federal Employment Liability Act] liability, and (b) a parent company or aliate

of a small railroad which leases track or employs the administrative personnel who supervise the operation of

one or more small or short line railroads are eligible to participate in the New Association [Association] and

CREW.”

You represent that the Association lobbies State and Federal agencies on maers aecting small and short line

railroads, sponsors programs and distributes publications to publicize the importance of small and short line

railroads, provides a forum for the exchange of ideas and facilitates the purchase and sale of equipment among

members, develops brieng papers for use by members, and provides email alerts to members concerning the

industry.

The Association is managed by a Board of Directors. The Board is required to have a minimum of three

Directors, with up to a maximum of seven upon amendment of the By-laws to so provide. The materials you

provided do not indicate how many Directors currently serve on the Board of Directors, and we did not see any

amendment to the By-laws that would increase the number of Directors from three. Each Director may serve

on the Board for a term of not more than three years. The By-Laws provide that “Directors shall be elected by

a plurality of the votes cast provided that a quorum is present or that the requisite minimum number of votes

The National Association of Insurance Commissioners (NAIC) submied a leer urging the Department to conclude that

the CREW Welfare Trust is subject to state insurance regulation, including state insurance laws that would require CREW to

become licensed in the states where it operates as a MEWA and obtain insurance from a carrier or carriers licensed in each State

in which CREW operates. The NAIC described itself as an organization that represents the chief insurance regulators from the

50 states, the District of Columbia, and four U.S. territories. We also received your supplemental submission responding to the

NAIC’s arguments and legal analyses.

Included in the materials you submied is a copy of a Certicate of Incorporation issued by the Government of the District

of Columbia, Department of Consumer and Regulatory Aairs. The Certicate of Incorporation, dated October 11, 2001, certi-

ed that “all applicable provisions of the District of Columbia NonProt Corporation Act have been complied with and accord-

ingly, this Certicate of Incorporation is hereby issued to: Small Railroad Business Owners Association of America, Inc.” The

web site of the District of Columbia Department of Consumer and Regulatory Aairs (www.mblr.dc.gov/corp/lookup/status.

asp?id=26854), however, indicates that the Association’s registration has been revoked.

See Adavit of Ronald J. Wilson, at 3 (August 7, 2006).

is cast by wrien ballot, as the case may be.” It is not clear from your submission how Directors are nominated

to serve on the Board of Directors or what number constitutes a “requisite minimum number” of votes cast by

wrien ballot. Moreover, it is unclear from the materials you provided whether all Association members are

entitled to vote. The Association’s Articles of Incorporation provide that the Association shall have only one

class of members, and both the Articles of Incorporation and the By-laws provide that “each member” gets one

vote with respect to each vacancy on the Board of Directors. However, those two documents dene “voting

members” dierently. The Articles of Incorporation provide that “the voting members of the Association

shall be limited to employers (persons or entities who or which employ at least one (1) person for purposes

of the provision of welfare and pension benets),” but the By-Laws provide that “the voting members of the

Association shall be limited to employers (persons or entities who or which employ at least ve (5) persons for

purposes of the provision of welfare and pension benets).”

The CREW Welfare Trust is organized as a trust under the laws of the District of Columbia and is intended

to operate as a “voluntary employees’ beneciary association” (VEBA) within the meaning of section 501(c)

(9) of the Internal Revenue Code (Code). You represent that only “employer members” of the Association

may participate in the CREW Welfare Trust. The Board of Directors of the Association initially selects the

trustees of the CREW Welfare Trust who are responsible for the overall supervision of the CREW Welfare

Trust, including approval of insurance policies. Thereafter, the Board presents a slate of trustee nominees

to the employer members, and employer members may add additional nominees to the slate. According to

CREW’s trust agreement, if no employer adds nominees, the slate of trustees is “deemed elected.” The trust

agreement does not specify the process that ensues if an employer adds a nominee to the slate, and there

appear to be discrepancies in the documents we reviewed regarding whether CREW trustees are appointed

by the Association’s Board of Directors or elected by the Association’s members. Specically, your March 27,

2006 leer to this oce provides that “employer members elect the trustees.” However, in the Application for

Membership in the CREW Welfare Trust, prospective member rail employers must sign that they “understand

that the elected Directors [of the Association] appoint the Ocers of the Association and appoint the Trustees of

the Custom Rail Employer Welfare Trust Fund (‘CREW’).”

CREW contracts with Medical Benets Administrators of MD, Inc. (MBA) to undertake CREW’s day-to-day

administration, including claims processing and adjudication services, access to and management of provider

networks, and compliance management. MBA uses an actuarial rm to establish the health insurance rates for

employee and dependent coverage options available under the CREW Welfare Trust. Advance Benet Services,

an aliate of MBA, “assists association member employers in the implementation, design, presentation, and

enrollment of employees and dependents under national association benet programs.”

You indicate that CREW has a certicate of insurance coverage (Certicate) with a group of underwriters

(Underwriters) at Lloyd’s, London. The Certicate was obtained through R. J. Wilson & Associates Ltd.,

a reinsurance brokerage rm and aliate of MBA.

The Certicate is not covered by any state guaranty

association. The Underwriters liable under the Certicate are admied insurers in the States of Illinois and

Kentucky.

The Certicate provides CREW with stop-loss coverage for individual claims in excess of $50,000.

In addition, in the event of CREW’s insolvency, bankruptcy, nancial impairment, receivership, voluntary plan

of arrangement with creditors or dissolution, or termination or non-renewal of the CREW Welfare Trust, the

Underwriters are liable for claims incurred during the period of insurance in excess of a “terminal fund” which

CREW must maintain in accordance with the Certicate. The terminal fund consists of current assets on hand

to fund the actuarial value of all incurred but unpaid claims (including unreported claims). Individuals covered

under the CREW Welfare Trust have the right to seek payment of benets directly from the Underwriters by

making a request through a designated U.S. based representative of the Underwriters after there is a nal

determination that an individual’s claim is payable under the CREW Welfare Trust, and CREW fails to pay

within thirty days of the determination. In this eventuality, CREW is required to assign its right of recovery

under the Certicate to the claimant or his or her representative.

See CREW’s web site (www.crew-benets.com/faq/faq_list.asp).

The general organizational structure used in the CREW arrangement appears to be a prototype-like employee benet struc-

ture that is being established and marketed under various designations. See, for example, the web sites for The Evangelical

Benet Trust (www.ebt-benets.com/overview.html) the ATA Archery & Bowhunting Industry Benet Trust (www.archeryben-

ets.com), and the IGA Group Employee Benets Trust (www.iga-benets.com).

Lloyd’s web site (www.lloyds.com) states that Lloyd’s is an insurance market, not a single insurance company, consisting of

a number of separate businesses (syndicates) that underwrite risks. Lloyd’s underwriters are licensed in Kentucky, Illinois and

the US Virgin Islands, and are eligible surplus lines insurers in all US jurisdictions except Kentucky and the US Virgin Islands.

Lloyd’s underwriters are also accredited reinsurers in all US states. Insurance policies issued by Lloyd’s underwriters are not

protected by state insurance guaranty associations or insolvency funds, except in states where licensed.

Decisions regarding the method through which benets are to be paid under an employee welfare benet plan, including the

selection of an insurer and the negotiation of the terms of any contractual arrangement obligating the plan, are maers that gen-

erally are subject to the duciary responsibility provisions of Title I of ERISA. This leer does not express any view on whether

the CREW arrangements satisfy those duciary requirements.

Your request for an advisory opinion focuses on provisions added to ERISA in 1983 that modied the scope

of ERISA’s preemption of state law to permit application of certain state insurance laws to employee welfare

benet plans that are MEWAs. Section 3(40)(A) of ERISA denes the term “MEWA,” in pertinent part, to

include: An employee welfare benet plan, or any other arrangement (other than an employee welfare benet

plan), which is established or maintained for the purpose of oering or providing any benet described in

paragraph (1) [ERISA section 3(1)] to the employees of two or more employers (including one or more self-

employed individuals), or to their beneciaries, except that such term does not include any such plan or other

arrangement which is established or maintained -- (i) under or pursuant to one or more agreements which

the Secretary nds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural

telephone cooperative association.

Under the general preemption clause of ERISA section 514(a), state laws are preempted to the extent that they

“relate to” employee benet plans subject to Title I of ERISA. There are, however, a number of exceptions to

this broad preemption provision. Section 514(b)(2)(A), referred to as the “savings clause,” provides in pertinent

part that “nothing in this title [Title I of ERISA] shall be construed to exempt or relieve any person from any

law of any State which regulates insurance . . . .” While section 514(b)(2)(A) saves from ERISA preemption

state laws regulating insurance, section 514(b)(2)(B) of ERISA, referred to as the “deemer clause,” provides

that a state law “purporting to regulate insurance” generally cannot deem an employee benet plan to be an

insurance company (or in the business of insurance) for the purpose of regulating such a plan as an insurance

company. An additional piece of analysis, however, is needed if the ERISA welfare plan is a MEWA as

dened in section 3(40) of ERISA. ERISA section 514(b)(6)(A) creates a partial exception to the deemer clause

for employee welfare benet plans that are also MEWAs. Specically, if the employee benet plan MEWA

is “fully insured,” then, under section 516(b)(6)(A)(i), any state law that regulates insurance may apply to

the MEWA to the extent the law provides standards, or provisions to enforce those standards, requiring the

maintenance of specied levels of reserves and contributions in order to be considered able to pay benets.

If the employee benet plan MEWA is not “fully insured,” then, under section 514(b)(6)(A)(ii), “any law of

any State which regulates insurance” may apply to the extent it is “not inconsistent with” the provisions of

ERISA. The limitations set forth in section 514(b)(6)(A) of ERISA on state insurance regulation of MEWAs only

apply to MEWAs that are also employee welfare benet plans as dened in section 3(1) of ERISA. If a MEWA

is not an ERISA-covered plan, ERISA’s preemption provisions do not limit the ability of states to regulate the

arrangement in accordance with applicable state insurance law.

It is the view of the Department based on the information we reviewed that CREW is a MEWA within the

meaning of section 3(40) of ERISA. CREW is an arrangement that has been established and is maintained for

the purpose of oering and providing welfare benets to employees of two or more separate employers and

does not fall within any of the exceptions listed in section 3(40). Thus, unless the CREW Welfare Trust is itself

an ERISA-covered employee benet plan, ERISA would impose no limit on the application of state insurance

law to the CREW benet arrangement and trust.

Although it appears that the CREW Welfare Trust provides benets described in section 3(1) of ERISA, to

be an employee welfare benet plan, the Trust must also, among other criteria, be established or maintained

by an employer, an employee organization, or both an employer and an employee organization. There is no

indication in your submission that the Fund was established or is maintained by an employee organization

within the meaning of section 3(4) of ERISA. Therefore, this leer will only address whether the CREW Welfare

Trust is established or maintained by an “employer” within the meaning of section 3(5) of ERISA. Section 3(5)

of ERISA denes an employer as “any person acting directly as an employer, or indirectly in the interest of an

employer, in relation to an employee benet plan; and includes a group or association of employers acting for

an employer in such capacity.”

The denitional provisions of ERISA recognize that a single employee welfare benet plan might be established

or maintained by a cognizable, bona de group or association of employers acting in the interests of its

employer members to provide benets for their employees. A determination whether there is a bona de

employer group or association must be made on the basis of all the facts and circumstances involved. Among

the factors considered are the following: how members are solicited; who is entitled to participate and who

actually participates in the association; the process by which the association was formed, the purposes for

which it was formed, and what, if any, were the preexisting relationships of its members; the powers, rights,

and privileges of employer members that exist by reason of their status as employers; and who actually controls

and directs the activities and operations of the benet program. The employers that participate in a benet

program must, either directly or indirectly, exercise control over the program, both in form and in substance, in

order to act as a bona de employer group or association with respect to the program.

The Department has expressed the view that where several unrelated employers merely execute identically

worded trust agreements or similar documents as a means to fund or provide benets, in the absence of

any genuine organizational relationship between the employers, no employer group or association exists

for purposes of ERISA section 3(5). Similarly, where membership in a group or association is open to

anyone engaged in a particular trade or profession regardless of their status as employers (i.e., the group or

association members include persons who are not employers) or where control of the group or association

is not vested solely in employer members, the group or association is not a bona de group or association of

employers for purposes of ERISA section 3(5). See, e.g., Advisory Opinion 95-01A, and Advisory Opinion

88-07A. In that regard, the Department has previously concluded that sole proprietors without common-law

employees are not eligible to be treated as “employers” for purposes of participating in a bona de group

or association of employers within the meaning of ERISA section 3(5). See Advisory Opinion 94-07A (“[A]

lthough USA represents that its membership is composed of employers, the Articles and Bylaws indicate that

USA’s membership class includes self-employed persons. Because self-employed persons are not necessarily

employers of common-law employees, it appears that membership eligibility in USA is not limited to

‘employers.”).

If the Association membership is limited to employers, and if control of the CREW Welfare Trust is vested

solely in its employer members that participate in the CREW Welfare Trust, the Department would nd that

the Association constitutes a bona de employer group or association acting as an employer in relation to the

CREW Welfare Trust within the meaning of ERISA section 3(5).

However, even if the Crew Welfare Trust is an employee welfare benet plan within the meaning of section

3(1), it would be a plan covering multiple employers, not a single employer plan, and a MEWA subject to

state insurance regulation at least to the extent permied under section 514(b)(6)(A) of ERISA. Assuming

for purposes of this leer that the CREW Welfare Trust is itself an ERISA-covered plan, it is the view of the

Department based on the information we reviewed that CREW is not fully insured within the meaning of

section 514(b)(6)(D) of ERISA.

Under section 514(b)(6)(D) of ERISA, a MEWA “shall be considered fully insured only if the terms of the

arrangement provide for benets the amount of which the Secretary [of Labor] determines are guaranteed

under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance

organization, qualied to conduct business in a State.”

ERISA’s requirement that a fully insured MEWA

have benets guaranteed under a contract, or policy of insurance does not refer merely to a nancial guaranty

running to the plan, but rather requires the insurance company or organization that issued the insurance

contract to unconditionally guarantee, upon receipt of the required premium or consideration, to pay all

benets due under the plan, and each participant must have a right to those guaranteed benets which is

legally enforceable directly against the insurance company or organization. In the Department’s view, the

Certicate is not such a contract or policy of insurance. Rather, the nancial arrangement between CREW and

Lloyd’s, London represented by the Certicate’s stop-loss coverage, the CREW Welfare Trust’s terminal fund,

and the Trust’s promise to assign rights to payment under the Certicate to participants and beneciaries, is

fundamentally one where, until the occurrence of a triggering event—CREW’s failure to pay a claim within

thirty days of a nal determination that an individual’s claim is payable under the CREW Welfare Trust—the

insurance risk for the benets remains primarily with CREW and the employers and employees funding the

program and the terminal fund.

We were unable to conclude that the participants would, upon the Underwriters’ receipt of the required

premium, have rights to guaranteed benets legally enforceable directly against the Underwriters. For

example, it is unclear whether a failure by CREW to meet its commitments regarding the terminal fund would

aect the ability of plan participants to make a claim against the Underwriters. Further, since the Underwriters’

liability under the Certicate does not arise until after there is a nal determination that a participant’s claim is

In the Department’s view, section 514(b)(6)(D) requires the insurer to be qualied to do business in “a State,” not in every

State where the plan oers or provides benets. A central purpose of the “qualied to do business” requirement, however, is to

ensure that the policy insuring the plan benets is subject to insurance regulation by a State that authorized the insurer to sell

its residents the type of insurance purchased by the plan. Nonetheless, a consequence of the insurance savings clause in ERISA

section 514(b)(2)(A), under which the application of State insurance laws to insurance companies is saved from preemption, is

that even in the case of a fully insured MEWA, ERISA would not limit any State in which the MEWA’s insurance risk is resident

or located or to be performed from enforcing state insurance law requirements directly against the insurance company, insur-

ance service or insurance organization insuring the MEWA.

See generally John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 510 US 86 (1993) (in interpreting the

denition of “guaranteed benet policy” in ERISA section 401, the Court concluded that a contract “provides for benets the

amount of which is guaranteed by the insurer” in the context of insured pension benets “only if it allocates investment risk

to the insurer.” The Court explained that “[s]uch an allocation is present when the insurer provides a genuine guarantee of an

aggregate amount of benets payable to retirement plan participants and their beneciaries.”).

payable under the CREW Welfare Trust, it is unclear when a liability would arise, if ever, for the Underwriters

if CREW refused to make such a determination. It would appear that a participant in such a case might have

to obtain an enforceable court order concluding that a particular claim was payable under the CREW Welfare

Trust before being able to make a claim against the Underwriters.

Thus, even if the CREW Welfare Trust is an ERISA-covered plan within the meaning of section 3(1) of ERISA,

CREW as a MEWA that is not fully insured would be subject to state insurance regulation subject to the

limitation in section 514(b)(6)(A)(ii) of ERISA that the state law is “not inconsistent” with Title I of ERISA.

The relationship between CREW, the participants, and the Underwriters is distinguishable from the

arrangement in Advisory Opinion 93-11A, which the Department concluded was a fully insured MEWA. In

that advisory opinion, the insurance agreement obligated the insurer to pay participants and beneciaries of

the plan, directly or through its agent, and in a timely manner, all of the benets under the Plan. The insurer’s

obligation to pay benets directly to participants and beneciaries was backed by the insurer’s general assets

and was not conditioned on whether the insurer received reimbursements from the plan. Although agreements

between the plan and the insurer limited the insurer‘s actual risk of loss in various ways, such as by providing

that the insurer would be reimbursed by the plan on a daily basis for its benet payments, by requiring the

plan to maintain a substantial balance in a trust used to reimburse the insurer for benet payments, and by

permiing the insurer to terminate insurance agreements unilaterally if these conditions were not met, the

insurer was unconditionally liable to the participants and beneciaries for payment of all claims for benets

incurred while the insurance agreement was in eect. Further, the insurer’s obligation to pay benets survived

termination of those agreements with respect to all claims for benets incurred prior to their termination. See

also Advisory Opinion 2005-20A.

This leer 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 eect of advisory opinions.

Sincerely,

Lisa M. Alexander

Chief, Division of Coverage, Reporting and Disclosure

Oce of Regulations and Interpretations

Enclosure

March 1, 2002

Commissioner Mike Pickens

Arkansas Insurance Department

1200 West Third Street

Little Rock, AR 72201-1904

Dear Commissioner Pickens:

This is in reply to a letter, dated February 11, 2002, from Sara Farris, Associate Counsel with

the Arkansas Insurance Department, requesting information regarding the applicability of Title I of the

Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, she asked for the view

of the Department of Labor (Department) on whether section 514 of Title I or ERISA precludes the Arkansas

Department of Insurance (ADOI) from regulating the United Employers Voluntary Employees Beneficiary

Association (UEVEBA), National Association for Working Americans (NAWA) and American Benefit Plans

(ABP).

We understand that the ADOI has initiated a cease and desist proceeding alleging illegal insurance

activities by UEVEBA, NAWA, ABP, and John Rhondo aka John Ramirez and David Neal. An issue has arisen

in that proceeding as to whether ADOI has jurisdiction to regulate UEVEBA as an unauthorized insurer or as

an unlicensed multiple employer welfare arrangement (MEWA). UEVEBA is contending that it is not subject

to State insurance regulation by reason of Title I of ERISA. Ms. Farris provided us with a copy of a transcript

from the February 1, 2002, hearing in the cease and desist order proceeding and copies of the respondents’

exhibits and selected ADOI exhibits. The following summary is based solely on information in the transcript

and exhibits; it is not, and should not be treated as, factual findings of the Department.

UEVEBA States that it is organized under section 501(c)(9) of the Internal Revenue Code as a tax-

exempt, non-profit voluntary employees’ beneficiary organization (VEBA) and as a VEBA trust.

The trustee of

the VEBA trust is “The 4 Corners Company, LLC,” which acts through its managing member John Rhondo aka

John Ramirez.

The UEVEBA Defined Contribution Health and Welfare Limited Benefit Medical Plan is a prototype

plan document developed by ABP. The prototype documents also include a summary plan description, trust

agreement, and adoption agreement. The UEVEBA prototype plan document provides for medical, dental,

vision, hearing and pharmaceutical benefits, and life insurance. NAWA, either directly or through ABP,

markets the UEVEBA arrangement and assists employers in the process of adopting the UEVEBA prototype

plan and becoming participating employers in the VEBA trust. Employers, by executing the UEVEBA adoption

agreement used in Arkansas, establish their own individual employee welfare benefit plans under the terms

and conditions set forth in the UEVEBA prototype plan document. The employers also execute a standard trust

joinder agreement where the employer, among other things, agrees to join UEVEBA, designates UEVEBA as

the plan’s trust, authorizes the VEBA trustee to act on behalf of the employer in administering the VEBA trust,

and agrees to make contributions to the VEBA trust for the payment of benefits for the employer’s eligible

employees, spouses, dependents or beneficiaries.

The prototype summary plan description is used to disclose

information about benefits, rights and obligations under the plan and is distributed to eligible employees.

It appears that more than two, and possibly as many as 400 or more, separate and unrelated private sector

employers have adopted the UEVEBA prototype plan document and use the UEVEBA arrangement to provide

benefits to their eligible employees, spouses, dependents, and other beneficiaries.

UEVEBA’s name appears to have been changed in 1998 from the “California Association of Medical Professionals Voluntary

Employees Beneficiary Association Trust.”

A trust joinder agreement attached to a January 10, 2002 letter from John Ramirez to the Colorado Commissioner of Insurance

identified UEBEBA as the “United Employers Voluntary Employees Beneficiary Association I (Herein ‘VEBA’)” while copies of

other trust joinder agreements identified UEBEBA as “United Vendors of America Chapter I Voluntary Employees’ Beneficiary

Association (the ‘UEVEBA’)....”We have assumed for purposes of this letter that these differences reflect different trade names

under which UEVEBA conducts its operations.

Under the UEVEBA prototype adoption agreement used in Arkansas, contributions from

participating employers are made to a pooled trust account held by the VEBA trustee for the benefit of eligible

employees, and their spouses, dependents and other beneficiaries. It appears that third party administrators

(TPAs) have been designated by the VEBA trustee to act as representatives in operating a “Registered Office”

and transacting business on behalf of the VEBA trustee. In some cases, employer contributions may be

deposited in a TPA’s UEVEBA Deposit Bank Account and transmitted to the VEBA pooled trust account.

UEVEBA provides benefits to covered employees, and their spouses, dependents and beneficiaries from

the VEBA pooled trust account.

In the event the VEBA pooled account is insufficient to pay benefits due,

UEVEBA agreed that it would file a claim under a reinsurance contract if entered into with Equity Reinsurance

International (ERI), a division of Cosmopolitan Life Insurance Company. Under the reinsurance contract, ERI

agreed, subject to certain terms, conditions, and limitations in the contract, to indemnify UEVEBA for benefit

liabilities it assumed in connection with employers who adopted the UEVEBA arrangement. UEVEBA’s pooled

trust account arrangement is structured so that the single employer plans share actuarial risks with each other

as part of participating in the UEVEBA arrangement.

Section 514(a) of Title I of ERISA generally preempts State laws purporting to regulate an employee

benefit plan covered under that title. There are, however, exceptions to this general preemption provision.

The relevant exception for purposes of your inquiry is in subsection 514(b)(6)(A), which allows State insurance

regulation of MEWAs and MEWA trusts without regard to whether they are employee benefit plans covered

by Title I of ERISA. Section 3(40)(A) of ERISA defines the term MEWA, in relevant part, to mean: “[A]n

employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which

is established or maintained for the purpose of offering or providing any benefit described in [section 3(1)

of ERISA] to the employees of two or more employers (including one or more self-employed individuals),

or to their beneficiaries, except that such term does not include any such plan or other arrangement which is

established or maintained -- (i) under or pursuant to one or more agreements which the Secretary [of Labor]

finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone

cooperative association.”

If a MEWA is not itself an ERISA covered plan, which is generally the case, ERISA’s preemption

provisions do not apply and States are free to regulate the MEWA in accordance with applicable State law. In

such cases, the Department would view each of the employer members that use the MEWA to provide welfare

benefits to its employees as having established separate welfare benefit plans subject to ERISA.

In effect, the

MEWA would be merely a vehicle for funding and administering the provision of benefits (like an insurance

company) to a number of separate ERISA-covered plans. The Department has concurrent jurisdiction with

the States to regulate persons who operate such MEWAs to the extent those persons have responsibility for, or

control over, the assets of ERISA plans that participate in the MEWA.

If the MEWA is itself an ERISA-covered plan, it would be subject to the provisions of ERISA

governing employee welfare benefit plans, and would also be subject to a broad range of State insurance laws.

Section 514(b)(6)(A)(i) of ERISA provides that, in the case of a MEWA that is itself a plan and is fully

insured, States may apply to and enforce against the MEWA any State insurance law requiring the maintenance

of specific reserves or contributions designed to ensure that the MEWA will be able to satisfy its benefit

obligations in a timely fashion. In the Department’s view, section 514(b)(6)(A)(i) enables States to subject

such MEWAs to licensing, registration, certification, financial reporting, examination, audit and any other

requirement of State insurance law necessary to ensure compliance with State insurance reserve, contribution

and funding requirements. Section 514(b)(6)(D) provides that a MEWA is “fully insured” for this purpose “only

if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are

Although adoption agreements refer to benefits provided under insurance contracts purchased by the plan administrator

and held by the VEBA trust, such insurance contracts were not in the materials we received.

UEVEBA appears to allow plans to participate that are not be subject to Title I of ERISA (e.g., governmental plans, church

plans and certain plans covering only self-employed individuals and their spouses). Participation by non-ERISA plans does

not change the Title I conclusion regarding the States’ ability to regulate the MEWA.

When the spouse of an ERISA-covered plan uses a MEWA to provide helath care coverage for its employees, the assets

of the MEWA generally are considered to include the assets of the plan, unless the MEWA is a State licensed insurance

company. In exercising discretionary authority or control over plan assets, such as paying administrative expenses and

making benefit claim determinations, the person or persons operating the MEWA would be performing fiduciay acts

governed by ERISA’s fiduciary provisions.

guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service or

insurance organization, qualified to conduct business in a State.”

In the case of a MEWA that is itself a plan but is not fully insured, section 514(b)(6)(A)(ii) allows

any State insurance laws to be applied to the MEWA subject only to the limitation that the law is “not

inconsistent” with Title I of ERISA. The Department has expressed the view that a State insurance law would

not be inconsistent with Title I if it requires a MEWA to meet more stringent standards of conduct, or to

provide greater protection to plan participants and beneficiaries than required by ERISA. The Department

has also expressed the view that a State law regulating insurance would not, in and of itself, be inconsistent

with the provisions of Title I if it requires a license or certificate of authority as a condition to transacting

business, requires maintenance of specific reserves or contributions designed to ensure that the MEWA will

be able to satisfy its benefit obligations in a timely fashion, requires financial reporting, examination or audit,

or subjects persons who fail to comply to taxation, fines, civil penalties, and injunctive relief.

We understand that UEVEBA and the other respondents argue that section 514(b)(6)(C) of ERISA

forbids Arkansas from regulating the UEVEBA arrangement because the VEBA trust acts a pooled trust

holding the assets of single employer plans that participate in the UEVEBA arrangement. This argument

misconstrues section 514(b)(6)(C). That section provides that nothing in provisions of section 515(b)(6)

(A) that specifically allow States to regulate MEWAs “shall affect the manner or the extent to which the

provisions of this subchapter apply to an employee welfare benefit plan which is not a MEWA and which is

a plan, fund, or program participating in, subscribing to, or otherwise using a MEWA to fund or administer

benefits to such plan’s participants and beneficiaries.” In analyzing this provision, it is important to

distinguish between (1) individual employee benefit plans that obtain benefits through a MEW

A, and (2)

the MEW

A itself. Section 514(b)(6)(C) prevents individual employee benefit plans covered by ERISA from

themselves being deemed insurance companies or otherwise regulated as insurance under State insurance

law merely because they utilize a MEWA in obtaining benefits; the section does not provide immunity to the

MEWA itself from State insurance regulation, or to a pooled trust forming part of a MEWA. See Atlantic

Health Care Benefits Trust v. Foster, 809 F.Supp. 365, 370 (M.D.Pa., 1992).

The information supplied indicates that the UEVEBA arrangement is being operated for the

purpose of providing health and welfare benefits to employees of two or more employers. Nothing in

the material we received suggested that the UEVEBA arrangement is established or maintained under

or pursuant to one or more agreements that the Secretary of Labor has found to be collective bargaining

agreements, or by a rural electric cooperative or rural telephone cooperative association as defined in section

3(40) of ERISA. Accordingly, in the Department’s view, it is a MEWA. It does not appear that any of the

respondents are claiming that the UEVEBA arrangement is itself an ERISA-covered plan, and nothing in the

information you provided suggests that the UEVEBA arrangement is itself such a plan. Therefore, ERISA’s

preemption provisions do not apply with respect to the UEVEBA arrangement (as distinguished from any

individual ERISA-covered plans that obtain benefits through UEVEBA), and Arkansas is free to regulate the

UEVEBA arrangement in accordance with applicable State law. Further, even if the UEVEBA arrangement

were itself found to be an ERISA-covered plan, Title I of ERISA does not preclude the application of Arkansas

insurance law or regulations to the UEVEBA arrangement in accordance with section 514(b)(6)(A) of ERISA

as described above.

We hope this information is of assistance to you. Should you have any questions concerning

this letter, please contact me at 202.693.8531. I have also enclosed a brochure prepared by the Department

entitled “Multiple Employer Welfare Arrangements Under the Employee Retirement Income Security Act: A

Guide to Federal and State Regulation.”

Sincerely,

John J. Canary

Chief, Division of Coverage, Reporting and Disclosure

Office of Regulations and Interpretations

Enclosure

cc:John Rhondo aka John Ramizer

May 8, 2006

The Honorable George J. Chanos

Aorney General

Nevada Department of Justice

555 East Washington Avenue

Las Vegas, Nevada 89101-1088

Dear Aorney General Chanos:

This is in response to the request from your Oce for guidance regarding the denition of “multiple employer

welfare arrangement” (MEWA) in section 3(40) of the Employee Retirement Income Security Act of 1974

(ERISA). Your inquiry indicates that an issue has arisen in connection with an order issued by the Division

of Insurance of the Nevada Department of Business and Industry directing Payroll Solutions Group Limited

(Company), a professional employer organization doing business in Nevada, to cease and desist oering

unlicensed insurance through a MEWA, the PSG Employee Medical Plan (Plan), to its client employers in the

State of Nevada. The Company is resisting the order claiming the Plan is a single employer plan, not a MEWA,

and that section 514(a) of ERISA preempts the application of state insurance regulation.

Section 514(a) of Title I of ERISA generally preempts state laws purporting to regulate an employee benet plan

covered under that title. There are, however, exceptions to this general preemption provision. The relevant

exception for purposes of your inquiry is in subsection 514(b)(6)(A), which allows state insurance regulation of

MEWAs without regard to whether they are employee benet plans covered by Title I of ERISA. Section 3(40)

(A) of ERISA denes the term MEWA, in relevant part, to mean: “[A]n employee welfare benet plan, or any

other arrangement (other than an employee welfare benet plan), which is established or maintained for the

purpose of oering or providing any benet described in [section 3(1) of ERISA] to the employees of two or

more employers (including one or more self-employed individuals), or to their beneciaries, except that

such term does not include any such plan or other arrangement which is established or maintained -- (i)

under or pursuant to one or more agreements which the Secretary [of Labor] nds to be collective bargaining

agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association.”

The Department has previously expressed the view that a plan that is maintained by a single employer

for the exclusive purpose of providing benets to that employer’s employees, former employees, or their

beneciaries, would be a single employer plan and not a MEWA within the meaning of ERISA section 3(40).

See Employee Benets Security Administration, U.S. Department of Labor, MEWAs - Multiple Employer

Welfare Arrangements under the Employee Retirement Income Security Act: A Guide to Federal and State

Regulation 30 (2003). On the other hand, the Department has also previously expressed the view that where

the employees participating in the plan of an employee leasing organization include employees of two or more

client employers, or employees of the leasing organization and at least one client employer, the plan of the

leasing organization would, by denition, constitute a MEWA because the plan would be providing benets to

the employees of two or more employers. Advisory Opinion 92-07A (Feb. 20, 1992). The Department believes

the same analysis is applicable to plans of professional employer organizations covering the employees of

their client companies. The relevant issue for purposes of your inquiry thus is whether the employees who

participate in the Plan are exclusively employees of the Company, or are, rather, employees of more than one

employer.

The term “employee” is dened in section 3(6) of ERISA to mean “any individual employed by an employer.”

Whether an individual is an “employee” for purposes section 3(6) of Title I of ERISA generally requires a

determination of whether there is an employer-employee relationship applying common law principles. See

Nationwide Mutual Insurance Company v. Darden, 503 U.S. 318 (1992); Yates v. Hendon, 541 U.S. 1 (2004).

In making such determinations, therefore, consideration must be given, among other maers, to whether the

person for whom services are being performed has the right to control and direct the individual who performs

the services, not only as to the result to be accomplished by the work, but also as to the details and means by

which the result is to be accomplished; whether the person for whom services are being performed has the right

to discharge the individual performing the services; and whether the individual performing the services is as a

maer of economic reality dependent upon the business to which he or she renders services. Advisory Opinion

95-29A (Dec. 7, 1995); Advisory Opinion 95-22A (Aug. 25, 1995). In this regard, the Department has taken the

position that payment of wages; payment of federal, state, and local employment taxes; and the provision of

health or pension benets (or both) are not determinative of an employee-employer relationship. Advisory

Opinion 93-29A (Oct. 22, 1993). Further, a contract purporting to create an employer-employee relationship

also will not control where common law factors (as applied to the facts and circumstances) establish that the

relationship does not exist. Advisory Opinion 2005-12A (May 16, 2005); see also Advisory Opinion 95-22A (Aug.

25, 1995).

Included in your submission was a copy of a leer, dated March 24, 2004, from the Department of Labor’s

Regional Oce in San Francisco to Harold Winters, President of the Company, and Tim Menield, Trustee of

the Plan. In that leer, the Department described the Company as a professional employee organization that

executes leasing agreements with client employers from various industries. Under the leasing arrangement,

employees are “shared” by the Company and the respective client employer, but the Company and the client

employer have dierent obligations. In exchange for a fee, the Company performs certain administrative

and support services including payroll, benets, and worker’s compensation. The payments collected by the

Company from participating employers include health contribution payments or “premiums” that are to be

used to pay medical claims under the Plan’s self-funded arrangement. The Department’s leer concluded

that the client employers, in practice, retain the responsibility of supervising, training, hiring, and ring of its

employees, and thus, the client employers and their employees have a common-law employer-employee

relationship.

Under the circumstances set forth above, the participants in the Plan thus include employees of two or more

employers, notwithstanding the fact that the Company may be a co-employer or joint employer for other

purposes. A professional employer organization’s responsibilities as employer, or co-employer, under laws

other than ERISA is not determinative for purposes of identifying a single employer to the exclusion of others

under ERISA section 3(40). For example, the employer responsible for purposes of withholding federal

income taxes and Federal Insurance Contributions Act tax payments can be the trustee of an employer’s

bankruptcy estate, Oe v. U.S., 119 U.S. 43 (1974), the regulations under the Fair Labor Standards Act of 1938

contemplate joint compliance responsibility among joint employers, 29 C.F.R. § 791.2(a), and under the Family

Leave Medical Act of 1983 a leasing company that is an employer of employees is generally a joint employer

and compliance requirements are divided among the leasing company, as primary employer, and its client

employer as secondary employer. 29 C.F.R. § 825.1(b),(c). Similarly, although the Department expressed

the view that a leasing company acting as co-employer was an employer under ERISA section 3(5) by acting

directly or indirectly in the interest of an employer in establishing or maintaining an employee benet plan

within the meaning of ERISA section 3(1), the Department concluded that the same plan was a MEWA.

Advisory Opinion 95-29A (Dec. 7, 1995).

Therefore, even if the Plan were found to be an employee benet

plan within the meaning of section 3(1), it would be a multiple employer plan, not a single employer plan, and

would be a MEWA subject to state insurance regulation at least to the extent permied under section 514(b)(6)

(A) of ERISA.

You also asked that we specically address the Company’s contention that the Plan cannot be a MEWA because

Nevada state law provides that “an employee leasing company shall be deemed to be the employer of its leased

employees for the purposes of sponsoring and maintaining any benet plans.” Nev. Rev. Stat. § 616B.691(2)

(2005). It is the Department’s view that whether an arrangement is a MEWA within the meaning of section

3(40) is a question of federal law. See, e.g., Nationwide Mutual Insurance Company v. Darden, 503 U.S. 318, n.

5 (1992) (Court construed the term employee under ERISA to incorporate “the general common law of agency,

rather than ... the law of any particular State.”); see also Serapion v. Martinez, 119 F3d 982, 988 (1st Cir. 1997)

(court rejected arguments regarding employee status of partners under Title VII of the Human Rights Act of

1964 based on Puerto Rico law; absent plain indication of contrary intent, “courts ought to presume that the

interpretation of a federal statute is not dependent upon state law”). Thus, a state statute addressing the leasing

company relationship to leased employees would not govern the determination of whether any particular

arrangement is a MEWA by reason of providing benets to the employees of two or more employers.

Further, although in connection with the proposed regulations governing Form M-1 reporting under ERISA

section 101(g) representatives of professional employer organizations argued that their group health plans

should not be considered MEWAs because the organizations act as co-employers, the Department was unable to

conclude that such plans do not cover the employees of more than one employer. 68 FR 17497 (2003).

If a MEWA is “fully insured” within the meaning of section 514(b)(6)(D) of ERISA, state insurance law may

apply to the extent it provides standards requiring the maintenance of specied levels of reserves and

contributions, and provisions to enforce such standards (See section 514(b)(6)(A)(i)). If the MEWA is not fully

insured, any law of any state which regulates insurance may apply to the extent not inconsistent with title I of

ERISA (See 514(b)(6)(A)(ii)).

This leer should not be read as expressing the view that the Plan is itself an “employee welfare benet plan”

within the meaning of section 3(1) of ERISA, or that the Company would be shielded from the consequences of

employer or co-employer status under ERISA or any other law.

Sincerely,

Robert J. Doyle

Director of Regulations

and Interpretations

Appendix B

Advisory Opinion

Procedure

ERISA Procedure 76-1 for ERISA

Advisory Opinions

It is the practice of the Department of Labor

to answer inquiries of individuals or organizations

affected, directly or indirectly, by the Employee Retire-

ment Income Security Act of 1974 (Pub. L. 93-406,

hereinafter the Act) as to their status under the Act and

as to the effect of certain acts and transactions. The

answers to such inquiries are categorized as information

letters and advisory opinions. This ERISA procedure

describes the general procedures of the Department in

issuing information letters and advisory opinions under

the Act, and is designed to promote efficient handling

of inquiries and to facilitate prompt responses.

Section 7 of this procedure (instructions to

individuals and organizations requesting advisory opin-

ions relating to prohibited transactions and common

definitions) is reserved. This section will set forth the

procedures to be followed to obtain an advisory opinion

relating to prohibited transactions and common defini-

tions, such as whether a person is a party in interest

and a disqualified person. In general, this section will

incorporate a revenue procedure to be published by the

Internal Revenue Service.

This advisory opinion procedure consists of rules

of agency procedure and practice, and is therefore

excepted under 5 U.S.C. 552(b)(3)(A) of the Adminis-

trative Procedure Act from the ordinary notice and com-

ment provisions for agency rulemaking. Accordingly,

the procedure is effective August 27, 1976.

Section 1. Purpose. The purpose of this ERISA

Procedure is to describe the general procedures of the

Department of Labor in issuing information letters

and advisory opinions to individuals and organizations

under the Employee Retirement Income Security Act of

1974 (Pub. L. 93-406), hereinafter referred to as “the

Act.” This ERISA Procedure also informs individuals

and organizations, and their authorized representatives,

where they may direct requests for information letters

and advisory opinions, and outlines procedures to be

followed in order to promote efficient handling of their

inquiries.

Section 2. General Practice. It is the practice

of the Department to answer inquiries of individuals

and organizations, whenever appropriate, and in the

interest of sound administration of the Act, as to their

status under the Act and as to the effects of their acts or

transactions. One of the functions of the Department

is to issue information letters and advisory opinions in

such matters.

Section 3. Definitions. .01 An “information let-

ter” is a written Statement issued either by the Pension

and Welfare Benefit Programs (Office of Employee

Benefits Security), U.S. Department of Labor, Wash-

ington, D.C. or a Regional Office or an Area Office

of the Labor-Management Services Administration,

U.S. Department of Labor, that does no more than

call attention to a well-established interpretation or

principle of the Act, without applying it to a specific

factual situation. An information letter may be issued

to any individual or organization when the nature of the

request from the individual or the organization suggests

that it is seeking general information, or where the re-

quest does not meet all the requirements of section 6 or

7 of this procedure, and it is believed that such general

information will assist the individual or organization.

.02 An advisory opinion is a written Statement

issued to an individual or organization, or to the autho-

rized representative of such individual or organization,

by the Administrator of Pension and Welfare Benefit

Programs or his delegate, that interprets and applies the

Act to a specific factual situation. Advisory opinions

are issued only by the Administrator of Pension and

Welfare Benefit Programs or his delegate.

.03 Individuals and organizations are those per-

sons described in section 4 of this procedure.

Section 4. Individuals and organizations who

may request advisory opinions or information letters.

.01 Any individual or organization affected directly or

indirectly, by the Act may request an information letter

or an advisory opinion from the Department.

.02 A request by or for an individual or organiza-

tion must be signed by the individual or organization,

or by the authorized representative of such individual or

organization. See section 7.03 of thisprocedure.

Section 5. Discretionary Authority to Render

Advisory Opinions. .01 The Department will issue

advisory opinions involving the interpretation of the

application of one or more sections of the Act, regula-

tions promulgated under the Act, interpretive bulletins,

or exemptions issued by the Department to a specific

factual situation. Generally, advisory opinions will

be issued by the Department only with respect to

prospective transactions (i.e., a transaction which will

be entered into). Moreover, there are certain areas

where, because of the inherently factual nature of the

problem involved, or because the subject of the request

for opinion is under investigation for a violation of the

Act, the Department ordinarily will not issue advisory

opinions. Generally, an advisory opinion will not be is-

sued on alternative courses of proposed transactions, or

on hypothetical situations, or where all parties involved

are not sufficiently identified and described, or where

material facts or details of the transaction are omitted.

.02 The Department ordinarily will not issue

advisory opinions relating to the following sections of

the Act:

.02(a) Section 3(18), relating to whether certain

consideration constitutes adequate consideration;

.02(b) Section 3(26), relating to whether the valu-

ation of any asset is at current value;

.02(c) Section 3(27), relating to whether the valu-

ation of any asset is at present value;

.02(d) Section 102(a)(1), relating to whether a

summary plan description is written in a manner calcu-

lated to be understood by the average participant.

.02(e) Section 103(a)(3)(A), relating to whether

the financial Statements and schedules required to be

included in the Annual Report are presented fairly in

conformity with generally accepted accounting prin-

ciples applied on a consistent basis;

.02(f) Section 103(b)(1), relating to whether a

matter must be included in a financial Statement in

order to fully and 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 sections 202(a)(3)

(B), (b)(1) (flush language), (b)(2), (b)(3)(A)

.02(i) Section 204 of the Act (other than sections 204(b)

(1)(B), (b)(1)(A), (C), (D), (E)), relating to benefit ac-

crual requirements;

.02(j) Section 205(e), relating to the period during

which a participant may elect in writing not to receive a

joint and survivor annuity;

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

solidation of plans or transfer of plan assets;

.02(l) Section 209(a)(1), relating to whether the

report required by section 209(a)(1) is sufficient to

inform the employee of his accrued benefits under the

plan, etc.

.02(m) Sections 302 through 305, relating to

minimum funding standards;

.02(n) Section 403(c)(1), relating to the purposes

for which plan assets must be held;

.02(o) Section 404(a), relating to fiduciary duties

as 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

of any particular security or real property constitutes

fair market value.

This list is not all inclusive and the Department

may decline to issue advisory opinions relating to other

sections of the Act whenever warranted by the facts and

circumstances of a particular case. The Department

may, when it is deemed appropriate and in the best

interest of sound administration of the Act, issue infor-

mation letters calling attention to established principles

under the Act, even though the request that was submit-

ted was for an advisory opinion.

.03 Pending the adoption of regulations (either

temporary or final) involving the interpretation of the

application of a provision of the Act, consideration will

be given to the issuance of advisory opinions relating

to such provisions of the Act only under the following

conditions:

.03(a) If an inquiry presents an issue on which

the answer seems to be clear from the application of

the provisions of the Act to the facts described, the

advisory opinion will be issued in accordance with the

procedures contained herein.

.03(b) If an inquiry presents an issue on which the

answer seems reasonably certain but not entirely free

from doubt, an advisory opinion will be issued only if it

is established to the satisfaction of the Department, that

a business emergency requires an advisory opinion or

that unusual hardship to the plan or its participants and

beneficiaries will result from failure to obtain an ad-

visory opinion. In any case in which the individual or

organization believes that a business emergency exists

or that an unusual hardship to the plan or its participants

and beneficiaries will result from the failure to obtain

an advisory opinion, the individual or organization

should submit with the request a separate letter setting

forth the facts necessary for the Department to make

a determination in this regard. In this connection, the

Department will not deem a business emergency to

result from circumstances within the control of the indi-

vidual or organization such as, for example, scheduling

within an inordinately short time the closing date of a

transaction or a meeting of the Board of Directors or the

shareholders of a corporation.

.03(c) If an inquiry presents an issue that cannot

be reasonably resolved prior to the issuance of a regula-

tion, an advisory opinion will not be issued.

.04 The Department ordinarily will not issue

advisory opinions on the form or effect in operation

of a plan, fund, or program (or a particular provision

or provisions thereof) subject to Title I of the Act. For

example, the Department will not issue an advisory

opinion on whether a plan satisfies the requirements of

Parts 2 and 3 of Title I of the Act.

Section 6. Instructions to individuals and organi-

zations requesting advisory opinions from the Depart-

ment. .01 If an advisory opinion is desired, a request

should be submitted to: U.S. Department of Labor,

Employee Benefits Security Administration, Office

of Regulations and Interpretations, 200 Constitution

Avenue, NW, Suite N-5669, Washington, DC 20210.

.02 A request for an advisory opinion must contain

the following information:

.02(a) The name and type of plan or plans (e.g.,

pension, profit-sharing, or welfare plan); the Employer

Identification Number (EIN); the Plan Number (PN)

used by the plan in reporting to the Department of La-

bor on Form EBS-1 or a copy of the first two pages of

the most recent Form EBS-1 filed with the Department.

.02(b) A detailed description of the act or acts or

transaction or transactions with respect to which an ad-

visory opinion is requested. Where the request pertains

to only one step of a larger integrated act or transaction,

the facts, circumstances, etc., must be submitted with

respect to the entire transaction. In addition, a copy

of all documents submitted must be included in the

individual’s or organization’s Statement and not merely

incorporated by reference, and must be accompanied

by an analysis of their bearing on the issue or issues,

specifying the pertinent provisions.

.02(c) A discussion of the issue or issues presented

by the act or acts or transaction or transactions which

should be addressed in the advisory opinion.

.02(d) If the individual or organization is request-

ing a particular advisory opinion, the requesting party

must furnish an explanation of the grounds for the

request, together with a Statement of relevant support-

ing authority. Even though the individual or organiza-

tion is urging no particular determination with regard to

a proposed or prospective act or acts or transaction or

transactions, the party requesting the ruling must State

such party’s views as to the results of the proposed

act or acts or transaction or transactions and furnish a

Statement of relevant authority to support such views.

.03 A request for an advisory opinion by or for

an individual or organization must be signed by the

individual or organization or by the individual’s or

organization’s authorized representative. If the request

is signed by a representative of an individual or orga-

nization, or the representative may appear before the

Department in connection with the request, the request

must include a Statement that the representative is

authorized to represent the individual or organization.

.04 A request for an advisory opinion that does not

comply with all the provisions of this procedure will be

acknowledged, and the requirements that have not been

met will be noted. Alternatively, at the discretion of the

Department, the Department will issue an information

letter to the individual or organization.

.05 If the individual or organization or the

authorized representative, desires a conference in the

event the Department contemplates issuing an adverse

advisory opinion, such desire should be Stated in

writing when filing the request or soon thereafter in

order that the Department may evaluate whether in the

sole discretion of the Department, a conference should

be arranged and at what stage of the consideration a

conference would be most helpful.

.06 It is the practice of the Department to process

requests for information letters and advisory opinions in

regular order and as expeditiously as possible. Compli-

ance with a request for consideration of a particular

matter ahead of its regular order, or by a specified time,

tends to delay the disposition of other matters. Re-

quests for processing ahead of the regular order, made

in writing (submitted with the request or subsequent

thereto) and showing clear need for such treatment, will

be given consideration as the particular circumstances

warrant. However, no assurance can be given that any

letter will be processed by the time requested. The

Department will not consider a need for expedited

handling to arise if the request shows such need has

resulted from circumstances within the control of the

person making the request.

.07 An individual or organization, or the

authorized representative desiring to obtain informa-

tion relating to the status of his or her request for an

advisory opinion may do so by contacting the Office

of Regulatory Standards and Exceptions, Pension and

Welfare Benefit Programs, U.S. Department of Labor,

Washington, D.C.

Section 7. Instructions to Individuals and Orga-

nizations Requesting Advisory Opinions Relating to

Prohibited Transactions and Common Definitions

.01 [Reserved]

.02 [Reserved]

.03 [Reserved]

Section 8. Conferences at DOL

If a conference has been requested and the Department

determines that a conference is necessary or appropri-

ate, the individual or organization or the authorized

representative will be notified of the time and place of

the conference. A conference will normally be sched-

uled only when the Department in its sole discretion

deems it will be necessary or appropriate in deciding

the case. If conferences are being arranged with respect

to more than one request for an opinion letter involving

the same individual or organization, they will be so

scheduled as to cause the least inconvenience to the

individual or organization.

Section 9. Withdrawal of Requests

The individual or organization’s request for an advisory

opinion may be withdrawn at any time prior to receipt

of notice that the Department intends to issue an

adverse opinion, or the issuance of an opinion. Even

though a request is withdrawn, all correspondence and

exhibits will be retained by the Department and will not

be returned to the individual or organization.

Section 10. Effect of Advisory Opinion

An advisory opinion is an opinion of the Department

as to the application of one or more sections of the Act,

regulations promulgated under the Act, interpretive

bulletins, or exemptions. The opinion assumes that

all material facts and representations set forth in the

request are accurate, and applies only to the situation

described therein. Only the parties described in the

request for opinion may rely on the opinion, and they

may rely on the opinion only to the extent that the re-

quest fully and accurately contains all the material facts

and representations necessary to issuance of the opinion

and the situation conforms to the situation described in

the request for opinion.

Section 11. Effect of Information Letters

An information letter issued by the Department is in-

formational only and is not binding on the Department

with respect to any particular factual situation.

Section 12. Public Inspection

.01 Advisory opinions shall be open to public inspec-

tion at the Public Disclosure Room, U.S. Department

of Labor, 200 Constitution Avenue, N.W., Washington,

D.C. 20216.

.02 Background files (including the request for an

advisory opinion, correspondence between the Depart-

ment and the individual or organization requesting

the advisory opinion) shall be available upon written

request. Background files may be destroyed after three

years from the date of issuance.

.03 Advisory opinions will be modified to delete

references to proprietary information prior to disclo-

sure. Any information considered to be proprietary

should be so specified in a separate letter at the time of

request. Other than proprietary information, all materi-

als contained in the public files shall be available for

inspection pursuant to section 12.

.04 The cost of search, copying and deletion of

any references to proprietary information will be borne

by the person requesting the advisory opinion or the

background file.

Section 13. Effective Date. This advisory

opinion procedure consists of rules of agency procedure

and practice, and is therefore excepted under 5 U.S.C.

552(b)(3)(A) of the Administrative Procedure Act from

the ordinary notice and comment provisions for agency

rulemaking. Accordingly, the procedure is effective

August 27, 1976, the date of its publication in the Fed-

eral Register.

Signed at Washington, DC, this 24

day of August

1976

James D. Hutchinson

Administrator of Pension and

Welfare Benefit Programs

U.S. Department of Labor

Appendix C

Regulations

DEPARTMENT OF LABOR

Employee Benets Security Administration

29 CFR Part 2510

RIN 1210-AA48

Employee Retirement Income Security Act of 1974;

Plans Established or Maintained Under or Pursuant to

Collective Bargaining Agreements Under Section 3(40)

(A) of ERISA

AGENCY: Employee Benets Security Administration,

Labor.

ACTION: Final rule.

SUMMARY: This document contains a regulation

under the Employee Retirement Income Security Act

of 1974, as amended, (ERISA or the Act) setting forth

specic criteria that, if met and if certain other factors

set forth in the regulation are not present, constitute a

nding by the Secretary of Labor (the Secretary) that

a plan is established or maintained under or pursuant

to one or more collective bargaining agreements for

purposes of section 3(40) of ERISA. Employee welfare

benet plans, such as health care plans, that meet the

requirements of the regulation are excluded from the

denition of “multiple employer welfare arrangements”

under section 3(40) of ERISA and consequently are not

subject to State regulation of multiple employer welfare

arrangements as provided for by the Act. Regulations

published elsewhere in this issue of the Federal Register

set forth a procedure for obtaining a determination

by the Secretary as to whether a particular employee

welfare benet plan is established or maintained

under or pursuant to one or more agreements that

are collective bargaining agreements for purposes of

section 3(40) of ERISA. The procedure is available

only in situations where the jurisdiction or law of a

State has been asserted against an entity that contends

it meets the exception for plans established or

maintained under or pursuant to one or more collective

bargaining agreements. This regulation is intended

to assist labor organizations, plan sponsors and State

insurance departments in determining whether a plan is

a “multiple employer welfare arrangement” within the

meaning of section 3(40) of

ERISA.

EFFECTIVE DATE: June 9, 2003.

FOR FURTHER INFORMATION CONTACT:

Elizabeth A. Goodman, Oce of Regulations

and Interpretations, Employee Benets Security

Administration, U.S. Department of Labor, 200

Constitution Avenue, NW.,

Room N-5669, Washington, DC 20210, (202) 693-

8510. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

The Statute

Section 3(40) of ERISA denes the term multiple

employer welfare arrangement (MEWA), in pertinent

part, as an employee welfare benet plan, or any

other arrangement (other than an employee welfare

benet plan), which is established or maintained

for the purpose of oering or providing any benet

described in paragraph (1) of section 3 of the Act to

the employees of two or more employers (including

one or more self-employed individuals), or to their

beneciaries, except that such term does not include

any such plan or other arrangement which is established

or maintained under or pursuant to one or more

agreements which the Secretary nds to be collective

bargaining agreements.

This denition was added to ERISA by the Multiple

Employer Welfare Arrangement Act of 1983, Sec.

302(b), Pub. L. 97-473, 96 Stat. 2611, 2612 (29

U.S.C. 1002(40)) (the MEWA amendments), which

also amended section 514(b) of ERISA to narrow the

scope of federal preemption of State laws applicable

to MEWAs. The purpose of the MEWA amendments

generally was to permit States to regulate employee

welfare benet plans that are MEWAs; the extent of the

States’ jurisdiction over such entities under the MEWA

amendments depends on whether or not the MEWA is

fully insured. Sec. 302(b), Pub.L. 97-473, 96 Stat.

2611, 2613 (29 U.S.C. 1144(b)(6)).

The Multiple Employer Welfare Arrangement Act

of 1983, which was introduced to counter what the

Congressional drafters termed abuse by the “operators

of bogus “insurance’ trusts,” see 128 Cong. Rec.

E2407 (1982) (Statement of Congressman Erlenborn),

signicantly enhanced the States’ ability to regulate

MEWAs. Nevertheless, problems in this area persist.

Among other things, the exception for collectively

bargained plans contained in section 3(40) has been

exploited by some MEWA operators who, through

the use of sham unions and collective bargaining

agreements, market fraudulent insurance schemes

under the guise of collectively bargained welfare plans

exempt from State insurance regulation. Another

problem in this area involves the use of collectively

bargained plans as vehicles for marketing health

care coverage to individuals and employers with no

relationship to the bargaining process or the underlying

bargaining agreement. The denition of a MEWA in

section 3(40) was drafted to exclude certain types of

plans. As pertains to this rulemaking, section 3(40)

(A)(i) of ERISA provides that employee welfare

benet plans that are found by the Secretary of Labor

(the Secretary) to be established or maintained under

or pursuant to one or more collective bargaining

agreements are not MEWAs for purposes of ERISA.

Such collectively bargained plans, as a result, were not

made subject to the regulatory jurisdiction of the States

pursuant to the MEWA amendments.

The Department of Labor (the Department) notes

that also appearing in today’s Federal Register are

nal regulations relating to ling the Form M-1 and

Civil Monetary Penalties for failure or refusal to le

the Form M-1. For information on the Form M-1 and

related civil monetary penalties, contact Deborah S.

Hobbs or Amy J. Turner, Employee Benets Security

Administration, U.S. Department of Labor, Room

C-5331, 200 Constitution Ave., NW., Washington, DC

20210 (telephone (202) 693-8335) (this is not a toll-free

number).

The Proposed Regulations

On October 27, 2000, the Department published a

notice in the Federal Register (65 FR 64482) containing

a proposed regulation (the criteria regulation) setting

forth specic criteria that, if met in the case of a specic

plan, and provided that certain other factors set forth

in the proposed regulation are not present, would

constitute a nding by the Secretary pursuant to section

3(40)(A)(i) of ERISA that a plan is established or

maintained under or pursuant to one or more collective

bargaining agreements for purposes of section 3(40) of

ERISA. The Department also simultaneously published

in the Federal Register (65 FR 64498) proposed

regulations (the procedural regulations) that set forth an

administrative procedure for obtaining, under certain

limited circumstances, an individualized determination

by the Secretary as to whether a particular employee

welfare benet plan is established or maintained

under or pursuant to one or more agreements that

are collective bargaining agreements for purposes of

section 3(40) of ERISA.

The proposed regulations followed the

recommendations of the ERISA section 3(40)

Negotiated Rulemaking Advisory Committee (the

Committee). The Committee was convened under the

Negotiated Rulemaking Act (the NRA) and the Federal

Advisory Committee Act (the FACA), 5 U.S.C. App.

2, to assist the Department in developing proposed

regulations to implement section 3(40)(A)(i) of ERISA,

29 U.S.C. 1002(40)(A)(i).

The criteria regulation set forth standards that, if

satised, would constitute a nding by the Secretary

that a plan is established or maintained under or

pursuant to one or more collective bargaining

agreements for purposes of section 3(40).

The proposed regulation established four general

criteria for a nding that a plan was established or

maintained under or pursuant to collective bargaining

for purposes of section 3(40)(A)(i). First, the entity in

question had to be an employee welfare benet plan

within the meaning of ERISA section 3(1). Second, the

preponderance of those participants covered by the plan

(at least 80%) had to have a nexus to the bargaining

relationships under or pursuant to which the plan was

established or maintained (referred to as the “nexus”

group or test). Third, the agreements under or pursuant

to which the plan is established or maintained had to

have certain characteristics that indicate that they were,

for purposes of section 3(40) of ERISA only, collective

bargaining agreements, including that the agreements

were the product of a “bona de collective bargaining

relationship.” Fourth, the proposed regulation listed

eight specic “factors” deemed to indicate the

existence, for purposes of section 3(40) only, of a bona

de collective bargaining relationship. If at least four

of those specied factors were present, the regulation

indicated that a bona de collective bargaining

relationship underlying the agreements under or

pursuant to which the plan is established or maintained

could be presumed to exist.

The proposed criteria regulation included a ninth

non-specic “factor” in the list. The ninth factor

indicated that the Secretary would consider, in making

a nding, whether “other objective or subjective indicia

of actual collective bargaining and representation”

were present. The inclusion of this ``catch-all’’ factor

recognized that, in any particular case, other facts might

need to be taken into account to determine whether a

bona de collective bargaining relationship existed,

especially where the entity did not meet at least four of

the eight specic factors, or where, despite meeting four

of the eight factors, there were other facts indicating

that a bona de collective bargaining relationship did

not exist.

The proposed criteria regulation also specied

circumstances that, if present, would lead to a

conclusion that an employee welfare benet plan is

not established or maintained under or pursuant to

one or more agreements that the Secretary nds to

be collective bargaining agreements. The regulation

Stated that, for any plan year in which the specied

circumstances were present, a plan that otherwise met

the criteria of the regulation should not be deemed to

be excluded from the MEWA denition by virtue of

section 3(40)(A)(i).

The proposed regulation provided that, under certain

limited circumstances, an entity would be permitted to

petition the Secretary for an individual nding. The

ability to petition, however, would arise under the

proposed regulation only if a State’s law or jurisdiction

had been asserted against the entity in an administrative

or judicial proceeding. The procedural regulations set

forth specic processes for petitioning for an individual

nding.

Public Comments

Subsequent to publication of the proposed

regulations, the Department received seven public

comments. The Department reconvened the Committee

and held a public meeting on March 1, 2002, to obtain

the Committee’s views on the public comments.

Minutes of this meeting, as well as other meetings, of

the Committee are available for inspection by the public

in the Department’s Public Disclosure Room, 200

Constitution Avenue, NW., N1513, Washington, DC

20210.

The following discussion summarizes the issues

raised by the public comments, the Committee’s

discussion of those issues at the public meeting, and the

Department’s decisions, which are reected in the nal

regulations.

1. Whether the Factors Set Forth in the Proposed

Criteria Regulation as Presumptive of Bona Fide

Collective Bargaining Should Be Expanded or

Modied

Two commenters suggested that the Department

should expand the list of factors indicative of a bona

de collective bargaining relationship. One commenter

argued that such an expansion is necessary to make sure

that small employers and employers in manufacturing,

warehousing, service and other non-construction

related industries could easily meet this criterion.

The commenter further suggested that government

certication of a union, as a collective bargaining

agent should be a stand-alone safe harbor factor. The

other commenter noted that newly established unions,

particularly those organizing in the

health care eld, might have diculty meeting four

of the eight factors. That commenter suggested that

an additional factor--that the welfare plan was being

administered along sound actuarial principles--

be added to the list of factors. The commenter also

suggested that the examples set out as part of the non-

specic ninth factor be listed individually as separate

factors that could be counted towards meeting the “safe

harbor.”

In discussing these comments, the Committee noted

that these issues were not new and had been considered

by the Committee in its initial

deliberations. It was noted that the language of the

proposed regulation went as far as possible to be

inclusive of various types of collective bargaining

relationships. The purpose of the ninth “catch-

all” factor is to take into account that the eight specic

factors may not encompass all bona de collective

bargaining relationships.

Concerns were also expressed about lowering the

threshold for what constitutes a bona de collective

bargaining relationship. Bona de collectively

bargained arrangements are not likely to be challenged

under the regulation by the States. The consensus of

the Committee was that the eight factors should not be

expanded or modied.

After consideration of the comments and the

Committee’s discussion, the Department has decided

not to expand or modify the factors presumptive of a

bona de collective bargaining relationship. The nal

regulation therefore retains, in section 2510.3-40(b)

(4)(i)-(viii), the factors as originally proposed. In

the view of the Department, the regulation carefully

distinguishes between the specic factors that generally

evidence a bona de collective bargaining relationship

and the types of activities and fact patterns that are

common to sham MEWA operators. Expanding or

modifying the factors to include less well-established or

less common situations, or making any single factor a

stand-alone safe-harbor, may make it easier for sham

MEWA operators to mimic the regulation’s factors

presumptive of a bona de collective bargaining

relationship.

The Department also declines to add to the factors,

as suggested by one commenter, the fact that the plan

is maintained on sound actuarial principles. Although

maintaining a plan on sound actuarial principles is

important in other regards, that a plan is actuarially

sound does not necessarily evidence the existence of

a bona de collective bargaining relationship. The

Department notes, however, that the nal regulations

are structured to take into account the possibility that

a bona de collective bargaining relationship might,

in some case, fail to meet the “safe harbor” factors.

In addition to including the ninth catch-all factor, the

regulations permit entities that assert they are in fact

established or maintained under or pursuant to bona de

collective bargaining, and against which State law or

jurisdiction is asserted, to petition for an individualized

nding from the Department as to their status.

2. Whether the Denition of Collective Bargaining

Agreement Should Be Modied

The Department received one comment suggesting

that the denition of collective bargaining agreement

in section 2510.3-(40)(b)(3) needed to be modied to

correct a technical defect. As proposed, the

regulation required that a plan be “incorporated or

referenced in a written agreement between two or more

employers and one or more employee organizations.”

The commenter argued that the requirement of a

minimum of two employers, rather than one, was

unnecessarily narrow, since there may be situations

where a plan that originally was established or

maintained under or pursuant to a collective bargaining

agreement signed by two or more employers, is now

maintained only by one due to a dwindling number of

participating employers, although the plan still covers

the employees of more than one employer.

The Committee, in discussing this issue, considered

whether, in addition to the reasons articulated by the

commenter, the language of paragraph 2510.3-40(b)

(3) should be changed to make clear that the regulation

applies to plans established or maintained under or

pursuant to collective bargaining by a single employer

but covering the employees of other employers who

do not bind themselves to the collective bargaining

agreement. It was noted that such entities are MEWAs.

The Committee’s discussion focused on the fact that it

is important for the regulation to make clear that such

entities are subject to evaluation under the regulation

to see whether in fact they meet the exception under

section 3(40) for plans established or maintained under

or pursuant to collective bargaining.

On the basis of the public comment and the

Committee’s discussion, the Department has

determined to amend 2510.3-40 to provide that the

conditions of (b)(3) will be met if the written agreement

referencing the plan is between one or more employers,

rather than two or more employers, and one or more

employee organizations.

3. Whether the Nexus Group Categories Should Be

Expanded or Modied

As part of the process for determining whether a

preponderance of the participants covered by the plan

have a nexus to the bargaining relationships under or

pursuant to which the plan is established or

maintained, the proposed criteria regulation dened

a “nexus group” of categories of participants who

could be counted towards the 80% coverage level

set in the proposed regulation as demonstrating such

a preponderance. One commenter requested that

the nexus group categories be expanded to include

employees of an employer trade association that

has negotiated any of the multiemployer agreements

under or pursuant to which a plan is established or

maintained. The commenter noted that the proposed

regulation included, as part of the nexus group,

employees of employee organizations that sponsor

or jointly sponsor a plan, or are represented on the

committee, joint board of trustees, or other similar

group of representatives of the parties who sponsor

the plan. The commenter noted that employees of

employer associations might have a similar connection

to the collective bargaining process. The commenter

asserted that employer trade associations often

are involved in negotiating collective bargaining

agreements on behalf of many employers, and that such

employers routinely become signatories to, or otherwise

adopt, agreements that have been negotiated by their

employer associations. The multiemployer plans that

result from such bargaining often cover the employees

of the employer association as well as the employees of

the employers represented by the association.

The Committee concluded that, as a matter of parity,

employees of an authorized representative of employers

in collective bargaining should be included in the nexus

group, just as are employees of the

employee organization.

Based on its consideration of the comment and

the Committee’s discussion, the Department has

determined to amend 2530.3-40(b)(2)(vi) to include, as

a separate category, the employees of an authorized

employer representative that actually engaged in the

collective bargaining that led to the agreement that

references the plan as described in 2510.3-40(b)(3)(i).

4. Whether the Regulation Should Be Expanded To

Include Entities That Are Not Collectively Bargained,

i.e., Long-Established MEWAs, Union-Only Sponsored

Public Sector Benet Plans

The Department received two comments suggesting

that the regulation should be expanded to include

certain types of entities that technically are not

established or maintained under or pursuant to

collective bargaining. The commenters were concerned

that issuance of regulations providing clear guidance

addressing what the Secretary nds to be collective

bargaining for the purposes of the collective

bargaining exception in 3(40) of ERISA might result in

more State regulation of entities that are not established

pursuant to collective bargaining than there had been in

the absence of regulations.

The rst commenter was a long-established

MEWA that contended that it should be excluded

from the scope of the MEWA denition pursuant to a

“grandfather” provision in the regulation, allowing it

to operate free of State regulation even though it is not

a plan established or maintained under or pursuant to

collective bargaining, because it had been operating on

a nancially sound basis for many years. A similar

comment had been previously submitted to the

Committee for consideration prior to the issuance

of its Report to the Secretary. Another commenter

requested that the preamble to the regulation discuss

the nature of legal defense funds for peace ocers,

which are established by employee organizations for

the employees of more than one employer, but are not

actually the subject of collective bargaining.

The Committee reiterated its belief, as noted in the

preamble to the proposed criteria regulation, that the

regulation should serve only to dene what constitutes a

plan that is established or maintained

under or pursuant to collective bargaining. The

Department believes that the issues raised by these

commenters go beyond the scope of the regulation and,

therefore, has determined not to modify the nal

regulation in response to these comments.

5. Whether and How the Procedural Regulation Should

Be Modied in Order To Obviate the Possibility That

It May Hinder or Impede Timely State Enforcement

Actions

One commenter expressed concern that the

availability of administrative proceedings for an

individualized section 3(40) nding in cases where

the jurisdiction or law of a State has been asserted

may result in delays in State enforcement that could

substantially hinder a State’s ability to take timely

enforcement actions against sham MEWA operators.

The commenter Stated that time is often of the essence

in such circumstances and that a delay of even a

few days in a State’s taking eective action against

a MEWA may seriously increase the harm to the

participants in the MEWA by permitting the amount

of unpaid medical benet claims to increase, allowing

the plan to collect additional illegal premiums, and

impinging or eliminating the States’ ability to preserve

assets by giving the plan operators and opportunity to

transfer and hide funds. The commenter specically

identied the need to be able to obtain preliminary

and permanent injunctive relief and cease and desist

orders where sham union plans are continuing to collect

premiums or failing to pay claims. The commenter

asserted that, unless the Department made clear that

the availability of administrative proceedings was not

meant to provide a basis for a stay or delay of State

enforcement actions, the regulations should not be

implemented.

Recognizing the need to ensure that the regulations

assist, rather than hinder, State enforcement eorts

against sham MEWA operators and that there are

situations where time is of the essence for eective

enforcement by the States, the Committee

recommended that the regulatory language be claried

to emphasize that the section 3(40) ALJ proceedings

are not a basis in themselves for a stay-of-State

administrative or judicial proceedings against a putative

MEWA.

As proposed, paragraph 2510.3-40(g)(2) of the

criteria regulation provided that “nothing in this section

or in part 2570, subpart H of this chapter is intended

to have any eect on applicable law relating to stay or

delay of a State administrative or court proceeding or

enforcement subpoena.” In response to the commenter

and the concerns of the Committee, the Department

has amended that paragraph to State that “nothing in

this section or in part 2570, subpart H of this chapter

is intended to provide the basis for a stay or delay of a

State administrative or court proceeding or enforcement

of a subpoena.”

Miscellaneous Changes

In its consideration of a nal regulation, the

Committee questioned whether consideration should

be given to the eect of plan mergers on counting

years of service for purposes of the determining

the “nexus” group. In this regard, the Committee

noted that the nexus group in section 2510.3-40(b)

(2) includes retirees who either participated in the

welfare benet plan for at least ve of the last 10 years

preceding their retirement or are receiving benets as

participants under a multiemployer pension benet

plan that is maintained under the same agreement

referred to in paragraph (b)(2)(i), and have at least ve

years of service or the equivalent under that pension

plan. The Committee suggested that participation in

the pre-merger multiemployer plans should also be

considered in determining whether employees meet

the requirements of these categories of the nexus

group. The Committee also raised the issue of whether

employment in the bargaining unit under the pre-merger

plan should be considered for determining whether an

individual is a bargaining unit alumnus under 2510.3-

40(b)(2)(vii) where the merger was based on a merger

of unions. The Committee noted that Example 2 of the

proposed regulation addresses how a merger aects

the evaluation of the factors in (b)(4)(iii) and (iv) and

suggested that another example could be added to the

nal regulation to address the eect of merging unions

and multiemployer plans on the nexus group analysis.

After considering the issues raised by the Committee,

the Department has determined that it is appropriate to

clarify the examples at 2510.3-40(e) to make clear

that, in the case of a merger of multiemployer plans,

participation in a predecessor plan or employment with

a predecessor union may be considered for purposes

of determining the nexus group individuals in section

2510.3-40(b)(2)(ii) and (vii). In this regard, a new

paragraph (3) was added to Example 2 to clarify that the

merger of two unions and the related pension and health

and welfare plans will not aect the determinations of

who is a “retiree” or a “bargaining unit alumni”

for purposes of determining the nexus group under the

regulation.

In reviewing the 75% test in paragraph (b)(4)(vi) of

2510.3-40, the Department decided that the regulation

should be modied to make clear that in determining

the amount of premiums or contributions to which the

75% test applies does not include any amount that a

participant or beneciary might be required to pay as

a co-pay or deductible under the provided coverage.

Accordingly, the Department has modied

paragraph 2510.3-40(b)(4)(iv) to make clear that,

in addition to dental or vision care and coverage for

excepted benets under 29 CFR 2590.732(b), amounts

payable by participants and beneciaries as co-

payments or deductibles are disregarded for purposes of

the 75% test. In so clarifying this provision, however,

the Department notes that if an entity were to establish

a co-payment or deductible schedule designed solely

to satisfy the criteria of paragraph 2510.3-40(b)(4)

(vi), without actually requiring substantial employer

contributions, evidence of such a design may be

considered in evaluating whether for purposes of

2510.3-40(c)(3) there is fraud, forgery, or willful

misrepresentation as to the factors relied on to

demonstrate that the plan satises the criteria set forth

in paragraph (b) of this section. The Department

further notes that the collective bargaining history

appropriately may be examined in a 3(40) proceeding,

including a review of those factors in section 2510.3-

40(b)(4).

Independent of the Committee’s review of the

regulations, the Department considered whether the

proposed 80% minimum coverage requirement for

the “nexus” test is too low. In the August 1, 1995,

proposed regulation, the Department proposed that no

less than 85% of the individuals covered by a plan must

be within the “nexus” group. A number of commenters

on that regulation expressed concern that the percentage

was too high. In developing a new proposal, the

Committee recommended, and the Department

proposed, an 80% test. In this regard, the preamble

to the proposal indicated that “[t]he Committee

recommended a 20% margin for coverage of non-nexus

people, even though it understood that the percentage of

participants in collectively bargained plans who are not

within one of the nexus categories is rarely likely to be

that high.” 65 FR 64485 (Oct. 27, 2000). While

comments were specically invited on the 80% test, no

comments were received on that provision. Moreover,

the Department received no comments suggesting

that changing the 80% test to an 85% test would

present a problem for aected plans. The Department

further notes that H.R. 2563 of the 107th Congress,

the “Bipartisan Patients Protection Act,” as passed

by the U.S. House of Representatives, among other

things, amends ERISA section 3(40)(A)(i) to clarify

the standards applicable to determining whether a plan

is established or maintained pursuant to collective

bargaining agreements. See section 423 of H.R. 2563.

Although similar in many respects to the regulatory

standards proposed by the Department, H.R. 2563

limits the percentage of non-nexus group individuals to

15 percent.

On the basis of the comments, as well as the

discussions of the Committee, the Department does

not believe that, in the absence of any data to the

contrary, requiring 85% of the covered individuals to

be within the “nexus” group, rather than 80%, will

have any signicant eect on the status of otherwise

bona de collectively bargained plans. Increasing the

“nexus” group percentage to 85% should enhance the

regulation’s deterrent eect on sham MEWA operators

who attempt to masquerade as collectively bargained

plans in order to avoid State insurance regulation and

oversight. In an environment where problems with

sham MEWA operators are growing, the Department

believes that any action it can take to reduce the

likelihood of health insurance fraud against workers

and their families is action that should be taken.

Accordingly, the Department determined it appropriate

to modify

paragraph (b)(2) of 2510.3-40 to require that at least

85% of the participants in the plan be within the

“nexus” group (described in subparagraphs (i) through

(x) of 2510.3-40(b)(2)).

B. Economic Analysis Under Executive Order 12866

Under Executive Order 12866, the Department must

determine whether a regulatory action is “signicant”

and therefore subject to the requirements of the

Executive Order and subject to review by the Oce of

Management and Budget (OMB). Under section 3(f),

the order denes a “signicant regulatory action” as

an action that is likely to result in a rule: (1) Having

an annual eect on the economy of $100 million or

more, or adversely and materially aecting a sector

of the economy, productivity, competition, jobs, the

environment, public health or safety, or State, local,

or tribal governments or communities (also referred

to as “economically signicant”); (2) creating serious

inconsistency or otherwise interfering with an action

taken or planned by another agency; (3) materially

altering the budgetary impacts of entitlement grants,

user fees, or loan programs or the rights and obligations

of recipients thereof; or (4) raising novel legal or policy

issues arising out of legal mandates, the President’s

priorities, or the principles set forth in the Executive

Order.

Pursuant to the terms of the Executive Order, it has

been determined that this action is “signicant” within

the meaning of 3(f)(4), and therefore subject to review

by the Oce of Management and Budget (OMB).

Consistent with the Executive Order, the Department

has undertaken an assessment of the costs and benets

of this regulatory action. This analysis is detailed

below.

Summary

Although neither the benets nor costs have been

fully quantied, the Department believes that the

benets of this nal regulation more than justify its

costs. The nal regulation yields positive benets

by reducing uncertainty over which welfare benet

plans are excepted from the denition of a multiple

employer welfare arrangement under section 3(40)

and are therefore not subject to State regulation.

The Department sought comments from the public

concerning its analysis of benets and costs of the

proposed regulation. Having received no comments,

the Department has relied on its initial analysis in

concluding that the benets of the nal regulation

justify its costs.

The regulation’s elements for distinguishing

collectively bargained plans from MEWAs are

veriable through documentation that plans or their

agents generally maintain as part of usual business

practices. The regulation also incorporates elements

of exibility, allowing entities to demonstrate

the existence of a bona de collective bargaining

agreement, one of the regulatory factors, by satisfying

any four of eight specied factors. Finally, the

regulation is both suciently broad to include all plans

established or maintained under or pursuant to one or

more collective bargaining agreements, yet is

discriminating enough to ensure that State law will

apply to entities not meeting the criteria. Only a

very small number of entities are likely to be treated

dierently as a result of promulgation of this

criteria regulation. In the case of the few entities that

will be determined to be not collectively bargained

plans, the additional cost attributable to State regulation

is outweighed by the benet that such State regulation

will provide by way of additional protections for

participants and beneciaries.

Background

It is the view of the Department that the uncertainty

created by the lack of clear criteria for distinguishing

collectively bargained plans from MEWAs has

encouraged unscrupulous operators of sham MEWAs in

attempts to escape or delay State regulatory eorts by

asserting that States lack jurisdiction to regulate such

entities because they are excluded from the denition

of MEWA by reason of the exception for collectively

bargained plans. In order to establish their authority

to regulate, States have had to take additional steps,

such as initiating administrative or legal proceedings

contesting the defendant’s status as a collectively

bargained plan, and have been the subject of actions

initiated by sham MEWA operators, such as suits for

federal declaratory judgment or removal actions.

Confusion about whether a plan was established

or maintained under or pursuant to an agreement

which the Secretary nds to be a collective bargaining

agreement has made it dicult for the States to enforce

appropriate laws. The criteria regulation will reduce

or eliminate this uncertainty. It will provide greater

clarity for entities and States and reduce the time and

expense attributable to court actions or requests to the

Department for guidance.

Benets of the Regulation--Reducing Uncertainty

Plans and arrangements will benet from greater

assurance concerning their actual legal status. States,

through an enhanced ability to regulate based on the

greater certainty oered by the regulation, will be better

able to protect employers, participants, and

beneciaries from unscrupulous MEWA operators.

Further, the majority of plans established or maintained

under or pursuant to collective bargaining agreements

currently operate in a manner that is consistent with the

regulation. Most entities will therefore not perceive any

need to undertake a systematic reassessment of their

status under the regulation. It is possible, however, that

some will choose to undertake such an assessment by

“comparison testing” the plan’s operations against the

“safe harbor” criteria established in the nal

regulation. The Department has estimated below

the number of entities likely to undertake a status

assessment and the costs likely to be associated with

those activities.

Costs of the Regulation

Entities Potentially Aected. To estimate the number

of entities potentially aected by the nal rule, the

Department examined available data on multiemployer

welfare plans established or maintained under or

pursuant to collective bargaining agreements, and the

number of entities self-reporting as MEWAs. Under

ERISA, multiemployer collectively bargained plans

are required to le an annual nancial report, the Form

5500. MEWAs are required to le the Form M-1

annually. The 1998 Form 5500 lings by

multiemployer collectively bargained plans numbered

about 2,000 (with about 6 million participants). The

MEWAs that led Form M-1 for the year 2000,

pursuant to section 101 of ERISA and related interim

nal rules (65 FR 7152, February 11, 2000) numbered

about 600 (with about 2 million participants).

The total

number of MEWAs and collectively bargained plans,

which represents the total universe of arrangements

that might have questions about their legal status and

``comparison

test’’ under this regulation, is estimated at about 2,600

(8 million participants).

The Department was unable to identify any direct

measure of the number of entities whose status is

uncertain or whose status would remain uncertain

under the regulation. Therefore, in order to assess

the economic impact of reduced uncertainty under

This represents a smaller number of plans and fewer

participants than the numbers projected at the time of the proposal.

Because the Form M-1 requirement had not been fully implemented at

the time of the proposal, actual information on its use was not

available, and the Department relied on survey data regarded as the

most comparable at the time.

the regulation, the Department examined proxies for

the number of entities that might be subject to such

uncertainty. After estimating the total number of

MEWAs and collectively bargained plans at 2,600,

the Department then tallied the number of inquiries to

the Department concerning MEWAs and the number

of MEWA-related lawsuits to which the Department

has been party, taking this to represent a reasonable

indicator of the number of entities that have been

subject to uncertainty in the past.

Department data indicate that in recent years, the

Department has received an average of about nine

MEWA-related requests for information each year from

State and federal agencies and the private sector. The

Department also considered the number of MEWA-

related lawsuits that were led by the Department in

recent years. An average of about 45 actions have

been brought each year. For purposes of this analysis,

it has been assumed that each case involved a dierent

MEWA. Accordingly, the Department has estimated for

purposes of this economic analysis that approximately

54 entities (45 + 9) annually may have reason to be

uncertain about their legal status with respect to section

3(40) of ERISA, or about two percent of the estimated

total number of 2,600 MEWAs and collectively

bargained plans.

The Department views this approximate number of

54 entities per year as a conservatively high estimate

of the number of entities whose status could be made

more certain by issuance of this regulation. On one

hand, because some number of entities may confront

uncertainty without becoming either the subject of

an inquiry addressed to the Department or a lawsuit

to which the Department is party, this estimate

may represent only a subset of the entities that face

uncertainty over their status. On the other hand, this

estimate may overState the number of entities that face

uncertainty because it is known that not all requests to

the Department or court actions actually raised issues

related directly to the collective bargaining exception

under section 3(40).

Assessment of Status. The Department estimates the

cost to the 54 entities of conducting an assessment of

their status under the regulation to be small. Such cost

would be largely generated by reviewing records kept

by third parties or by the entity in the ordinary course

of business. The Department assumes that such a

review requires 16 hours of an attorney’s or comparable

professional’s time, plus 5 hours of clerical sta time.

At $72 per hour and $21 per hour respectively, the

total cost would be $1,173 per entity, or about $63,342

on aggregate per year for 54 entities. This cost would

be incurred only once for a given entity unless its

circumstances changed substantially relative to the

standard. The Department believes that the cost is more

than justied by savings to entities that, by conducting

this assessment, avoid the need to engage in litigation

or seek guidance from the Department in order to

determine their status.

These net savings represent a net benet of this

regulation.

Following a self-assessment of status, some fraction

of these 54 entities might nonetheless nd themselves

in a situation leading them to seek an administrative

determination from the Secretary under the procedural

regulations, incurring attendant costs, perhaps because

a State’s jurisdiction or laws are asserted against the

entity. The administrative process under the procedural

regulations is, in the Department’s view, an ecient and

less costly process for resolving

such disputes than would be available in the absence of

the procedural regulations. The Department has elected

to attribute the net benet from these savings not to

this regulation, but to the accompanying procedural

regulations.

Reclassifying Incorrectly Classied Entities.

Some number of entities, generally a subset of

the 54 estimated annually to face uncertainty over

status, will be reclassied as a result of comparison

testing against the regulation’s criteria. Entities that

formerly considered themselves to be excluded from

the MEWAs denition as collectively bargained

plans may be required under the criteria regulation to

classify themselves as MEWAs. These MEWAs will

likely incur costs to comply with newly applicable

State requirements. Such requirements vary from

State to State, making it dicult to estimate the cost

of compliance, but it is likely that costs might include

those attributable to audits, funding and reserves,

reporting, premium taxes and assessments, provision of

State-mandated benets, underwriting and rating rules,

market conduct standards, and managed care patient

protection rules, among other costs. These costs may

be higher for those MEWAs that conduct business in

more than one State.

Relevant literature suggests these costs can

amount to ten percent of premium.

The cost may be

substantially more if a State regulates premium rates

and the entity otherwise would have beneted from

insuring a population whose health costs are far lower

than average. However, these added costs are transfers

and not true economic costs because they serve as

cross-subsidies that reduce costs for populations that

are costlier than average.

As noted above, the universe of 2,600 entities that

includes those potentially subject to uncertainty covers

8 million participants, or about 3,100 participants per

entity on average. Industry surveys put the cost of

Data from the Health Insurance Association of America

(Source Book of Health Insurance Data, 1999-2000) suggests that

insurance companies’ loss ratios for group health insurance policies

historically ranged from about 85 percent to 90 percent. The inverse

of the loss ratio, or about 10 percent to 15 percent, generally

would include all of these costs except those associated with

benet mandates and some managed care protections, as well as

insurance company prots, income taxes, and normal administrative

overhead. Loss ratios tend to be higher (and these costs lower) for

larger group policies, and MEWAs are likely to be large. The cost of

benet mandates and managed care protection will very across States

depending on their extent and across MEWAs depending largely on the

degree to which they otherwise are included voluntarily in the

insurance products they provide. One study estimated that mandates

raise premiums by between 4 percent and 13 percent (Gail A. Jensen

and Michael A. Morrisey, Mandated Benet Laws and Employer-

Sponsored Health Insurance (Washington, DC: HIAA 1999)).

health coverage at about $4,500 per employee and

retiree per year. Applying these gures to 54 entities

that might face uncertainty over status--an upper bound

on the number likely to be reclassied--produces an

upper-bound estimated cost of about $75 million.

The Department has concluded that actual costs will

be far lower than this and will be outweighed by the

benet of the associated protections that will ow from

clarifying the State’s authority to regulate. As noted

above, it is likely that the true number of entities

that are reclassied as MEWAs will be a fraction of

the estimated 54 that annually might face uncertainty

over status. Among those that are reclassied, certain

entities likely would already have elected voluntarily to

comply with some of the State regulatory requirements

and therefore would not incur any cost from the

application of State law. For those that would not

have complied with relevant State law, operation of

the regulation may impose additional costs, such as

meeting solvency requirements or providing mandated

benets. The

additional costs are oset and justied by increased

security for plans and improved coverage for

participants. Thus, the added cost from State regulation

would be oset by the benets derived from the

protections that State regulations provide. GAO, in

1992, identied $124 million in unpaid claims owed

by sham MEWAs. Department enforcement actions

involving MEWAs in recent years have identied

monetary violations of approximately $121.6 million.

With State licensing and solvency requirements in

place, at least some incidences of the $124 million in

unpaid claims cited in the GAO study or the $121.6

million in violations would most likely not have

occurred.

It is also possible that some entities considered to be

MEWAs because they are not collectively bargained

will be reclassied under the criteria regulation as

collectively bargained plans. However, this number

seems likely to be very small because entities that

can legitimately be treated as collectively bargained

have an economic incentive to do so. Any entities

that are so classied benet from the savings of

having no obligation to comply with State regulatory

requirements. There is no meaningful loss of benets

from the absence of State protections in such cases

because the combination of a legitimate collective

bargaining agreement and the application of ERISA

provides adequate protections.

C. Paperwork Reduction Act

This Notice of Final Rulemaking is not subject to the

requirements of the Paperwork Reduction Act of 1995

Recent data from actual Form M-1 lings results in a higher

estimated number of participants per entity than was indicated in

the proposal; therefore, the estimated cost for the nal regulation

exceeds the $58 million cost estimate for the proposal.

(44 U.S.C. 3501 et seq.) because it does not contain

a ``collection of information’’ as dened in 44 U.S.C.

3502(3).

D. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.)

(RFA) imposes certain requirements with respect to

Federal rules that are subject to the notice and comment

requirements of section 553(b) of the Administrative

Procedure Act (5 U.S.C. 551 et seq.) and which are

likely to have a signicant economic impact on a

substantial number of small entities. Unless an agency

certies that a rule will not have a signicant economic

impact on a substantial number of small entities,

section 604 of the RFA requires that the agency present

a regulatory exibility analysis at the time of the

publication of the notice of nal rulemaking describing

the impact of the rule on small entities. Small

entities include small businesses, organizations and

governmental jurisdictions.

For purposes of analysis under the RFA, the

Employee Benets Security Administration (EBSA)

continues to consider a small entity to be an employee

benet plan with fewer than 100 participants. The basis

of this denition is found in section 104(a)(2) of

ERISA, which permits the Secretary of Labor to

prescribe simplied annual reports for pension plans

that cover fewer than 100 participants. Under section

104(a)(3), the Secretary may also provide for

exemptions or simplied annual reporting and

disclosure for welfare benet plans. Pursuant to

the authority of section 104(a)(3), the Department has

previously issued at 29 CFR 2520.104-20, 2520.104-21,

2520.104-41, 2520.104-46, and 2520.104b-10, certain

simplied reporting provisions and limited

exemptions from reporting and disclosure requirements

for small plans, including unfunded or insured welfare

benet plans covering fewer than 100 participants and

that satisfy certain other requirements.

Further, while some large employers may have small

plans, generally, most small plans are maintained by

small employers. Thus, EBSA believes that assessing

the impact of this rule on small plans is

an appropriate substitute for evaluating the eect on

small entities. The denition of small entity considered

appropriate for this purpose diers, however, from a

denition of small business that is based on

size standards promulgated by the Small Business

Administration (SBA) (13 CFR 121.201) pursuant to

the Small Business Act (15 U.S.C. 631 et seq.). At the

time of the proposed rule, EBSA requested comments

on the appropriateness of the size standard used in

evaluating the impact of this rule on small entities;

no comments were received that would cause the

Department to reevaluate its size standard.

On this basis, however, EBSA has determined that

this rule will not have a signicant economic impact on

a substantial number of small

entities. In support of this determination, and in an

eort to provide a sound basis for this conclusion,

EBSA has prepared the following nal regulatory

exibility analysis.

(1) Reasons for Action. EBSA is proposing this

regulation because it believes that regulatory guidance

concerning the denition of a “plan or arrangement

which is established or maintained under or pursuant to

one or more agreements which the Secretary nds to be

collective bargaining agreements’’ (ERISA 3(40)(A)(1))

is necessary to ensure that State insurance regulators

have ascertainable guidelines to

help regulate MEWAs operating in their jurisdictions.

The guidance will also allow sponsors of employee

welfare benet plans to determine independently

whether their entities are excepted under section 3(40)

of ERISA. A more detailed discussion of the agency’s

reasoning for issuing the regulation is found above.

(2) Objective. The objective of the regulation is to

provide criteria for the application of an exception to

the denition “multiple employer welfare arrangement”

(MEWA) found in section 3(40) of ERISA for a

“plan or other arrangement which is established or

maintained--(i) under or pursuant to one or more

agreements which the Secretary nds to be collective

bargaining agreements.” An extensive list of authority

may be found in the Statutory Authority section, below.

(3) Estimate of Small Entities Aected. Form

5500 lings and Form M-1 lings indicate that there

are about 2,600 entities that could be classied as

collectively bargained plans or MEWAs and that could

be aected by the new criteria for dening collectively

bargained plans. It is expected, however, that a

very small number of these entities will have fewer

than 100 participants. By their nature, the aected

entities must involve at least two employers, which

decreases the likelihood of their covering fewer than

100 participants. Also, the underlying goals behind the

formation of these entities, such as gaining purchasing

and negotiating power through economies of scale,

improving administrative eciencies, and gaining

access to additional benet design features, are not

readily accomplished if the group of covered lives

remains small.

Available data indicate that about 200 or eight

percent of the 2,600 entities have fewer than 100

participants. Based on the health coverage reported in

the Employee Benets Supplement to the 1993

Current Population Survey and a 1993 Small Business

Administration survey of retirement and other benet

coverages in small rms, the Department estimates that

there are more than 2.5 million private group health

plans with fewer than 100 participants. Thus, the

number of small plans and MEWAs potentially aected

is very small in light of this large number of small

plans. Even if every one of the 2,600 entities at issue

had fewer than 100 participants, the number of

entities aected would represent approximately one-

tenth of one percent of all small group health plans.

Accordingly, the Department has determined that this

regulation will not have a signicant economic impact

on a substantial number of small entities.

Although relatively few small plans and other

entities are expected to be aected by this proposal,

it is known that the employers typically involved in

these entities are often small (that is, they have fewer

than 500 employees, which is generally consistent

with the denition of small entity found in regulations

issued by the Small Business Administration (13 CFR

121.201)). At the time of the proposed regulation, the

Department sought comments and data with respect to

the number of small employers potentially impacted

by the establishment of a standard for determining

whether a welfare benet plan is established or

maintained under or pursuant to one or more collective

bargaining agreements. No comments or data were

received in response to this request; the Department

therefore continues to believe that, because these plans

and arrangements involve at least two employers, and

assuming that each is small, it can be estimated that at

least 5,200 small employers may be aected.

It is possible that a small employer participating in

what it thinks is a legitimate MEWA may nd that it has

unknowingly participated in a sham MEWA and will

need to change its method of providing welfare benets

to its employees. By enabling States to

regulate fraudulent and nancially unsound MEWAs,

therefore, the regulation may limit the sources of

welfare benets available to some small businesses,

requiring them to seek alternative coverage for their

employees. The greater benet for employers,

however, is an increased certainty that the MEWAs that

remain in business will meet State regulatory standards

and will be more certain to provide promised health,

life, disability or other welfare benets to employees.

Consequently, employers will receive a net benet from

the reduced incidence of fraud and insolvency among

the pool of MEWAs in the marketplace.

(4) Reporting and Recordkeeping. In most cases,

the records used to determine if a welfare benet plan

is established or maintained under or pursuant to a

collective bargaining agreement are routinely prepared

and held by a collectively bargained multiemployer

plan in the ordinary course of business. For any entities

that are newly determined to be MEWAs under the

regulation, there will be an economic impact related to

the start-up costs of compliance with State regulations.

These costs arise from State requirements, however,

and not the requirements of this regulation. Start-up

costs under State regulations may include expenses of

registration, licensing, nancial reporting, auditing, and

any other requirement of State insurance law.

Reporting and ling this information with the

State would require the professional skills of an

attorney, accountant, or other health benet plan

professional; however, post start-up, the majority of

the recordkeeping and reporting could be handled by

clerical sta.

(5) Duplication. No federal rules have been

identied that duplicate, overlap, or conict with the

nal rule.

(6) Alternatives. The regulation adopts generally the

views of the consensus report of the Committee that

was established to provide an

alternative to the Department’s earlier Notice of

Proposed Rulemaking on Plans Established or

Maintained Under or Pursuant to Collective

Bargaining Agreements, published in the Federal

recognizing that guidance was needed to clarify

the collective bargaining exception to the MEWA

regulation, the Department had proposed certain

criteria describing the collective bargaining agreement.

Commenters on the rst proposed regulation expressed

concerns related to plan compliance and the issue of

State regulation.

Based on the comments received, the Department

subsequently turned to negotiated rulemaking,

establishing the Committee to assist the

Department in developing acceptable criteria. The

Committee included representatives from labor unions,

multiemployer plans, State governments, employer/

management associations, Railway Labor Act plans,

third-party administrators, independent agents and

brokers of health care products, insurance carriers and

the federal government. Because this rule takes into

account the Committee’s consensus views, and

because the Committee represented a full cross-

section of the parties aected by the rule, including

State, federal, association, and private sector health

care organizations, the Department believes that,

as an alternative to the 1995 NPRM, this regulation

accomplishes the Stated objectives of the Secretary

and will have a benecial eect on small employer

participation in MEWAs.

The Department has concluded that the

implementation of the regulation will be less costly than

alternative methods of determining compliance with

section 3(40), such as through case-by-case analysis by

EBSA of each employee welfare benet plan or

litigation. In addition, if the Department elected not to

dene specic guidelines for the application of section

3(40), thereby enabling sham MEWAs to continue to

evade State regulation, costs for small businesses would

rise in terms of loss of coverage and unpaid claims.

No other signicant alternatives that would minimize

economic impact on small entities were identied.

Further, the Department has concluded that it

would be inappropriate to create a specic exemption

under the regulation for small MEWAs because small

MEWAs are just as likely as large MEWAs to be

underfunded or otherwise have inadequate reserves to

meet the benet claims submitted for payment.

E. Small Business Regulatory Enforcement Fairness

Act

The rule being issued here is subject to the

Congressional Review Act provisions of the Small

business Regulatory Enforcement Fairness Act of 1996

(5 U.S.C. 801 et seq.) and has been transmitted to

Congress and the Comptroller General for review. The

rule is not a “major rule” as that term is dened in 5

U.S.C. 804, because it is not likely to result in (1) An

annual eect on the economy of $100 million or more;

(2) a major increase in costs or prices for consumers,

individual industries, or federal, State, or local

government agencies, or geographic regions; or (3)

signicant adverse eects on competition, employment,

investment, productivity, innovation, or on the ability

of United States-based enterprises to compete with

foreign-based enterprises in domestic or export markets.

F. Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act

of 1995 (2 U.S.C. 1501 et seq.), as well as Executive

Order 12875, this rule does not include any Federal

mandate that may result in expenditures by State, local,

or tribal governments, or the private sector, which may

impose an annual burden of $100 million.

G. Executive Order 13132

When an agency promulgates a regulation that has

federalism implications, Executive Order 13132 (64

FR 43255, August 10, 1999), requires the Agency

to provide a federalism summary impact Statement.

Pursuant to section 6(c) of the Order, such a Statement

must include a description of the extent of the agency’s

consultation with State and local ocials, a summary

of the nature of their concerns and the agency’s position

supporting the need to issue the regulation, and a

Statement of the extent to which the concerns of the

State have been met.

This regulation has federalism implications because

it sets forth standards and procedures for determining

whether certain entities may be regulated under certain

State laws or whether such State laws are preempted

with respect to such entities. The State laws at issue are

those that regulate the business of insurance.

From the inception of the Committee through

nal deliberations on comments received on the

proposed regulation, a representative from the National

Association of Insurance Commissioners (NAIC),

representing the interests of State governments in the

regulation of insurance, participated in the rulemaking.

NAIC raised the following concerns at Committee

meetings: (1) That the rule should allow MEWAs to

be easily distinguishable from collectively bargained

plans so that MEWAs properly may be subjected to

State jurisdiction and regulation; (2) that the rule should

prevent the unlicensed sale of health insurance; and (3)

that losses to individuals in the form of unreimbursed

and denied medical claims should be eliminated.

The Department’s position is that there is a

substantial need for this regulation. Unscrupulous

individuals have been able to exploit the lack of clear

guidance regarding the criteria for determining whether

an entity is established or maintained pursuant to

collective bargaining agreements to create entities that

falsely promise benets they are unable to provide.

These operators, free of State solvency and reserve

requirements, have marketed unlicensed health

insurance to small employers, often oering health

insurance at signicantly lower rates than State-licensed

insurance companies. Ultimately, these operations

have often gone bankrupt, leaving individuals with

signicant unpaid health claims and without health

insurance. The lack of clear guidance has hampered

States in their eorts to regulate these entities, and

appropriate State regulation would reduce or eliminate

the risk of losses to employers, employees and their

families.

This regulation provides objective criteria for

distinguishing collectively bargained plans from

arrangements subject to State insurance law. The

regulation will facilitate State enforcement eorts

against arrangements attempting to misuse the

collectively bargained exception in section 3(40) of

ERISA. In that regard, the regulation will reduce the

incidence of sale of unlicensed insurance under the

guise of collectively bargained plans and will limit

the losses to individuals in the form of unreimbursed

medical and other welfare benet insurance claims.

The Department notes further, as discussed more

fully above, that one commenter expressed concern

that the availability of administrative proceedings for

an individualized section 3(40) nding in cases where

the jurisdiction or law of a State has been asserted

may result in delays in State enforcement that could

substantially hinder a State’s ability to take timely

enforcement actions against sham MEWA operators.

Recognizing the need to ensure that the regulations

assist, rather than hinder, State enforcement eorts

against sham MEWA operators, and taking into

account the input of the Committee, including the

NAIC representative, the Department has amended

the regulation to make clear that it is not intended

to provide the basis for a stay or delay of any State

actions, including administrative or court proceedings

and enforcement subpoenas, where immediate State

enforcement action is warranted.

List of Subjects in 29 CFR Part 2510

Collective bargaining, Employee benet plans,

Pensions.

For the reasons set forth in the preamble, 29 CFR

part 2510 is amended as follows:

PART 2510--[AMENDED] DEFINITION OF TERMS

USED IN SUBCHAPTERS C, D, E, F, AND G OF

THIS CHAPTER

1. The authority citation for part 2510 is revised to read

as follows:

Authority: 29 U.S.C. 1002(2), 1002(21), 1002(37),

1002(40), 1031, and 1135; Secretary of Labor’s Order

1-2003, 68 FR 5374; Sec. 2510.3-101 also issued under

sec. 102 of Reorganization Plan No. 4 of 1978, 43 FR

47713, 3 CFR, 1978 Comp., p. 332 and E.O. 12108, 44

FR 1065, 3 CFR, 1978 Comp., p. 275, and 29 U.S.C.

1135 note. Sec. 2510.3-102 also issued under sec. 102

of Reorganization Plan No. 4 of 1978, 43 FR 47713, 3

CFR, 1978 Comp., p. 332 and E.O. 12108, 44 FR 1065,

3 CFR, 1978 Comp., p. 275.

2. Add new section 2510.3-40 to read as follows:

Sec. 2510.3-40 Plans Established or Maintained

Under or Pursuant to Collective Bargaining

Agreements Under Section 3(40)(A) of ERISA.

(a) Scope and purpose. Section 3(40)(A) of the

Employee Retirement Income Security Act of 1974

(ERISA) provides that the term “multiple employer

welfare arrangement’’ (MEWA) does not include

an employee welfare benet plan that is established

or maintained under or pursuant to one or more

agreements that the Secretary of Labor (the Secretary)

nds to be collective bargaining agreements. This

section sets forth criteria that represent a nding by

the Secretary whether an arrangement is an employee

welfare benet plan established or maintained under or

pursuant to one or more collective bargaining

agreements. A plan is established or maintained under

or pursuant to collective bargaining if it meets the

criteria in this section. However, even if an entity meets

the criteria in this section, it will not be an employee

welfare benet plan established or maintained under

or pursuant to a collective bargaining agreement if it

comes within the exclusions in the section. Nothing

in or pursuant to this section shall constitute a nding

for any purpose other than the exception for plans

established or maintained under or pursuant to one or

more collective bargaining agreements under section

3(40) of ERISA. In a particular case where there is an

attempt to assert State jurisdiction or the application of

State law with respect to a plan or other arrangement

that allegedly is covered under Title I of ERISA,

the Secretary has set forth a procedure for obtaining

individualized ndings at 29 CFR part 2570, subpart H.

(b) General criteria. The Secretary nds, for

purposes of section 3(40) of ERISA, that an employee

welfare benet plan is “established or maintained

under or pursuant to one or more agreements which the

Secretary nds to be collective bargaining agreements”

for any plan year in which the plan meets the criteria set

forth in paragraphs (b)(1), (2), (3), and (4) of this

section, and is not excluded under paragraph (c) of this

section.

(1) The entity is an employee welfare benet plan

within the meaning of section 3(1) of ERISA.

(2) At least 85% of the participants in the plan are:

(i) Individuals employed under one or more

agreements meeting the criteria of paragraph (b)(3) of

this section, under which contributions are made to the

plan, or pursuant to which coverage under the plan is

provided;

(ii) Retirees who either participated in the plan at

least ve of the last 10 years preceding their retirement,

(A) Are receiving benets as participants under a

multiemployer pension benet plan that is maintained

under the same agreements referred to in paragraph (b)

(3) of this section, and

(B) Have at least ve years of service or the

equivalent under that multiemployer pension benet

plan;

(iii) Participants on extended coverage under the

plan pursuant to the requirements of a statute or court

or administrative agency decision, including but not

limited to the continuation coverage requirements of

the Consolidated Omnibus Budget Reconciliation Act

of 1985, sections 601-609, 29 U.S.C. 1169, the Family

and Medical Leave Act, 29 U.S.C. 2601 et seq., the

Uniformed Services Employment and Reemployment

Rights Act of 1994, 38 U.S.C. 4301 et seq., or the

National Labor Relations Act, 29 U.S.C. 158(a)(5);

(iv) Participants who were active participants and

whose coverage is otherwise extended under the terms

of the plan, including but not limited to extension by

reason of self-payment, hour bank, long or short-term

disability, furlough, or temporary unemployment,

provided that the charge to the individual for such

extended coverage is no more than the applicable

premium under section 604 of the Act;

(v) Participants whose coverage under the plan is

maintained pursuant to a reciprocal agreement with

one or more other employee welfare benet plans that

are established or maintained under or pursuant to one

or more collective bargaining agreements and that are

multiemployer plans;

(vi) Individuals employed by:

(A) An employee organization that sponsors,

jointly sponsors, or is represented on the association,

committee, joint board of trustees, or other similar

group of representatives of the parties who sponsor the

plan;

(B) The plan or associated trust fund;

which contributions are made pursuant to the same

agreement described in paragraph (b)(3) of this section;

(D) An employer association that is the authorized

employer representative that actually engaged in the

collective bargaining that led to the agreement that

references the plan as described in paragraph (b)(3) of

this section;

(vii) Individuals who were employed under an

agreement described in paragraph (b)(3) of this section,

provided that they are employed by one or more

employers that are parties to an agreement described

in paragraph (b)(3) and are covered under the plan on

terms that are generally no more favorable than those

that apply to similarly situated individuals described in

paragraph (b)(2)(i) of this section;

(viii) Individuals (other than individuals described in

paragraph (b)(2)(i) of this section) who are employed

by employers that are bound by the terms of an

agreement described in paragraph (b)(3) of this

section and that employ personnel covered by such

agreement, and who are covered under the plan on

terms that are generally no more favorable than

those that apply to such covered personnel. For this

purpose, such individuals in excess of 10% of the total

population of participants in the plan are disregarded;

(ix) Individuals who are, or were for a period

of at least three years, employed under one or

more agreements between or among one or more

“carriers” (including “carriers by air”) and one or

more “representatives” of employees for collective

bargaining purposes and as dened by the Railway

Labor Act, 45 U.S.C. 151 et seq., providing for such

individuals’ current or subsequent participation in the

plan, or providing for contributions to be made to the

plan by such carriers; or

(x) Individuals who are licensed marine pilots

operating in United States ports as a State-regulated

enterprise and are covered under an employee welfare

benet plan that meets the denition of a qualied

merchant marine plan, as dened in section 415(b)(2)

(F) of the Internal Revenue Code (26 U.S.C.).

(3) The plan is incorporated or referenced in a

written agreement between one or more employers and

one or more employee organizations, which agreement,

itself or together with other agreements among the same

parties:

(i) Is the product of a bona de collective bargaining

relationship between the employers and the employee

organization(s);

(ii) Identies employers and employee

organization(s) that are parties to and bound by the

agreement;

(iii) Identies the personnel, job classications, and/

or work jurisdiction covered by the agreement;

(iv) Provides for terms and conditions of

employment in addition to coverage under, or

contributions to, the plan; and

(v) Is not unilaterally terminable or automatically

terminated solely for non-payment of benets under, or

contributions to, the plan.

(4) For purposes of paragraph (b)(3)(i) of this

section, the following factors, among others, are

to be considered in determining the existence of a

bona de collective bargaining relationship. In any

proceeding initiated under 29 CFR part 2570 subpart

H, the existence of a bona de collective bargaining

relationship under paragraph (b)(3)(i) shall be presumed

where at least four of the factors set out in paragraphs

(b)(4)(i) through (viii) of this section are established.

In such a proceeding, the Secretary may also consider

whether other objective or subjective indicia of actual

collective bargaining and representation are present as

set out in paragraph (b)(4)(ix) of this section.

(i) The agreement referred to in paragraph (b)(3)

of this section provides for contributions to a labor-

management trust fund structured according to section

302(c)(5), (6), (7), (8), or (9) of the Taft-Hartley Act,

29 U.S.C. 186(c)(5), (6), (7), (8) or (9), or to a plan

lawfully negotiated under the Railway Labor Act;

(ii) The agreement referred to in paragraph (b)(3) of

this section requires contributions by substantially all of

the participating employers to a multiemployer pension

plan that is structured in accordance with section 401

of the Internal Revenue Code (26 U.S.C.) and is either

structured in accordance with section 302(c)(5) of the

Taft-Hartley Act, 29 U.S.C. 186(c)(5), or is lawfully

negotiated under the Railway Labor Act, and

substantially all of the active participants covered by

the employee welfare benet plan are also eligible to

become participants in that pension plan;

(iii) The predominant employee organization that is

a party to the agreement referred to in paragraph (b)(3)

of this section has maintained a series of agreements

incorporating or referencing the plan since before

January 1, 1983;

(iv) The predominant employee organization that is a

party to the agreement referred to in paragraph (b)(3) of

this section has been a national or international union,

or a federation of national and international unions,

or has been aliated with such a union or federation,

since before January 1, 1983;

(v) A court, government agency, or other third-party

adjudicatory tribunal has determined, in a contested or

adversary proceeding, or in a government-supervised

election, that the predominant employee organization

that is a party to the agreement described in paragraph

(b)(3) of this section is the lawfully recognized or

designated collective bargaining representative with

respect to one or more bargaining units of personnel

covered by such agreement;

(vi) Employers who are parties to the agreement

described in paragraph (b)(3) of this section pay at least

75% of the premiums or contributions required for the

coverage of active participants under the plan or, in the

case of a retiree-only plan, the employers pay at least

75% of the premiums or contributions required for the

coverage of the retirees. For this purpose, coverage

under the plan for dental or vision care, coverage for

excepted benets under 29 CFR 2590.732(b), and

amounts paid by participants and beneciaries as co-

payments or deductibles in accordance with the terms

of the plan are disregarded;

(vii) The predominant employee organization that is

a party to the agreement described in paragraph (b)(3)

of this section provides, sponsors, or jointly sponsors a

hiring hall(s) and/or a State-certied

apprenticeship program(s) that provides services that

are available to substantially all active participants

covered by the plan;

(viii) The agreement described in paragraph (b)

(3) of this section has been determined to be a bona

de collective bargaining agreement for purposes of

establishing the prevailing practices with respect to

wages and supplements in a locality, pursuant to a

prevailing wage statute of any State or the District of

Columbia.

(ix) There are other objective or subjective indicia

of actual collective bargaining and representation, such

as that arm’s-length negotiations occurred between

the parties to the agreement described in paragraph

(b)(3) of this section; that the predominant employee

organization that is party to such agreement actively

represents employees covered by such agreement

with respect to grievances, disputes, or other matters

involving employment terms and conditions other

Categories of participants Total number Nexus group Non-nexus

1. Individuals working under CBAs...........................................

2. Retirees...................................................................................

3. “Special Class” ― Non-CBA, non-CBA-alumni...................

4. Non-nexus participants...........................................................

Total......................................

335 (67%)

50 (10%)

100 (20%)

15 (3%)

500 (100%)

335 (67%)

50 (10%)

435 (87%)

50 (10%)

15 (3%)

65 (13%)

than coverage under, or contributions to, the employee

welfare benet plan; that there is a geographic,

occupational, trade, organizing, or other rationale

for the employers and bargaining units covered by

such agreement; that there is a connection between

such agreement and the participation, if any, of self-

employed individuals in the employee welfare benet

plan established or maintained under or pursuant to

such agreement.

shall not be deemed to be “established or maintained

under or pursuant to one or more agreements which the

Secretary nds to be collective bargaining agreements’’

for any plan year in which:

(1) The plan is self-funded or partially self-funded

and is marketed to employers or sole proprietors

(i) By one or more insurance producers as dened in

paragraph (d) of this section;

(ii) By an individual who is disqualied from,

or ineligible for, or has failed to obtain, a license to

serve as an insurance producer to the extent that the

individual engages in an activity for which such

license is required; or

(iii) By individuals (other than individuals described

in paragraphs (c)(1)(i) and (ii) of this section) who are

paid on a commission-type basis to market the plan.

(iv) For the purposes of this paragraph (c)(1):

(A) “Marketing” does not include administering

the plan, consulting with plan sponsors, counseling

on benet design or coverage, or explaining the terms

of coverage available under the plan to employees or

union members;

(B) “Marketing” does include the marketing of union

membership that carries with it plan participation by

virtue of such membership, except for membership in

unions representing insurance producers themselves;

(2) The agreement under which the plan is

established or maintained is a scheme, plan, stratagem,

or artice of evasion, a principal intent of which is to

evade compliance with State law and regulations

applicable to insurance; or

(3) There is fraud, forgery, or willful

misrepresentation as to the factors relied on to

demonstrate that the plan satises the criteria set forth

in paragraph (b) of this section.

(d) Denitions. (1) Active participant means

a participant who is not retired and who is not on

extended coverage under paragraphs (b)(2)(iii) or (b)(2)

(iv) of this section.

(2) Agreement means the contract embodying the

terms and conditions mutually agreed upon between or

among the parties to such agreement.

Where the singular is used in this section, the plural is

automatically included.

(3) Individual employed means any natural person

who furnishes services to another person or entity in the

capacity of an employee under common law, without

regard to any specialized denitions or interpretations

of the terms “employee,” “employer,” or “employed”

under federal or State statutes other than ERISA.

(4) Insurance producer means an agent, broker,

consultant, or producer who is an individual, entity, or

sole proprietor that is licensed under the laws of the

State to sell, solicit, or negotiate insurance.

(5) Predominant employee organization means,

where more than one employee organization is a party

to an agreement, either the organization representing

the plurality of individuals employed under such

agreement, or organizations that in combination

represent the majority of such individuals.

(e) Examples. The operation of the rovisions of this

section may be illustrated by the following examples.

Example 1. Plan A has 500 participants, in the

following 4 categories of participants under paragraph

(b)(2) of this section:

In determining whether at least 85% of Plan A’s

participant population is made up of individuals

with the required nexus to the collective bargaining

agreement as required by paragraph (b)(2) of this

section, the Plan may count as part of the nexus group

only 50 (10% of the total plan population) of the 100

individuals described in paragraph (b)(2)(viii) of this

section. That is because the number of individuals

meeting the category of individuals in paragraph (b)(2)

(viii) exceeds 10% of the total participant population by

50 individuals. The paragraph species that of those

individuals who would otherwise be deemed to

be nexus individuals because they are the type of

individuals described in paragraph (b)(2)(viii), the

number in excess of 10% of the total plan population

may not be counted in the nexus group. Here, 50 of the

100 individuals employed by signatory employers, but

not covered by the collective bargaining agreement, are

counted as nexus individuals and 50 are not counted

as nexus individuals. Nonetheless, the Plan satises

the 85% criterion under paragraph (b)(2) because a

total of 435 (335 individuals covered by the collective

bargaining agreement, plus 50 retirees, plus 50

individuals employed by signatory employers), or 87%,

of the 500 participants in Plan A are individuals who

may be counted as nexus participants under paragraph

(b)(2). Beneciaries (e.g., spouses, dependent children,

etc.) are not counted to determine whether the 85% test

has been met.

Example 2. (i) International Union MG and its Local

Unions have represented people working primarily in

a particular industry for over 60 years. Since 1950,

most of their collective bargaining agreements have

called for those workers to be covered by the National

MG Health and Welfare Plan. During that time, the

number of union-represented workers in the industry,

and the number of active participants in the National

MG Health and Welfare Plan, rst grew and then

declined. New Locals were formed and later were shut

down. Despite these uctuations, the National MG

Health and Welfare Plan meets the factors described

in paragraphs (b)(4)(iii) and (iv) of this section, as

the plan has been in existence pursuant to collective

bargaining agreements to which the International Union

and its aliates have been parties since before January

1, 1983.

(ii) Assume the same facts, except that on January

1, 1999, International Union MG merged with

International Union RE to form International Union

MRGE. MRGE and its Locals now represent the

active participants in the National MG Health and

Welfare Plan and in the National RE Health and

welfare Plan, which, for 45 years, had been maintained

under collective bargaining agreements negotiated

by International Union RE and its Locals. Since

International Union MRGE is the continuation of, and

successor to, the MG and RE unions, the two plans

continue to meet the factors in paragraphs (b)(4)(iii)

and (iv) of this section. This also would be true if the

two plans were merged.

(iii) Assume the same facts as in paragraphs (i) and

(ii) of this Example. In addition to maintaining the

health and welfare plans described in those paragraphs,

International Union MG also maintained the National

MG Pension Plan and International Union RE

maintained the National RE Pension Plan. When the

unions merged and the health and welfare plans were

merged, National MG Pension Plan and National RE

Pension Plan were merged to form National MRGE

Pension Plan. When the unions merged, the employees

and retirees covered under the pre-merger plans

continued to be covered under the post-merger plans

pursuant to the collective bargaining agreements and

also were given credit in the post-merger plans for

their years of service and coverage in the pre-merger

plans. Retirees who originally were covered under

the pre-merger plans and continue to be covered under

the post-merger plans based on their past service and

coverage would be considered to be “retirees” for

purposes of 2550.3-40(b)(2)(ii). Likewise, bargaining

unit alumni who were covered under the pre-merger

plans and continued to be covered under the post-

merger plans based on their past service and coverage

and their continued employment with employers that

are parties to an agreement described in paragraph (b)

(3) of this section would be considered to be bargaining

unit alumni for purposes of 2550.3-40(b)(2)(vii).

Example 3. Assume the same facts as in paragraph

(ii) of Example 2 with respect to International Union

MG. However, in 1997, one of its Locals and the

employers with which it negotiates agree to set up a

new multiemployer health and welfare plan that only

covers the individuals represented by that Local Union.

That plan would not meet the factor in paragraph (b)

(4)(iii) of this section, as it has not been incorporated

or referenced in collective bargaining agreements since

before January 1, 1983.

Example 4. (i) Pursuant to a collective bargaining

agreement between various employers and Local 2000,

the employers contribute $2 per hour to the Fund for

every hour that a covered employee works under the

agreement. The covered employees are automatically

entitled to health and disability coverage from the Fund

for every calendar quarter the employees have 300

hours of additional covered service in the preceding

quarter. The employees do not need to make any

additional contributions for their own coverage, but

must pay $250 per month if they want health coverage

for their dependent spouse and children. Because

the employer payments cover 100% of the required

contributions for the employees’ own coverage, the

Local 2000 Employers Health and Welfare Fund meets

the “75% employer payment” factor under paragraph

(b)(4)(vi) of this section.

(ii) Assume, however, that the negotiated employer

contribution rate was $1 per hour, and the employees

could only obtain health coverage for themselves if they

also elected to contribute $1 per hour, paid on a pre-tax

basis through salary reduction. The Fund would not

meet the 75% employer payment factor, even though

the employees’ contributions are treated as employer

contributions for tax purposes. Under ERISA, and

therefore under this section, elective salary reduction

contributions are treated as employee contributions.

The outcome would be the same if a uniform employee

contribution rate applied to all employees, whether

they had individual or family coverage, so that the $1

per hour employee contribution qualied an employee

for his or her own coverage and, if he or she had

dependents, dependent coverage as well.

Example 5. Arthur is a licensed insurance broker,

one of whose clients is Multiemployer Fund M, a

partially self-funded plan. Arthur takes bids from

insurance companies on behalf of Fund M for the

insured portion of its coverage, helps the trustees

to evaluate the bids, and places the Fund’s health

insurance coverage with the carrier that is selected.

Arthur also assists the trustees of Fund M in preparing

material to explain the plan and its benets to the

participants, as well as in monitoring the insurance

company’s performance under the contract. At the

Trustees’ request, Arthur meets with a group of

employers with which the union is negotiating

for their employees’ coverage under Fund M, and he

explains the cost structure and benets that Fund M

provides. Arthur is not engaged in marketing within the

meaning of paragraph (c)(1) of this section, so the fact

that he provides these administrative services and sells

insurance to the Fund itself does not aect the plan’s

status as a plan established or maintained under or

pursuant to a collective bargaining agreement. This is

the case whether or how he is compensated.

Example 6. Assume the same facts as Example

5, except that Arthur has a group of clients who are

unrelated to the employers bound by the collective

bargaining agreement, whose employees would not be

“nexus group” members, and whose insurance carrier

has withdrawn from the market in their locality. He

persuades the client group to retain him to nd them

other coverage. The client group has no relationship

with the labor union that represents the participants in

Fund M. However, Arthur oers them coverage under

Fund M and persuades the Fund’s Trustees to allow

the client group to join Fund M in order to broaden

Fund M’s contribution base. Arthur’s activities in

obtaining coverage for the unrelated group under Fund

M constitutes marketing through an insurance producer;

Fund M is a MEWA under paragraph (c)(1) of this

section.

Example 7. Union A represents thousands of

construction workers in a three-State geographic region.

For many years, Union A has maintained a standard

written collective bargaining agreement with several

hundred large and small building contractors, covering

wages, hours, and other terms and conditions of

employment for all work performed in Union A’s

geographic territory. The terms of those agreements are

negotiated every three years between Union A and a

multiemployer Association, which signs on behalf of

those employers who have delegated their bargaining

authority to the Association. Hundreds of other

employers--including both local and traveling

contractors--have chosen to become bound to the

terms of Union A’s standard area agreement for various

periods of time and in various ways, such as by signing

short-form binders or “me too” agreements, executing a

single job or project labor agreement, or entering into a

subcontracting arrangement with a signatory employer.

All of these employ individuals represented by Union A

and contribute to Plan A, a self-insured multiemployer

health and welfare plan established and maintained

under Union A’s standard area agreement. During

the past year, the trustees of Plan A have brought

lawsuits against several signatory employers seeking

contributions allegedly owed, but not paid to the trust.

In defending that litigation, a number of employers

have sworn that they never intended to operate as union

contractors, that their employees want nothing to do

with Union A, that Union A procured their assent to the

collective bargaining agreement solely by threats and

fraudulent misrepresentations, and that Union A has

failed to le certain reports required by the Labor

Management Reporting and Disclosure Act. In at least

one instance, a petition for a decertication election has

been led with the National Labor Relations Board. In

this example, Plan A meets the criteria for a regulatory

nding under this section that it is a multiemployer plan

established and maintained under or pursuant to one

or more collective bargaining agreements, assuming

that its participant population satises the 85% test of

paragraph (b)(2) of this section and that none of the

disqualifying factors in paragraph (c) of this section is

present. Plan A’s status for the purpose of this section is

not aected by the fact that some of the employers

who deal with Union A have challenged Union A’s

conduct, or have disputed under labor statutes and legal

doctrines other than ERISA section 3(40) the validity

and enforceability of their putative contract with Union

A, regardless of the outcome of those disputes.

Example 8. Assume the same facts as Example 7.

Plan A’s benets consultant recently entered into an

arrangement with the Medical Consortium, a newly

formed organization of health care providers, which

allows the Plan to oer a broader range of health

services to Plan A’s participants while achieving cost

savings to the Plan and to participants. Union A, Plan

A, and Plan A’s consultant each have added a page to

their Web sites publicizing the new arrangement with

the Medical Consortium. Concurrently, Medical

Consortium’s Web site prominently publicizes its recent

aliation with Plan A and the innovative services it

makes available to the Plan’s participants. Union A has

mailed out informational packets to its members

describing the benet enhancements and encouraging

election of family coverage. Union A has also begun

distributing similar material to workers on hundreds of

non-union construction job sites within its geographic

territory. In this example, Plan A remains a plan

established and maintained under or pursuant to one or

more collective bargaining agreements under section

3(40) of ERISA. Neither Plan A’s relationship with a

new organization of health care providers, nor the use

of various media to publicize Plan A’s attractive benets

throughout the area served by Union A, alters Plan A’s

status for purpose of this section.

Example 9. Assume the same facts as in Example

7. Union A undertakes an area-wide organizing

campaign among the employees of all the health care

providers who belong to the Medical Consortium.

When soliciting individual employees to sign up

as union members, Union A distributes Plan A’s

information materials and promises to bargain for the

same coverage. At the same time, when appealing

to the employers in the Medical Consortium for

voluntary recognition, Union A promises to publicize

the Consortium’s status as a group of unionized health

care service providers. Union A eventually succeeds

in obtaining recognition based on its majority status

among the employees working for Medical Consortium

employers. The Consortium, acting on behalf of its

employer members, negotiates a collective bargaining

agreement with Union A that provides terms and

conditions of employment, including coverage under

Plan A. In this example, Plan A still meets the criteria

for a regulatory nding that it is collectively bargained

under section 3(40) of ERISA. Union A’s recruitment

and representation of a new occupational category

of workers unrelated to the construction trade, its

promotion of attractive health benets to achieve

organizing success, and the Plan’s resultant growth, do

not take Plan A outside the regulatory nding.

Example 10. Assume the same facts as in Example

7. The Medical Consortium, a newly formed

organization, approaches Plan A with a proposal to

make money for Plan A and Union A by enrolling

a large group of employers, their employees, and

self-employed individuals aliated with the Medical

Consortium. The Medical Consortium obtains

employers’ signatures on a generic document bearing

Union A’s name, labeled “collective bargaining

agreement,” which provides for health coverage under

Plan A and compliance with wage and hour statutes,

as well as other employment laws. Employees of

signatory employers sign enrollment documents for

Plan A and are issued membership cards in Union A;

their membership dues are regularly checked o along

with their monthly payments for health coverage.

Self-employed individuals similarly receive union

membership cards and make monthly payments, which

are divided between Plan A and the Union. Aside from

health coverage matters, these new participants have

little or no contact with Union A. The new participants

enrolled through the Consortium amount to 18% of the

population of Plan A during the current Plan Year. In

this example, Plan A now fails to meet the criteria in

paragraphs (b)(2) and (b)(3) of this section, because

more than 15% of its participants are individuals who

are not employed under agreements that are the product

of a bona de collective bargaining relationship and

who do not fall within any of the other nexus categories

set forth in paragraph (b)(2) of this section. Moreover,

even if the number of additional participants enrolled

through the Medical Consortium, together with any

other participants who did not fall within any of the

nexus categories, did not exceed 15% of the total

participant population under the plan, the circumstances

in this example would trigger the disqualication

of paragraph (c)(2) of this section, because Plan A

now is being maintained under a substantial number

of agreements that are a “scheme, plan, strategy

or artice of evasion” intended primarily to evade

compliance with State laws and regulations pertaining

to insurance. In either case, the consequence of adding

the participants through the Medical Consortium is that

Plan A is now a MEWA for purposes of section 3(40) of

ERISA and is not exempt from State regulation by

virtue of ERISA.

(f) Cross-reference. See 29 CFR part 2570, subpart

H for procedural rules relating to proceedings seeking

an Administrative Law Judge nding by the Secretary

under section 3(40) of ERISA.

(g) Eect of proceeding seeking Administrative Law

Judge Section 3(40) Finding.

(1) An Administrative Law Judge nding issued

pursuant to the procedures in 29 CFR part 2570,

subpart H will constitute a nding whether the entity

in that proceeding is an employee welfare benet plan

established or maintained under or pursuant to an

agreement that the Secretary nds to be a collective

bargaining agreement for purposes of section 3(40) of

ERISA.

(2) Nothing in this section or in 29 CFR part 2570,

subpart H is intended to provide the basis for a stay or

delay of a State administrative or court proceeding or

enforcement of a subpoena.

Signed this 31st day of March 2003.

Ann L. Combs,

Assistant Secretary,

Employee Benets Security Administration.

[FR Doc. 03-8113 Filed 4-7-03; 8:45 am]

DEPARTMENT OF LABOR

Employee Benets Security Administration

29 CFR Part 2570

RIN 1210-AA48

Procedures for Administrative Hearings Regarding

Plans Established or Maintained Pursuant to

Collective Bargaining Agreements Under Section

3(40)(A) of ERISA

AGENCY: Employee Benets Security

Administration, Department of Labor.

ACTION: Final rule.

SUMMARY: This document contains regulations

under the Employee Retirement Income Security Act

of 1974, as amended, (ERISA or the Act) describing

procedures for administrative hearings to obtain a

determination by the Secretary of Labor (Secretary) as

to whether a particular employee welfare benet plan

is established or maintained under or pursuant to one

or more collective bargaining agreements for purposes

of section 3(40) of ERISA. An administrative hearing

is available only if the jurisdiction or law of a state has

been asserted against a plan or other arrangement that

contends it meets the exception for plans established or

maintained under or pursuant to one or more collective

bargaining agreements. A separate document published

elsewhere in this issue of the Federal Register contains

a rule setting forth the criteria for determining when

an employee welfare benet plan is established or

maintained under or pursuant to one or more collective

bargaining agreements for purposes of section 3(40)

of ERISA. These regulations are intended to assist

labor organizations, plan sponsors and state insurance

departments in determining whether a plan is a

“multiple employer welfare arrangement” within the

meaning of section 3(40) of ERISA.

EFFECTIVE DATE: June 9, 2003.

FOR FURTHER INFORMATION CONTACT:

Elizabeth A. Goodman, Oce of Regulations and

Interpretations, Employee Benets Security

Administration, U.S. Department of Labor, 200

Constitution Avenue, NW., Room N-5669, Washington,

DC 20210, (202) 693-8510. This is not a toll-free

number.

SUPPLEMENTARY INFORMATION:

A. Background

These nal rules set forth an administrative

procedure for obtaining a determination by the

Secretary of Labor (the Secretary) as to whether

a particular employee benet plan is established

or maintained under or pursuant to one or more

agreements that are collective bargaining agreements

for purposes of section 3(40) of the Employee

Retirement Income Security Act of 1974 (ERISA).

These rules (the procedural regulations) are being

published simultaneously with a nal regulation (the

criteria regulation) setting forth specic criteria that,

if met and if certain other factors set forth in the nal

regulation are not present, constitute a nding by

the Secretary that a plan is established or maintained

under or pursuant to one or more collective bargaining

agreements for purposes of section 3(40). Both of these

nal rulemakings take into account the views expressed

by the ERISA section 3(40) Negotiated Rulemaking

Advisory Committee (the Committee), which was

convened by the Department under the Negotiated

Rulemaking Act (NRA) and the Federal Advisory

Committee Act (the FACA), 5 U.S.C. App. 2. Together,

these nal regulations will assist states, plan sponsors,

and administrators of employee benet plans, in

determining the scope of state regulatory authority over

plans or other arrangements as set forth in sections

3(40) and 514(b)(6) of ERISA.

The procedural rules provide for administrative

hearings to obtain a determination by the Secretary as

to whether a particular plan is established or maintained

under or pursuant to one or more collective bargaining

agreements for purposes of section 3(40) of ERISA.

The rules are modeled on the procedures set forth in 29

CFR sections 2570.60 through 2570.71 regarding civil

penalties under section 502(c)(2) of ERISA related to

reports required to be led under ERISA section 101(b)

(1) and are designed to maintain the maximum degree

of uniformity with those rules that is consonant with

the need for an expedited procedure accommodating

the specic characteristics necessary for proceedings

under section 3(40). Accordingly, the rules adopt

many, although not all, of the provisions of subpart A

of 29 CFR part 18 for the 3(40) proceedings. In this

regard, it should be noted that the rules apply only to

adjudicatory proceedings before administrative law

judges (ALJs) of the United States Department of

Labor (the Department). An administrative hearing

is available under these rules only to an entity that

contends it meets the exception provided in section

3(40)(A)(i) for plans established or maintained under or

pursuant to collective bargaining agreements and only

if the jurisdiction or law of a state has been asserted

against that entity.

These procedural rules were published in the Federal

FR 64498), simultaneously with the proposed criteria

regulation. As discussed more fully in the preamble

to the nal criteria regulation, the Department

received seven comments on the proposed criteria

and procedural regulations, only one of which related

to the procedural regulations. After considering the

views of the Committee, which was reconvened by the

Department for that purpose and met in public session

on March 1, 2002, the Department has determined to

issue the nal procedural regulations in the same format

and language as proposed.

The Department received only one comment relating

to the proposed procedural rules. This comment also

concerned the criteria regulation and is discussed

in the preamble to that nal rule. As described in

the preamble to the nal criteria regulation, the

Department has claried the language of paragraph (g)

(2) of the criteria regulation to emphasize that the ALJ

proceedings do not provide a basis for a stay-of-state

administrative or judicial proceedings. The language of

the procedural regulations remains unchanged.

B. Economic Analysis Under Executive Order 12866

Under Executive Order 12866, the Department must

determine whether a regulatory action is “signicant”

and therefore subject to the requirements of the

Executive Order and subject to review by the Oce

of Management and Budget (OMB). Under section

3(f), the order denes a “signicant regulatory action”

as an action that is likely to result in a rule (1) Having

an annual eect on the economy of $100 million or

more, or adversely and materially aecting a sector

of the economy, productivity, competition, jobs, the

environment, public health or safety, or State, local

or tribal governments or communities (also referred

to as “economically signicant”); (2) creating serious

inconsistency or otherwise interfering with an action

taken or planned by another agency; (3) materially

altering the budgetary impacts of entitlement grants,

user fees, or loan programs or the rights and obligations

of recipients thereof; or (4) raising novel legal or policy

issues arising out of legal mandates, the President’s

priorities, or the principles set forth in the Executive

Order.

Pursuant to the terms of the Executive Order, it has

been determined that this action is “signicant” within

the meaning of 3(f)(4), and therefore subject to review

by the Oce of Management and Budget (OMB).

Consistent with the Executive Order, the Department

has undertaken an assessment of the costs and benets

of this regulatory action. The analysis is detailed

below.

Summary

Pursuant to the requirements of Executive

Order 12866, at the time of the Notice of Proposed

Rulemaking, the Department sought comments and

information from the public on its analysis of the

benets and costs of the proposed regulation. Having

received none, the Department believes, based on

its original discussion, that the benets of this nal

regulation justify its costs. The regulation will benet

plans, states, insurers, and organized labor by reducing

the cost of resolving some disputes over a state’s right

to regulate certain multiple employer welfare benet

arrangements, facilitating the conduct of hearings,

reducing disputes over a plan or arrangement’s

status, and improving the eciency and ensuring the

consistency in determinations of such jurisdiction.

Background

When state law or jurisdiction is asserted over an

entity that claims to be excepted from state regulation

under the collective bargaining exception, the entity

has the option of using these procedures to resolve the

dispute. In the absence of the procedure provided under

these regulations for determining whether a given plan

or arrangement is established or maintained pursuant to

a collective bargaining agreement, such disputes have

generally been resolved in courts. The Department

believes that resolving disputes through the procedures

established by these regulations will generally be more

ecient and less costly than resolving the disputes in a

court of law. Also, determinations made in the single,

specialized venue of administrative hearings are likely

to be more consistent than determinations made in

multiple, non-specialized court venues.

Benets of the Regulation

The procedure established by these regulations will

complement the criteria established by the criteria

regulation. Together, the regulations will assist in

accurately identifying MEWAs and collectively

bargained plans and ensure that disputes over such

classications are resolved eciently. For purposes

of its assessment of the economic impact of the

regulations, the Department has attributed the net

benets of ensuring accurate determinations to the

criteria regulation. It has attributed the net benets

of ensuring ecient resolution of disputes to these

procedural regulations.

Determining Jurisdiction Accurately and Consistently

The criteria regulation will reduce existing confusion

about whether an entity falls under the collective

bargaining agreement exception. However, given the

wide variety of agreements, plans and arrangements,

as well as the potential for conicting determinations

where a MEWA is conducting business in more than

one state, some uncertainties might remain. The

Department has therefore established a procedure

for obtaining an individualized hearing before a

Department of Labor ALJ and for nal appeals to the

Secretary or the Secretary’s delegate to determine an

entity’s legal status.

Employers and employees will benet from an

administrative decision that provides greater assurance

that the entity will comply with applicable federal

and state laws designed to protect welfare benets.

In addition, both the petitioner and the state whose

authority is being asserted will benet from the uniform

application of criteria by the ALJ, avoiding any

confusion that would result from inconsistent decisions.

Finally, state insurance departments that receive a

timely resolution about an entity’s status as a MEWA

will be able to swiftly deal with sham MEWAs and then

re-direct saved resources to other areas. Because an

ALJ decision will be based on the criteria regulation,

the Department has attributed the net benet from the

reclassication of currently inaccurately classied

plans or arrangements (and the consequent application

of appropriate state or federal protections) to that

regulation.

Resolving Disputes Eciently

An administrative hearing under the nal regulations

will economically benet the small number of plans

or arrangements that dispute state assertion of law

or jurisdiction. The Department foresees improved

eciencies through use of administrative hearings that

are at the option of entities over which state jurisdiction

has been asserted. An administrative hearing allows the

various parties to obtain a decision in a timely, ecient,

and less costly manner than is usual in federal or state

court proceedings, thus beneting employers and

employees.

The Department’s analysis of costs involved in

adjudication in a federal or state court versus an

administrative hearing assumes that parties seeking

to establish regulatory authority incur a baseline cost

to resolve the question of status in federal or state

court proceeding. This baseline cost includes, but is

not limited to, expenditures for document production,

attorney fees, ling fees, depositions, etc. Because

regulatory authority may be decided in motions or

pleadings in cases where that issue is not primary, the

direct cost of using only the courts as a decision-maker

for such issues is too variable to specify; however,

custom and practice indicate that the cost of an

administrative hearing is similar to or represents a cost

savings compared with the baseline cost of litigating in

federal or state court.

Because the procedures and evidentiary rules of

an administrative hearing generally track the Federal

Rules of Civil Procedure and of Evidence, document

production is similar for both an administrative hearing

and for a federal or state court proceeding. Documents

such as by-laws, administrative agreements, collective

bargaining agreements, and other documents and

instruments governing the entity are generally kept

in the normal course of business, and it is likely that

the cost for an administrative hearing will be no more

than that which would be incurred in preparation

for litigation in a federal or state court. Certain

administrative hearing practices and other new

procedures initiated by this regulation may, however,

represent a cost savings over litigation. For example,

neither party need employ an attorney; the prehearing

exchange is short and general; either party may move

to shorten the time for the scheduling of a proceeding,

including the time for conducting discovery; the

general formality of the hearing may vary, particularly

depending on whether the petitioner is appearing pro se;

an expedited hearing is possible; and, the ALJ generally

has 30 days after receipt of the transcript of an oral

hearing or after the ling of all documentary evidence if

no oral hearing is conducted to reach a decision.

The Department cannot predict that any or all of

these conditions will exist, nor can it predict that any

of these factors represent a cost-savings. However, it

is likely that the specialized knowledge of ERISA that

the ALJ will bring to the process will facilitate a prompt

decision, reduce costs, and introduce a consistent

standard to what has been a confusion of decisions on

regulatory authority. ALJ case histories will educate

MEWAs and states by articulating the characteristics

of a collectively bargained plan, which clarity will in

turn promote compliance with appropriate federal and

state regulations. Participants and beneciaries of

arrangements that are newly identied as MEWAs will

especially benet from appropriate state oversight that

provides for secure contributions and paid-up claims.

In its Notice of Proposed Rulemaking, the Department

solicited comments on the comparative cost of a trial in

federal or state court versus an administrative hearing

on the issue of whether an entity is a plan is established

or maintained under or pursuant to an agreement or

agreements that the Secretary nds to be collective

bargaining agreements for purposes of section 3(40)

of ERISA. No comments concerning the comparative

costs of a trial versus an administrative hearing were

received.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.)

(RFA) imposes certain requirements with respect to

Federal rules that are subject to the notice and comment

requirements of section 553(b) of the Administrative

Procedure Act (5 U.S.C. 551 et seq.) and that are

likely to have a signicant economic impact on a

substantial number of small entities. Unless an agency

certies that a proposed rule will not have a signicant

economic impact on a substantial number of small

entities, section 604 of the RFA requires that the agency

present a nal regulatory exibility analysis at the time

of the publication of the notice of nal rulemaking

describing the impact of the rule on small entities.

Small entities include small businesses, organizations,

and governmental jurisdictions.

For purposes of analysis under the RFA, EBSA

continues to consider a small entity to be an employee

benet plan with fewer than 100 participants. The

basis of this denition is found in section 104(a)

(2) of ERISA, which permits the Secretary of Labor

to prescribe simplied annual reports for pension

plans that cover fewer than 100 participants. Under

section 104(a)(3), the Secretary may also provide

for exemptions or simplied annual reporting and

disclosure for welfare benet plans. Pursuant to the

authority of section 104(a)(3), the Department has

previously issued at 29 CFR 2520.104-20, 2520.104-21,

2520.104-41, 2520.104-46 and 2520.104b-10 certain

simplied reporting provisions and limited exemptions

from reporting and disclosure requirements for small

plans, including unfunded or insured welfare benet

plans covering fewer than 100 participants and which

satisfy certain other requirements.

Further, while some large employers may have small

plans, in general most small plans are maintained by

small employers. Thus, EBSA believes that assessing

the impact of this nal rule on small plans is an

appropriate substitute for evaluating the eect on small

entities. The denition of small entity considered

appropriate for this purpose diers, however, from

a denition of small business that is based on size

standards promulgated by the Small Business

Administration (SBA) (13 CFR 121.201) pursuant to

the Small Business Act (15 U.S.C. 631 et seq.). In

its Notice of Proposed Rulemaking, EBSA requested

comments on the appropriateness of the size standard

used; no comments were received.

On this basis, EBSA has determined that this rule

does not have a signicant economic impact on a

substantial number of small entities. In support of this

determination, and in an eort to provide a sound basis

for this conclusion, EBSA has prepared the following

nal regulatory exibility analysis.

(1) Reason for the Action. The Department is

establishing a procedure for an administrative hearing

so that states and entities will be able to obtain

a determination by the Secretary as to whether a

particular employee welfare benet plan is established

or maintained under or pursuant to one or more

collective bargaining agreements for purposes of an

exception to section 3(40) of ERISA.

(2) Objectives. The objective of these regulations is

to make available to plans an individualized procedure

for obtaining a hearing before a Department of

Labor ALJ, and for appeals of an ALJ decision to the

Secretary or the Secretary’s delegate. The procedure is

appropriate for the resolution of a dispute regarding an

entity’s legal status in situations where the jurisdiction

or law of a state has been asserted against a plan that

contends it meets the exception for plans established or

maintained under or pursuant to one or more collective

bargaining agreements.

(3) Estimate of Small Entities Aected. For purposes

of this discussion, the Department has deemed a small

entity to be an employee benet plan with fewer than

100 participants. No small governmental jurisdictions

are aected.

Based on Form 5500 lings and Form M-1 lings

by MEWAs pursuant to interim nal rules published

in the Federal Register on February 11, 2000 (65 FR

7152), it is estimated that there about 2,600 entities that

can be classied as either collectively bargained plans

or as MEWAs; however, EBSA believes that a very

small number of these arrangements will have fewer

than 100 participants. By their nature, the aected

arrangements must involve at least two employers,

which decreases the likelihood of coverage of fewer

than 100 participants. Also, underlying goals of the

formation of these arrangements, such as gaining

purchasing and negotiating power through economies

of scale, improving administrative eciencies, and

gaining access to additional benet design features, are

not readily accomplished if the group of covered lives

remains small.

The number of small plans found within the group

of 2,600 collectively bargained plans or MEWAs is

about 200, or eight percent. The Employee Benets

Supplement to the 1993 Current Population Survey

and a 1993 Small Business Administration survey of

retirement and other benet coverages in small rms

indicate that there are more than 2.5 million private

group health plans with fewer than 100 participants.

Thus, the 200 small entities potentially aected

represent a very small portion of all small group health

plans. Even if all 2,600 potentially aected entities

were to have fewer than 100 participants, they would

represent approximately one-tenth of one percent of all

small group health plans.

The Department is not aware of any source of

information indicating the number of instances in

which state law or jurisdiction has been asserted over

these entities, or the portion of those instances that

involved the collective bargaining agreement exception.

However, in order to develop an estimate of the number

of plans or arrangements that might seek to clarify

their legal status by using an administrative hearing

as proposed by these regulations, the Department

examined the number of lawsuits to which the

Department had previously been a party. While this

number is not viewed as a measure of the incidence

of the assertion of state jurisdiction, it is considered

the only reasonable available proxy for an estimate

of a maximum number of instances in which the

applicability of state requirements might be at issue.

In recent years, the Department has been a party to

an average of 45 legal actions annually. The proportion

of these lawsuits that involved a dispute over state

jurisdiction based on a plan’s or an arrangement’s

legal status is unknown. On the whole, 45 is therefore

considered a reasonable estimate of an upper bound

number of plans that could have been a party to a

lawsuit involving a determination of the plan’s legal

status. Because this procedural regulation and the

related criteria regulation are expected to reduce the

number of disputes, the Department assumes that

45 represents a conservatively high estimate of the

number of plans or arrangements that would petition

for an administrative hearing. Of all small plans and

arrangements, then, the greatest number of plans or

arrangements likely to petition for an administrative

hearing represents a tiny fraction of the total number of

small plans.

In addition, the Department has assumed that an

entity’s exercise of the opportunity to petition for a

nding will generally be less costly than available

alternatives. Accordingly, the Department has

concluded that these regulations will not have a

signicant economic impact on a substantial number of

small entities.

(4) Reporting and Recordkeeping. In most cases,

the records that will be used to support a petition for a

hearing pursuant to these procedures will be maintained

by plans and MEWAs in the ordinary course of their

business. Certain documents, such as adavits,

would likely be required to be prepared specically for

purposes of the petition. It is assumed that documents

will most often be assembled and drafted by attorneys,

although this is not required by the express terms of the

procedure.

(5) Duplication. No federal rules have been

identied that duplicate, overlap, or conict with the

nal rule.

(6) Alternatives. The regulations are based on the

consensus report of the Committee. Recognizing that

guidance was needed in clarifying collective bargaining

exceptions to the MEWA regulation, in 1995, the

Department had published a Notice of Proposed

Rulemaking on Plans Established or Maintained Under

or Pursuant to Collective Bargaining Agreements in

the Federal Register (60 FR 39209). Under the terms

of the 1995 NPRM, it would have been within the

authority of state insurance regulators to identify and

regulate MEWAs operating in their jurisdictions. The

1995 proposal did not establish a method for obtaining

individual ndings by the Department.

The Department received numerous comments on

the NPRM expressing concerns about plans’ abilities to

meet the standards set forth in the NPRM. Commenters

also objected to granting authority to state regulators

for determining whether a particular agreement was a

collective bargaining agreement. Commenters strongly

preferred that determination of whether a plan was

established under or pursuant to a collective bargaining

agreement lie with a federal agency and not with

individual states.

Based on the comments received, the Department

turned to negotiated rulemaking as an appropriate

method of developing a revised Notice of Proposed

Rulemaking. In September 1998, the Secretary

established the Committee under the NRA. The

Committee membership was chosen from the

organizations that submitted comments on the

Department’s August 1995 NPRM and from the

petitions and nominations for membership received

in response to a Department Notice of Intent. These

regulations are based on the Committee’s consensus

on the need for an individualized administrative

proceeding in limited circumstances for determining

the legal status of an entity. Based on the fact

that the Committee represented a cross section of

the state, federal, association, and private sector

insurance organizations concerned with these issues,

the Department believes that, as an alternative to the

1995 NPRM, these regulations accomplish the stated

objectives of the Secretary and will have a benecial

eect on MEWAs, state insurance regulators, small

employers who oer group health coverage, and plan

participants. No other signicant alternatives that

would minimize the economic impact on small entities

have been identied.

Participating in an administrative hearing to

determine legal status is a voluntary undertaking on the

part of a plan or arrangement. It would be inappropriate

to create an exemption for small entities under the

regulation because small entities are as much in need of

clarication of their legal status as are larger entities.

D. Paperwork Reduction Act

In accordance with the Paperwork Reduction

Act of 1995 (PRA 95) (44 U.S.C. 3501 et seq.), the

Department submitted the information collection

request (ICR) included in the Procedures for

Administrative Hearings Regarding Plans Established

or Maintained Pursuant to Collective Bargaining

Agreements under section 3(40)(A) of ERISA to the

Oce of Management and Budget (OMB) for review

and clearance at the time the NPRM was published

in the Federal Register (65 FR 64498). A request for

comments on the ICR was included in the NPRM.

No comments were received about the ICR, and no

changes have been made to the ICR in connection with

this Notice of Final Rulemaking. OMB subsequently

approved the ICR under control number 1210-0119.

The approval will expire on January 31, 2004.

Agency: Employee Benets Security Administration,

Department of Labor.

Title: Petition for Finding under section 3(40) of

ERISA.

OMB Number: 1210-0119.

Aected Public: Business or other for-prot; not-for-

prot institutions.

Respondents: 45.

Responses: 45.

Average Time Per Response: 32 hours.

Estimated Total Burden Hours: 1.

Estimated Total Burden Cost (Operating and

Maintenance): $104,100.

E. Small Business Regulatory Enforcement Fairness

Act

The rule being issued here is subject to the

Congressional Review Act provisions of the Small

Business Regulatory Enforcement Fairness Act of

1996 (5 U.S.C. 801 et seq.) and has been transmitted to

Congress and the Comptroller General for review. The

rule is not a ``major rule’’ as that term is dened in 5

U.S.C. 804, because it is not likely to result in (1) An

annual eect on the economy of $100 million or more;

(2) a major increase in costs or prices for consumers,

individual industries, or federal, state, or local

government agencies, or geographic regions; or (3)

signicant adverse eects on competition, employment,

investment, productivity, innovation, or on the ability

of United States-based enterprises to compete with

foreign-based enterprises in domestic or export markets.

F. Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act

of 1995 (2 U.S.C. 1501 et seq.), as well as Executive

Order 12875, this proposed rule does not include any

federal mandate that may result in expenditures by

state, local, or tribal governments, or the private sector,

which may impose an annual burden of $100 million.

G. Executive Order 13132

When an agency promulgates a regulation that has

federalism implications, Executive Order 13132 (64 FR

43255, Aug. 10, 1999) requires the Agency to provide

a federalism summary impact statement. Pursuant to

section 6(c) of the Order, such a statement must include

a description of the extent of the agency’s consultation

with State and local ocials, a summary of the nature

of their concerns and the agency’s position supporting

the need to issue the regulation, and a statement of the

extent to which the concerns of the State have been met.

This regulation has Federalism implications because

it sets forth standards and procedures for an ALJ

hearing for determining whether certain entities may be

regulated under certain state laws or whether such state

laws are preempted with respect to such entities. The

state laws at issue are those that regulate the business

of insurance. A member of the National Association

of Insurance Commissioners (NAIC), representing

the interest of state governments in the regulation of

insurance, participated in the negotiations throughout

the negotiated rulemaking process that provided the

basis for this regulation.

In response to comments from the public about

the proposed rule, the NAIC raised a concern that

the process by which the Department issues ALJ

determinations regarding the collectively bargained

status of entities should move forward as quickly as

possible and not result in a stay of state enforcement

proceedings against MEWAs. The nal regulation

specically states that the proceedings shall be

conducted as expeditiously as possible and that the

parties shall make every eort to avoid delay at each

stage of the proceeding. The companion regulation

that establishes criteria for determining whether an

employee benet plan is established or maintained

under or pursuant to one or more collective bargaining

agreements for purposes of section 3(40) of ERISA

provides that ALJ proceedings under this regulation are

not intended to provide the basis for a stay or delay of a

state administrative or court proceeding or enforcement

of a subpoena.

List of Subjects in 29 CFR Part 2570

Administrative practice and procedure, Claims,

Employee benet plans, Government employees,

Law enforcement, Penalties, Pensions, Reporting and

recordkeeping requirements.

For the reasons set out in the preamble, Part 2570

of Chapter XXV of Title 29 of the Code of Federal

Regulations is amended to read as follows:

PART 2570--[AMENDED]

1. The authority citation for part 2570 is revised to read

as follows:

Authority: 5 U.S.C. 8477, 29 U.S.C. 1002(40),

1021, 1108, 1132, 1135; sec. 102, Reorganization Plan

No. 4 of 1978, 43 FR 47713, 3 CFR, 1978 Comp. p.

332, and E.O. 12108, 44 FR 1065, 3 CFR, 1978 Comp.,

p. 275; Secretary of Labor’s Order 1-2003, 68 FR 5374

(Feb. 3, 2003).

2. Add new Subpart H to read as follows: Subpart H--

Procedures for Issuance of Findings Under ERISA

Sec. 3(40)

Sec.2570.150 Scope of rules.

2570.151 In general.

2570.152 Denitions.

2570.153 Parties.

2570.154 Filing and contents of petition.

2570.155 Service.

2570.156 Expedited proceedings.

2570.157 Allocation of burden of proof.

2570.158 Decision of the Administrative Law

Judge.

2570.159 Review by the Secretary.

Sec. 2570.150 Scope of rules.

The rules of practice set forth in this subpart H

apply to “section 3(40) Finding Proceedings” (as

dened in Sec. 2570.152(g)), under section 3(40) of

the Employee Retirement Income Security Act of 1974

(ERISA or the Act). Refer to 29 CFR 2510.3-40 for

the denition of relevant terms of section 3(40) of

ERISA, 29 U.S.C. 1002(40). To the extent that the

regulations in this subpart dier from the regulations

in subpart A of 29 CFR part 18, the regulations in

this subpart apply to matters arising under section

3(40) of ERISA rather than the rules of procedure for

administrative hearings published by the Department’s

Oce of Administrative Law Judges in subpart A of 29

CFR part 18. These proceedings shall be conducted as

expeditiously as possible, and the parties shall make

every eort to avoid delay at each stage of the

proceedings.

Sec. 2570.151 In general.

If there is an attempt to assert state jurisdiction or the

application of state law, either by the issuance of a state

administrative or court subpoena to, or the initiation

of administrative or judicial proceedings against, a

plan or other arrangement that alleges it is covered by

title I of ERISA, 29 U.S.C. 1003, the plan or other

arrangement may petition the Secretary to make a

nding under section 3(40)(A)(i) of ERISA that it is

a plan established or maintained under or pursuant to

an agreement or agreements that the Secretary nds to

be collective bargaining agreements for purposes of

section 3(40) of ERISA.

Sec. 2570.152 Denitions.

For section 3(40) Finding Proceedings, this section

shall apply instead of the denitions in 29 CFR 18.2.

(a) ERISA means the Employee Retirement Income

Security Act of 1974, et seq., 29 U.S.C. 1001, et seq.,

as amended.

(b) Order means the whole or part of a nal

procedural or substantive disposition by the

administrative law judge of a matter under section 3(40)

of ERISA. No order will be appealable to the

Secretary except as provided in this subpart.

procedures in this subpart for a nding by the Secretary

under section 3(40) of ERISA that a plan is established

or maintained under or pursuant to one or more

collective bargaining agreements.

(d) Petitioner means the plan or arrangement ling a

petition.

(e) Respondent means:

(1) A state government instrumentality charged with

enforcing the law that is alleged to apply or which has

been identied as asserting jurisdiction over a plan or

other arrangement, including any agency,

commission, board, or committee charged with

investigating and enforcing state insurance laws,

including parties joined under Sec. 2570.153;

(2) The person or entity asserting that state law or

state jurisdiction applies to the petitioner;

(3) The Secretary of Labor; and

(4) A state not named in the petition that has

intervened under Sec. 2570.153(b).

(f) Secretary means the Secretary of Labor, and

includes, pursuant to any delegation or sub-delegation

of authority, the Assistant Secretary for Employee

Benets Security or other employee of the Employee

Benets Security Administration.

(g) Section 3(40) Finding Proceeding means a

proceeding before the Oce of Administrative Law

Judges (OALJ) relating to whether the Secretary nds

an entity to be a plan to be established or maintained

under or pursuant to one or more collective bargaining

agreements within the meaning of section 3(40) of

ERISA.

Sec. 2570.153 Parties.

For section 3(40) Finding Proceedings, this section

shall apply instead of 29 CFR 18.10.

(a) The term “party” with respect to a Section 3(40)

Finding Proceeding means the petitioner and the

respondents.

(b) States not named in the petition may participate

as parties in a Section 3(40) Finding Proceeding by

notifying the OALJ and the other parties in writing

prior to the date for ling a response to the petition.

After the date for service of responses to the petition,

a state not named in the petition may intervene as a

party only with the consent of all parties or as otherwise

ordered by the ALJ.

“respondent” to all actions.

(d) The failure of any party to comply with any order

of the ALJ may, at the discretion of the ALJ, result in

the denial of the opportunity to present evidence in the

proceeding.

Sec. 2570.154 Filing and contents of petition.

(a) A person seeking a nding under section 3(40)

of ERISA must le a written petition by delivering

or mailing it to the Chief Docket Clerk, Oce of

Administrative Law Judges (OALJ), 800 K Street, NW.,

Suite 400, Washington, DC 20001-8002, or by making

a ling by any electronic means permitted under

procedures established by the OALJ.

(b) The petition shall--

(1) Provide the name and address of the entity for

which the petition is led;

(2) Provide the names and addresses of the plan

administrator and plan sponsor(s) of the plan or other

arrangement for which the nding is sought;

(3) Identify the state or states whose law or

jurisdiction the petitioner claims has been asserted over

the petitioner, and provide the addresses and names of

responsible ocials;

(4) Include adavits or other written evidence

showing that:

(i) State jurisdiction has been asserted over or legal

process commenced against the petitioner pursuant to

state law;

(ii) The petitioner is an employee welfare benet

plan as dened at section 3(1) of ERISA (29 U.S.C.

1002(1)) and 29 CFR 2510.3-1 and is covered by title I

of ERISA (see 29 U.S.C. 1003);

(iii) The petitioner is established or maintained for

the purpose of oering or providing benets described

in section 3(1) of ERISA (29 U.S.C. 1002(1)) to

employees of two or more employers (including one or

more self-employed individuals) or their beneciaries;

(iv) The petitioner satises the criteria in 29 CFR

2510.3-40(b); and

(v) Service has been made as provided in Sec.

2570.155.

(5) The adavits shall set forth such facts as would

be admissible in evidence in a proceeding under 29

CFR part 18 and shall show armatively that the aant

is competent to testify to the matters stated therein. The

adavit or other written evidence must

set forth specic facts showing the factors required

under paragraph (b)(4) of this section.

Sec. 2570.155 Service.

For section 3(40) proceedings, this section shall

apply instead of 29 CFR 18.3.

(a) In general. Copies of all documents shall be

served on all parties of record. All documents should

clearly designate the docket number, if any, and short

title of all matters. All documents to be led shall be

delivered or mailed to the Chief Docket Clerk, Oce of

Administrative Law Judges (OALJ), 800 K Street,

NW., Suite 400, Washington, DC 20001-8002, or to the

OALJ Regional Oce to which the proceeding may

have been transferred for hearing. Each document led

shall be clear and legible.

(b) By parties. All motions, petitions, pleadings,

briefs, or other documents shall be led with the Oce

of Administrative Law Judges with a copy, including

any attachments, to all other parties of record.

When a party is represented by an attorney, service shall

be made upon the attorney. Service of any document

upon any party may be made by personal delivery or

by mailing by rst class, prepaid U.S. mail, a copy to

the last known address. The Secretary shall be served

by delivery to the Associate Solicitor, Plan Benets

Security Division, ERISA Section 3(40) Proceeding,

PO Box 1914, Washington, DC 20013. The

person serving the document shall certify to the manner

and date of service.

Service of orders, decisions and all other documents

shall be made to all parties of record by regular mail to

their last known address.

(d) Form of pleadings (1) Every pleading shall

contain information indicating the name of the

Employee Benets Security Administration (EBSA)

as the agency under which the proceeding is instituted,

the title of the proceeding, the docket number (if any)

assigned by the OALJ and a designation of the type

of pleading or paper (e.g., notice, motion to dismiss,

etc.). The pleading or paper shall be signed and shall

contain the address and telephone number of the party

or person representing the party. Although there are

no formal specications for documents, they should be

typewritten when possible on standard size 8\1/2\ x 11

inch paper.

(2) Illegible documents, whether handwritten,

typewritten, photocopies, or otherwise, will not be

accepted. Papers may be reproduced by any duplicating

process provided all copies are clear and legible.

Sec. 2570.156 Expedited proceedings.

For section 3(40) Finding Proceedings, this section

shall apply instead of 29 CFR 18.42.

(a) At any time after commencement of a proceeding,

any party may move to advance the scheduling of

a proceeding, including the time for conducting

discovery.

(b) Except when such proceedings are directed

by the Chief Administrative Law Judge or the

administrative law judge assigned, any party ling a

motion under this section shall:

(1) Make the motion in writing;

(2) Describe the circumstances justifying

advancement;

(3) Describe the irreparable harm that would result if

the motion is not granted; and

(4) Incorporate in the motion adavits to support

any representations of fact.

accomplished by personal delivery, or by facsimile,

followed by rst class, prepaid, U.S. mail. Service is

complete upon personal delivery or mailing.

(d) Except when such proceedings are required, or

unless otherwise directed by the Chief Administrative

Law Judge or the administrative law judge assigned, all

parties to the proceeding in which the motion is led

shall have ten (10) days from the date of service of the

motion to le an opposition in response to the motion.

(e) Following the timely receipt by the administrative

law judge of statements in response to the motion,

the administrative law judge may advance pleading

schedules, discovery schedules, prehearing conferences,

and the hearing, as deemed appropriate; provided,

however, that a hearing on the merits shall not be

scheduled with less than ve

(5) working days notice to the parties, unless all

parties consent to an earlier hearing.

(f) When an expedited hearing is held, the decision

of the administrative law judge shall be issued within

twenty (20) days after receipt of the transcript of any

oral hearing or within twenty (20) days after the ling

of all documentary evidence if no oral hearing is

conducted.

Sec. 2570.157 Allocation of burden of proof.

For purposes of a nal decision under Sec.

2570.158 (Decision of the Administrative Law Judge)

or Sec. 2570.159 (Review by the Secretary), the

petitioner shall have the burden of proof as to whether it

meets 29 CFR 2510.3-40.

Sec. 2570.158 Decision of the Administrative Law

Judge.

For section 3(40) nding proceedings, this section

shall apply instead of 29 CFR 18.57.

(a) Proposed ndings of fact, conclusions of law, and

order. Within twenty (20) days of ling the transcript

of the testimony, or such additional time as the

administrative law judge may allow, each party may le

with the administrative law judge, subject to the judge’s

discretion under 29 CFR 18.55, proposed ndings

of fact, conclusions of law, and order together with

the supporting brief expressing the reasons for such

proposals. Such proposals and brief shall be served on

all parties, and shall refer to all portions of the record

and to all authorities relied upon in support of each

proposal.

(b) Decision based on oral argument in lieu of

briefs. In any case in which the administrative law

judge believes that written briefs or proposed ndings

of fact and conclusions of law may not be necessary,

the administrative law judge shall notify the parties

at the opening of the hearing or as soon thereafter

as is practicable that he or she may wish to hear oral

argument in lieu of briefs. The administrative law

judge shall issue his or her decision at the close of oral

argument, or within 30 days thereafter.

30 days, or as soon as possible thereafter, after the time

allowed for the ling of the proposed ndings of fact,

conclusions of law, and order, or within thirty (30)

days after receipt of an agreement containing consent

ndings and order disposing of the disputed matter in

whole, the administrative law judge shall make his or

her decision. The decision of the administrative law

judge shall include ndings of fact and conclusions of

law, with reasons therefore, upon each material issue of

fact or law presented on the record. The decision of the

administrative law judge shall be based upon the whole

record. It shall be supported by reliable and probative

evidence. Such decision shall be in accordance with the

regulations found at 29 CFR 2510.3-40 and shall be

limited to whether the petitioner, based on the facts

presented at the time of the proceeding, is a plan

established or maintained under or pursuant to

collective bargaining for the purposes of section 3(40)

of ERISA.

Sec. 2570.159 Review by the Secretary.

(a) A request for review by the Secretary of an

appealable decision of the administrative law judge

may be made by any party. Such a request must be

led within 20 days of the issuance of the nal decision

or the nal decision of the administrative law judge will

become the nal agency order for purposes of 5 U.S.C.

701 et seq.

(b) A request for review by the Secretary shall state

with specicity the issue(s) in the administrative law

judge’s nal decision upon which review is sought. The

request shall be served on all parties to the proceeding.

novo proceeding but rather a review of the record

established by the administrative law judge.

(d) The Secretary may, in his or her discretion, allow

the submission of supplemental briefs by the parties to

the proceeding.

(e) The Secretary shall issue a decision as promptly

as possible, arming, modifying, or setting aside, in

whole or in part, the decision under review, and shall

set forth a brief statement of reasons therefor. Such

decision by the Secretary shall be the nal agency

action within the meaning of 5 U.S.C. 704.

Signed this 31st day of March, 2003.

Ann L. Combs, Assistant Secretary,

Employee Benets Security Administration.

[FR Doc. 03-8114 Filed 4-7-03; 8:45 am]

n U.S.G.P.O. 2004-312-076/10278

DEPARTMENT OF LABOR

Employee Benets Security Administration

29 CFR Parts 2560 and 2571

RIN 1210-AB48

Ex Parte Cease and Desist and Summary Seizure

Orders--Multiple

Employer Welfare Arrangements

AGENCY: Employee Benets Security Administration,

Department of Labor.

ACTION: Final rules.

SUMMARY: This document contains two nal rules

under the Employee Retirement Income Security Act

of 1974 (ERISA) to facilitate implementation of new

enforcement authority provided to the Secretary of

Labor by the Patient Protection and Aordable Care

Act (Aordable Care Act). The Aordable Care Act

authorizes the Secretary to issue a cease and desist

order, ex parte (i.e. without prior notice or hearing),

when it appears that the alleged conduct of a multiple

employer welfare arrangement (MEWA) is fraudulent,

creates an immediate danger to the public safety or

welfare, or is causing or can be reasonably expected

to cause signicant, imminent, and irreparable public

injury. The Secretary may also issue a summary seizure

order when it appears that a MEWA is in a nancially

hazardous condition. The rst regulation establishes

the procedures for the Secretary to issue ex parte

cease and desist orders and summary seizure orders

with respect to fraudulent or insolvent MEWAs. The

second regulation establishes the procedures for use

by administrative law judges and the Secretary when a

MEWA or other person challenges a temporary cease

and desist order.

DATES: Eective date. These nal regulations are

eective April 1, 2013.

FOR FURTHER INFORMATION CONTACT:

Stephanie Lewis, Plan Benets Security Division,

Oce of the Solicitor, Department of Labor, at (202)

693-5588 or Suzanne Bach, Employee Benets

Security Administration, Department of Labor, at (202)

693-8335. These are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

A. Purpose of the Regulatory Action

1. Need for Regulatory Action

The Patient Protection and Aordable Care Act

(Aordable Care Act) gives the Secretary authority

to issue a cease and desist order when a multiple

employer welfare arrangement (MEWA) engages in

conduct that is fraudulent, creates an immediate danger

to the public safety or welfare, or causes or can be

reasonably expected to cause signicant, immediate,

and irreparable injury. The act also gives the Secretary

authority to issue a summary seizure order when a

MEWA is in a nancially hazardous condition. These

new powers strengthen the Secretary’s ability to protect

plan participants, beneciaries, employers, employee

organizations, and other members of the public from

fraudulent, abusive, and nancially unstable MEWAs.

These two regulations are necessary to set forth the

criteria for determining whether the statutory grounds

for issuing an order have been met, and, in the case

of a cease and desist order, to establish reasonable

administrative review procedures. The Secretary will

generally obtain judicial authorization before issuing

a summary seizure order. The substantive criteria

for issuing an order are based on several decades of

enforcement experience by the Department and the

States regarding fraudulent or nancially hazardous

conduct of MEWAs (and persons acting as their agents

and employees). The administrative procedures will

allow aected persons to challenge a cease and desist

order and obtain expeditious review, including the right

to a hearing.

2. Legal Authority

Section 521 of ERISA, 29 U.S.C. 1151, sets out the

Secretary’s authority to issue cease and desist orders

and summary seizure orders. Section 521(f) provides

that “the Secretary may promulgate such regulations

or other guidance as may be necessary or appropriate

to carry out” this new enforcement authority. Section

505 of ERISA, 29 U.S.C. 1135, also provides the

Secretary with authority to prescribe such regulations as

necessary or appropriate to carry out the provisions of

Title I of ERISA, which includes the new section 521.

B. Summary of the Major Provisions of This

Regulatory Action

These rules generally set forth the statutory criteria

under which the Secretary may issue cease and desist

orders and summary seizure orders. They also specify

that orders may apply to MEWAs and to persons

having custody or control of assets of a MEWA, any

authority over management of a MEWA, or any role in

the transaction of a MEWA’s business. Paragraph (b)

of this section contains key denitions. Most notably,

this paragraph sets forth the criteria for determining

if it appears that the MEWA or any person acting as

an agent or employee of the MEWA has engaged in

conduct that would support issuance of an order under

the statute. The regulations address the scope of the

cease and desist order and the process for a person

who is the subject of a temporary cease and desist

order to request an administrative hearing to show

cause why the order should be modied or set aside.

The regulations also establish the procedures for such

hearings.

Although the Secretary may issue a cease and desist

order without rst seeking court approval, the procedure

for a summary seizure order is somewhat dierent. The

regulations generally require that the Secretary obtain

judicial authorization before issuing a summary seizure

order. They also require that the Secretary seek court

appointment of a receiver or independent duciary and

obtain court authorization for other actions to assert

control over the MEWA’s and plan assets.

Orders issued under these nal rules are eective

upon service and remain in eect until modied or set

aside by the Secretary, an administrative law judge,

or a reviewing court. Issued nal orders will be

made available to the public as will modications and

terminations of such nal orders. Further, to facilitate

coordination with the States, Federal agencies, and

foreign authorities, the Secretary may disclose the

issuance of any order (whether temporary or nal) and

any information and evidence of any proceedings and

hearings related to the order to other Federal, State, or

foreign authorities. (The sharing of such information,

however, does not constitute a waiver of any applicable

privilege or claim of condentiality.)

The Secretary remains committed to helping

MEWAs and plan ocials comply with legal

requirements and serve plan participants and

beneciaries properly. These new enforcement tools

will enhance the Department’s ability to protect plan

participants and beneciaries when MEWAs and

plan actors fail to comply with their obligations.

The Secretary will also continue to use any other

investigatory and enforcement tools available under

title I of ERISA.

C. Costs and Benets

These nal regulations will improve MEWA

compliance and deter abusive practices. They will

also enable the Secretary to take enforcement action

against fraudulent, abusive, and nancially unstable

MEWAs more eectively. The Department’s primary

judicial remedy for violations of ERISA by MEWAs

is court-ordered relief based on a breach of duciary

duty. Gathering sucient evidence to prove a duciary

breach may be very time-consuming and labor

intensive, even where it is clear that the MEWA is

insolvent or unable to meet its nancial commitments.

In many MEWA cases, important nancial records are

poor or non-existent. The new authority implemented

by these regulations provides an additional, more

exible tool for the Secretary to use, when appropriate,

to combat fraudulent and abusive conduct by MEWAs

and nancially hazardous arrangements. Moreover,

these regulations will enable the enforcement process

to be more ecient because the subject of a cease

and desist order can seek review of the order in an

administrative hearing rather than a court. Since

the rules do not require any action or impose any

requirements on MEWAs, these regulations do not

impose any major costs.

II. Background

Multiple employer welfare arrangements (MEWAs)

that are properly operated provide an additional option

for small employers seeking aordable health coverage

for their employees. Nevertheless, fraudulent and

abusive practices and nancial instability are recurrent

themes in ERISA enforcement.

Congress enacted

section 6605 of the Patient Protection and Aordable

Care Act (Aordable Care Act), Public Law 111-148,

124 Stat. 119, 780 (2010), which adds section 521

to ERISA, to give the Secretary of Labor additional

enforcement authority to protect plan participants,

beneciaries, employees or employee organizations, or

other members of the public against fraudulent, abusive,

or nancially hazardous MEWAs.

This section authorizes the Secretary to issue

ex parte cease and desist orders when it appears to

the Secretary that the alleged conduct of a MEWA

is “fraudulent, or creates an immediate danger to

the public safety or welfare, or is causing or can be

reasonably expected to cause signicant, imminent, and

irreparable public injury.” 29 U.S.C. 1151(a). A person

that is adversely aected by the issuance of a cease

and desist order may request an administrative hearing

regarding the order. 29 U.S.C. 1151(b). This section

also allows the Secretary to issue an order to seize the

assets of a MEWA that the Secretary determines to be in

a nancially hazardous condition. 29 U.S.C. 1151(e).

On December 6, 2011, the Department published

in the Federal Register proposed regulations (76 FR

76235) implementing new ERISA section 521 and

setting forth the procedures for administrative hearings

on the issuance of an ex parte cease and desist order.

The Department received three (3) comment letters

on these proposed rules. After consideration of the

comments received, the Department is publishing these

nal regulations with little modication of the proposed

rules.

III. Overview of the Final Regulations

A. Ex Parte Cease and Desist and Summary Seizure

Order Regulations (29 CFR 2560.521)

Purpose and Denitions

Pursuant to section 6605 of the Aordable Care

Act, these rules set forth criteria and procedures for the

Secretary to issue cease and desist orders and summary

seizure orders and procedures for administrative review

of the cease and desist orders. The rules apply to any

cease and desist order and any summary seizure order

issued under section 521 of ERISA. Paragraph (a) of

section 2560.521-1 of the rules generally sets forth

The term “multiple employer welfare arrangement” is dened at ERISA

Sec. 3(40), 29 U.S.C. 1002(40).

See, e.g., Chao v. Graf, 2002 WL 1611122 (D. Nev. 2002), In re

Raymond Palombo, et al., 2011 WL 1871438 (Bankr. C.D. CA 2011) and

Solis v. Palombo, No. 1:08-CV-2017 (N.D. Ga 2009); Chao v. Crouse, 346

F.Supp.2d 975 (S.D. Ind. 2004)

the statutory criteria under which the Secretary may

issue orders. It also species that orders may apply to

MEWAs and to persons having custody or control of

assets of a MEWA, any authority over management of

a MEWA, or any role in the transaction of a MEWA’s

business.

One commenter expressed concern that applying

cease and desist and summary seizure orders to third

party administrators (TPAs) would threaten their ability

to perform their services, which may include helping

MEWAs recover when they are in nancial peril. TPAs

perform critical services for the plan community. As

the commenter notes, an important service TPAs do or

can provide is to educate MEWAs about their duty to

pay claims and provide promised benets. TPAs also

play an important role in informing the Department

about MEWAs that ask them to deceive or defraud

plan participants. The Department recognizes the

role that conscientious and knowledgeable TPAs and

other service providers may play in protecting plans

and their participants and beneciaries. Where the

functions of a service provider are essential to the

operation of a MEWA, cease and desist orders will need

to cover these functions, whether or not the service

provider engaged in conduct giving rise to the order.

Moreover, in some cases a service provider may be

integrally involved in conduct evidencing an intent

to deceive or defraud plans and their participants and

beneciaries or other actions that endanger the public

welfare. As an example, in U.S. v. William Madison

Worthy, No. 7:11-cr-00487-HMH (D. S.C. 2011),

Mr. Worthy, who owned the TPA providing services

to the MEWA, pleaded guilty for diverting almost $1

million in premium contributions for coverage provided

in connection with the MEWA. Ultimately, about $1.7

million in claims either went unpaid or had to be paid

by plan members.

Moreover, it should be emphasized that orders may

often be issued to persons, who were not involved in

improper conduct, but whose cooperation is necessary

to carry out the purpose of the order. For instance, a

bank holding assets of a MEWA may receive a court-

approved summary seizure order that directs the bank to

freeze those assets. See, e.g., 29 CFR 2560.521-1(f)(4).

Paragraph (b) contains key denitions. ERISA

section 521 applies the Secretary’s cease and desist and

seizure order authority to MEWAs, as dened under

section 3(40) of ERISA, 29 U.S.C. 1002(40). As stated

in the proposed regulations, Congress did not limit the

Secretary’s authority to issue orders to MEWAs that

are ERISA-covered employee welfare benets plans

(ERISA-covered plans). Section 521 of ERISA also

applies if the MEWA provides health coverage to one

or more ERISA-covered plans, even if it also provides

coverage to other persons unconnected to an ERISA-

covered plan. These rules do not, however, apply to

MEWAs that provide coverage only in connection

with governmental plans, church plans, and plans

maintained solely for the purpose of complying with

workers’ compensation laws, which are not covered

by ERISA. They also do not apply to arrangements

that only provide coverage to individuals other than in

connection with an employee welfare benet plan (e.g.,

individual market coverage). The proposed rules also

noted that they did not apply to arrangements licensed

or authorized to operate as a health insurance issuer.

Though the Department has not changed the substance

of the regulations in this regard, it has revised paragraph

(b)(1) for the sake of clarity. The denition of a MEWA

in ERISA section 3(40) is very broadly worded. Read

literally, it could be interpreted to include traditional

health insurance issuers (including health maintenance

organizations) that are fully licensed (i.e., subject to

stringent and comprehensive insurance regulation)

to oer health insurance coverage to the public and

employers at large in every State in which they oer

health insurance coverage. The Department has never,

however, applied ERISA’s provisions on MEWAs to

such organizations. These organizations do not pose

the same level of risk for fraud, abuse, and nancial

instability that ERISA’s provisions on MEWAs,

including the new ERISA section 521 and these nal

rules, are designed to address. Consequently, these

nal rules do not apply to these entities. This exclusion

applies to any arrangement that could fall within the

denition of MEWA but is covered by the same level

and scope of stringent and comprehensive insurance

laws of a State (such as laws on licensure, solvency,

reporting, anti-fraud, appeals, premium assessment, and

guaranty funds) as traditional health insurance issuers

(including health maintenance organizations) and

that oers health insurance coverage to the public and

employers at large.

ERISA section 514(b)(6) makes clear that the

States can regulate any MEWA, even a MEWA that

is an ERISA-covered plan. The Department retains

shared jurisdiction with the States. In some States,

some MEWAs are permitted to operate if they have

obtained a limited license from the State (e.g. a license

that, for instance, allows them to operate subject to

lower requirements or less extensive examination

and oversight and/or to oer and provide coverage to

a limited population.). These arrangements remain

subject to ERISA section 521 and these nal rules.

One commenter encouraged the Department to focus

its enforcement actions on abusive and fraudulent

MEWAs that are self-funded or not fully insured

(within the meaning of ERISA section 514(b)(6)(D)).

The Department recognizes that fully insured MEWAs

have raised fewer concerns than other MEWAs.

Nevertheless, a fully insured MEWA that engages in the

conduct meeting the statutory criteria could be subject

to an order.

ERISA section 521 provides three statutory grounds

upon which the Secretary may issue a cease and desist

order. Paragraphs (b)(2)-(4) of the nal regulations

clarify the scope and meaning of the statutory language.

The rst statutory ground, fraudulent conduct, is

described in paragraph (b)(2) of the nal rules as an

act or omission intended to deceive or defraud plan

participants, plan beneciaries, employers or employee

organizations, or other members of the public, the

Secretary or a State about the MEWA’s nancial

condition or regulatory status, benets, management,

control, or administration, and other aspects of its

operation (e.g. claims review, marketing, etc.) that the

Secretary determines are material.

One commenter expressed concern about the

denition of fraudulent conduct. In particular, the

commenter was concerned that a focus on omissions

regarding the nancial condition of the MEWA,

including the management of plan assets, could

inadvertently target service providers that adjudicate or

pay claims. The commenter also expressed concern

that service providers would be adversely implicated

simply because they interacted with the MEWA and

others with respect to claims or marketing. The new

enforcement tools under ERISA section 521 are

designed to prevent or address serious harm to plan

participants, plan beneciaries, employers, employee

organizations, and other members of the public.

Fraudulent conduct, as dened in the proposed rules

and under these nal regulations, requires knowledge

and intentionality or a reckless disregard on the part of

the MEWA or agent or employee of the MEWA. As

stated previously, however, even though an order is

based on the conduct of a person other than the service

provider, the service provider’s activities may be

aected simply because the order prohibits all or certain

activities with respect to the MEWA, such as

marketing, to continue.

The second ground for issuing a cease and desist

order, conduct that creates an immediate danger to the

public safety or welfare, is described in paragraph (b)

(3) of the nal rules. Conduct meets this standard if it

impairs, or threatens to impair, the MEWA’s ability to

pay claims or otherwise unreasonably increases the risk

of nonpayment of benets. The third ground, conduct

that causes or can be reasonably expected to cause

signicant, imminent, and irreparable injury, is

described in paragraph (b)(4). Conduct meets this

statutory standard if it has, or can be reasonably be

expected to have, a signicant and imminent negative

eect that the Secretary reasonably believes will not be

fully rectied on one or more of the following: (a) An

employee welfare benet plan that is, or oers benets

in connection with, a MEWA, (b) plan participants

and plan beneciaries, or (c) employers or employee

organizations.

Paragraphs (b)(2)-(4) also provide examples of

conduct that falls within those standards. A single act

or omission within the categories of conduct set forth

in the regulation may provide the basis for a cease and

desist order. However, because the categories set forth

Similarly, section 519 of ERISA, 29 U.S.C. 1149, (also enacted as part of

the Aordable Care Act) prohibits false statements and representations by

any person, in connection with a MEWA’s marketing or sales, concerning

the nancial condition or solvency of the MEWA, the benets provided

by the MEWA, and the regulatory status of the MEWA. Under ERISA

section 501(b), 29 U.S.C. 1131(b), (as amended by the Aordable Care

Act) criminal penalties may apply to a violation of ERISA section 519.

Other criminal penalties may apply under other federal provisions as

well. See e.g., 29 U.S.C. 1131(a) (willful violations of ERISA reporting

and disclosure requirements), 18 U.S.C. 1001 (knowingly and willfully

false statements to the U.S. government), and 18 U.S.C. 1027 (knowingly

false statement or knowing concealment of facts in relation to documents

required by ERISA).

in the statute are broad and overlapping, the examples

may provide more than one basis for a cease and desist

order.

The new ERISA section 521 also further expands

the Secretary’s enforcement options with respect

to MEWAs by authorizing the Secretary to issue a

summary seizure order to remove plan assets and

other property from the management, control, or

administration of a MEWA when it appears that the

MEWA is in a nancially hazardous condition. Under

paragraph (b)(5) a MEWA is in a nancially hazardous

condition when the Secretary has probable cause to

believe that a MEWA is, or is in imminent danger of

becoming, unable to pay benet claims as they become

due, or that a MEWA has sustained, or is in imminent

danger of sustaining, a signicant loss of assets. Under

the denition, a MEWA may also be in a nancially

hazardous condition if the Secretary has issued a

cease and desist order to a person responsible for the

management, control, or administration of the MEWA

or plan assets associated with the MEWA.

Paragraph (b)(6) denes a person, for purposes of

these regulations, to be an individual, partnership,

corporation, employee welfare benet plan, association,

or other entity or organization. One commenter posited

that the denition of person in the proposed rules

was too broad because it reached service providers

to MEWAs. The Department does not agree that

the denition of person is overbroad. As discussed

above, persons that provide services to MEWAs may

engage in conduct that is grounds for the issuance of

an order. Moreover, as previously noted, if a MEWA is

being operated in a fraudulent or nancially hazardous

manner, an order may need to apply to persons

providing services to a MEWA in order to achieve its

purpose. For example, it may be necessary for a cease

and desist order to apply to an individual performing

marketing services for a fraudulent MEWA even if the

individual was not engaged in fraudulent conduct. In

addition, the Department observes that the denition

of person in ERISA section 3(9), while dierent from

that in the proposed and these nal rules, already

encompasses service providers.

Cease and Desist Order

Paragraph (c) of §2560.521-1 addresses the scope of

the cease and desist order. This paragraph is structured

the same as in the proposed rules. Paragraph (c)(2)

(i) notes that the Secretary may enjoin a MEWA or

person from the conduct that served as the basis for

the order and from activities in furtherance of that

conduct though a cease and desist order. In addition,

the cease and desist order may provide broader relief as

the Secretary determines is necessary and appropriate

to protect the interests of plan participants, plan

beneciaries, employers or employee organizations,

or other members of the public. Paragraph (c)(2)

(ii) provides that an order may prohibit a person

from taking any specied actions with respect to,

or exercising authority over, specied funds of any

MEWA or of any welfare or pension plan. Paragraph

(c)(2)(iii) provides that an order may also bar a person

from acting as a service provider to MEWAs or plans.

This provision allows the Secretary to issue an order

preventing a person from, for example, performing any

administrative, management, nancial, or marketing

services for any MEWA or any welfare or pension plan.

A cease and desist order containing such a prohibition

against transacting business with any MEWA or plan

would prevent the MEWA or a person from avoiding

the cease and desist order by shutting the MEWA down

and re-establishing it in a new location or under a new

identity. Such a prohibition may be necessary in cases

of serious harmful conduct where it would be contrary

to the interests of plan participants, plan beneciaries,

employers or employee organizations, or other

members of the public for a person whose conduct gave

rise to the order to gain a position with other MEWAs

or welfare or pension plans where they could repeat

that conduct. The Department has added paragraph

(c)(3) to clarify that it may require documentation

from the subject of the order conrming compliance

with the cease and desist order. Paragraph (d) of this

section preserves the Secretary’s existing ability to seek

additional remedies under ERISA.

Under the new section 521(b) of ERISA, a person

who is the subject of a temporary cease and desist

order may request an administrative hearing to show

cause why the order should be modied or set aside.

Under the statute, the burden of proof rests with the

person requesting the hearing. The process for the

administrative hearing, set forth in paragraph (e) of

§2560.521-1 in these nal regulations, is basically the

same process set forth in the proposed rules. If parties

subject to a cease and desist order fail to request a

hearing before an administrative law judge within

30 days after receiving notice of the order, the order

becomes nal. If a party makes a timely request for

an administrative hearing, the order is not nal until

the conclusion of the process set forth in 29 CFR part

2571. It remains, however, in eect and enforceable

throughout the administrative review process unless

stayed by the Secretary, an administrative law judge,

or a court. The section was slightly revised to

clarify the nature of evidence the Secretary and the

person requesting the hearing must provide to the

administrative law judge. The proposed rules simply

stated that the Secretary must oer evidence supporting

the ndings made in issuing the order. The nal

rules were revised to clarify the ndings that must be

supported by evidence, i.e., the Secretary’s ndings that

she had reasonable cause to believe that the MEWA (or

a person acting as an employee or agent of the MEWA)

engaged in the conduct specied in the new ERISA

section 521(a) and §2560.521-1(c)(1) of the proposed

and these nal rules. The proposed rules further stated

that the person requesting the hearing has the burden

of proof to show that the order was not necessary to

protect the interests of the plan, plan participants, plan

beneciaries, and others. The nal rules were revised

to state that the person requesting the hearing has the

burden of proof to show that the MEWA (or a person

acting as an employee or agent of the MEWA) did

not engage in the conduct specied in the new ERISA

section 521(a) and §2560.521-1(c)(1) of the proposed

and these nal rules or that the requirements imposed

by the order are arbitrary and capricious. This revision

claries how the person requesting the hearing shows

that the order was not necessary.

Summary Seizure Order

The new section 521(e) of ERISA and paragraph

(f)(1) of §2560.521-1 of these rules authorize the

Secretary to issue a summary seizure order when it

appears that a MEWA is in a nancially hazardous

condition. Pursuant to the Fourth Amendment of

the U.S. Constitution, the Secretary will generally

obtain judicial authorization before issuing a summary

seizure order. (See Colonnade Catering Corp. v. U.S.,

397 U.S. 72 (1970): “Where Congress has authorized

inspection but made no rules governing the procedures

that inspectors must follow, the Fourth Amendment and

its various restrictive rules apply.”) As in the proposed

rules, paragraph (f)(2) provides for such judicial

authorization. A court’s authorization may be sought

ex parte when the Secretary determines that prior notice

could result in removal, dissipation, or concealment

of plan assets. On its own initiative, the Department

has slightly revised paragraph (f)(2) to clarify that it

may seek appointment of a receiver or independent

duciary by the court and other relief at the time it

obtains judicial authorization. Paragraph (f)(3) claries

that the Secretary may act on a summary seizure order

prior to judicial authorization, however, if the Secretary

reasonably believes that delay in issuing the order will

result in the removal, dissipation, or concealment of

assets. Under these circumstances, the Secretary will

promptly seek judicial authorization after service of the

order.

Paragraph (f)(4) of §2560.521-1 describes the

general scope of a seizure order.

Under paragraph

(f)(4), the Secretary may seize books, documents,

and other records of the MEWA. She may also seize

the premises, other property, and nancial accounts

for the purpose of transferring such property to a

court-appointed receiver or independent duciary. In

addition, the order may prohibit the MEWA and its

operators from transacting any business or disposing

of any property of the MEWA. This paragraph also

claries that the order may be directed to any person

holding assets that are the subject of the order,

including banks or other nancial institutions.

The principal purpose of a seizure order is to

preserve the assets of an employee welfare benet plan

that is a MEWA, and assets of any employee welfare

benet plans under the control of a MEWA, that is in

a hazardous nancial condition so that such assets are

available to pay claims and other legitimate expenses of

the MEWA and its participating plans. The Secretary

will also issue summary seizure orders to prevent

abusive operators from illegally using or acquiring plan

The scope of the summary seizure order in this rule is similar to that

provided for in section 201(B) in the National Association of Insurance

Commissioners (NAIC) Insurer Receivership Model Act (October 2007).

assets. Seized assets are not deposited with the U.S.

Treasury. Instead they are managed by a court-

appointed receiver or independent duciary. Paragraph

(f)(5) states that the Secretary may also, in connection

with or following the execution of a summary seizure

order, among other things, obtain court appointment

of an independent duciary or receiver to perform

any necessary functions of the MEWA, and court

authorization for further actions in the best interest

of plan participants, plan beneciaries, employers

or employee organizations, or other members of the

public, including the liquidation and winding down of

the MEWA, if appropriate. There were no comments

on the procedures for issuing summary seizure orders

or implementing other actions. With the minor

exception noted above, and certain clarifying changes

in paragraph (f)(5), the provisions in the proposed rules

have been adopted without further modication.

The provisions related to eective date of orders

(paragraph g), disclosure (§2560.521-2), and eect

of ERISA section 521 on other enforcement authority

(§2560.521-3) have not changed from the

proposed rules. Paragraph (h) of §2560.521-1 of

the proposed rules regarding the service of orders on

persons who are corporations, associations, or other

entities or organizations, was slightly revised for these

nal rules to state that service could also be made to

any person designated for service of process under

State law or the applicable plan document. Orders

issued under these nal rules are eective upon service

and remain in eect until modied or set aside by the

Secretary, an administrative law judge, or a reviewing

court. Issued nal orders will be made available to the

public, as will modications and terminations of such

nal orders.

Further, coordination and collaboration with other

Federal agencies and the States are integral and

instrumental to successful MEWA enforcement eorts.

The Secretary remains committed to working closely

with them to help detect, prevent, and address MEWA

fraud, abuse, and nancial insolvency. To facilitate

this collaborative approach to MEWA enforcement, the

Secretary may disclose the issuance of any order

(whether temporary or nal) and any information and

evidence of any proceedings and hearings related to

the order to other Federal, State, or foreign authorities.

The sharing of such information, however, does not

constitute a waiver of any applicable privilege or claim

of condentiality as to the information so shared.

The Secretary also remains committed to

helping MEWAs and plan ocials comply with

legal requirements and serve plan participants and

beneciaries properly. Section 521 is not, however,

the only enforcement tool available to the Secretary

with regard to MEWAs. She will continue to use the

other investigatory and enforcement tools which were

available to the Secretary under title I of ERISA prior to

the enactment of ERISA section 521.

Cross-Reference

These rules nalize the standards for the issuance

of ex parte cease and desist and summary seizure

orders. The Department has also nalized in this

Notice rules for administrative hearings on ex parte

cease and desist orders. In addition, elsewhere in this

issue of the Federal Register is a separate regulation

amending 29 CFR 2520-101.2, 2520.103-1, 2520.104-

20, and 2520.104-41 to implement section 101(g), as

amended by the Aordable Care Act, and to enhance

the department’s ability to enforce requirements under

29 CFR 2520-101.2.

B. Procedures for Administrative Hearings on the

Issuance of Cease and Desist Orders Regulation (29

CFR Part 2571)

Purpose and Denitions

These nal procedural rules apply only to

adjudicatory proceedings before administrative law

judges of the U.S. Department of Labor. Under these

procedural rules, an adjudicatory proceeding before

an administrative law judge is commenced only after

a person who is the subject of a temporary cease

and desist order timely requests a hearing and les

an answer showing cause why the temporary order

should be modied or set aside. These procedural

regulations are largely consistent with rules of practice

and procedure under 29 CFR part 18 that generally

apply to matters before the Department’s Oce of

Administrative Law Judges (OALJ). At the same time,

they reect the unique nature of orders issued under

ERISA section 521. The denitional section of this

rule, for instance, incorporates the basic adjudicatory

principles set forth at 29 CFR part 18, but includes

terms and concepts of specic relevance to proceedings

under ERISA section 521. These rules are controlling

to the extent they are inconsistent with 29 CFR part 18.

The authority of the Secretary with respect to the

orders and proceedings covered by this rule has been

delegated to the Assistant Secretary for the Employee

Benets Security Administration pursuant to

Secretary’s Order 1-2011, 77 FR 1088 (Jan. 9, 2012).

With respect to appeals of administrative law judge

decisions to the Secretary, the Assistant Secretary

has redelegated this authority to the Director of

the Oce of Policy and Research of the Employee

Benets Security Administration. As required by the

Administrative Procedure Act (5 U.S.C. 552(a)(2)(A))

all nal decisions of the Department under section

521 of ERISA shall be maintained, and available for

public inspection, in the Public Disclosure Room of

the Employee Benets Security Administration, Room

N-1513, U.S. Department of Labor, 200 Constitution

Ave. NW., Washington, DC 20210.

There were no comments on the proposed

administrative procedures. The proposed rules

are being published as nal rules with only minor

clarifying changes. Of note, under §2571.4(d) of the

proposed rules, if the administrative law judge denies

a petition to participate in the hearing by persons

not named in a temporary order, the administrative

law judge shall treat the petition as a request for

participation as an amicus curiae. The nal rules

give the administrative law judge discretion on

the treatment of denied petitions and state that the

administrative law judge may consider whether to treat

the petition as a request for participation as amicus

curiae. In addition, as stated in the preamble and

§2571.7 of the proposed rules, the duciary exception

to the attorney-client and work product privileges

applies. Consequently, the administrative law judge

may not protect from discovery nor from use in the

proceedings communications between an attorney and

a plan administrator or other plan duciary, or work

product, that fall under the duciary exception. The

nal rules clarify that the duciary exception applies to

communications and work product between an attorney

and plan duciary concerning plan administration and

other duciary activities, and not to communications

made or documents prepared to aid the duciary

personally or for settlor acts. See Solis v. The Food

Employers Labor Relations Ass’n, 644 F.3d 221 (4th

Cir. 2011). This provision should not be interpreted as

excluding consideration by the administrative law judge

of other relevant exceptions to the privileges.

IV. Economic Impact and Paperwork Burdens

A. Summary

These nal regulations implement amendments made

by section 6605 of the Aordable Care Act, which

added ERISA section 521. As discussed earlier in this

preamble, ERISA section 521 provides the Secretary of

Labor with new enforcement authority over MEWAs.

Specically, ERISA section 521(a) authorizes the

Secretary to issue cease and desist orders, without prior

notice or a hearing, when it appears to the Secretary

that a MEWA’s alleged conduct is fraudulent, creates

an immediate danger to the public safety or welfare,

or causes or can be reasonably expected to cause

signicant, imminent, and irreparable public injury.

This section also authorizes the Secretary to issue a

summary order to seize the assets of a MEWA the

Secretary determines to be in a nancially hazardous

condition. These nal regulations implement ERISA

section 521(a) by setting forth procedures the Secretary

will follow to issue ex parte cease and desist and

summary seizure orders.

ERISA section 521(b), as added by Aordable

Care Act section 6605, provides that a person that is

adversely aected by the issuance of a cease and desist

order may request an administrative hearing regarding

the order. These nal regulations also implement the

requirements of ERISA section 521(b) by describing

the procedures before the Oce of Administrative Law

Judges (OALJ) that will apply when a person seeks an

administrative hearing for review of a cease and desist

order. These regulations maintain the maximum degree

of uniformity with rules of practice and procedure

under 29 CFR part 18 that generally apply to matters

before the OALJ. At the same time, these regulations

reect the unique nature of orders issued under ERISA

section 521, and are controlling to the extent they are

inconsistent with 29 CFR part 18.

B. Executive Order 12866 and 13563 Statement

Executive Orders 12866 and 13563 direct agencies

to assess all costs and benets of available regulatory

alternatives and, if regulation is necessary, to select

regulatory approaches that maximize net benets

(including potential economic, environmental, public

health and safety eects, distributive impacts, and

equity). Executive Order 13563 emphasizes the

importance of quantifying both costs and benets, of

reducing costs, of harmonizing and streamlining rules,

and of promoting exibility. It also requires federal

agencies to develop a plan under which the agencies

will periodically review their existing signicant

regulations to make the agencies’ regulatory programs

more eective or less burdensome in achieving their

regulatory objectives.

Under Executive Order 12866, a regulatory action

deemed ``signicant’’ is subject to the requirements

of the Executive Order and review by the Oce of

Management and Budget (OMB). Section 3(f) of

the Executive Order denes a “signicant regulatory

action” as an action that is likely to result in a rule (1)

having an annual eect on the economy of $100 million

or more, or adversely and materially aecting a sector

of the economy, productivity, competition, jobs, the

environment, public health or safety, or State, local or

tribal governments or communities (also referred to

as ``economically signicant’’); (2) creating serious

inconsistency or otherwise interfering with an action

taken or planned by another agency; (3) materially

altering the budgetary impacts of entitlement grants,

user fees, or loan programs or the rights and obligations

of recipients thereof; or (4) raising novel legal or policy

issues arising out of legal mandates, the President’s

priorities, or the principles set forth in the Executive

Order.

These regulatory actions are not economically

signicant within the meaning of section 3(f)(1) of the

Executive Order. However, OMB has determined that

the actions are signicant within the meaning of section

3(f)(4) of the Executive Order, and the Department

accordingly provides the following assessment of their

potential benets and costs.

1. Need for Regulatory Action

Properly structured and managed MEWAs that are

licensed to operate in a State provide a viable option for

some employers to purchase aordable health insurance

coverage. However, some MEWAs are marketed by

unlicensed entities attempting to avoid State insurance

reserve, contribution, and consumer protection

requirements. By avoiding these requirements, such

entities often are able to market insurance coverage

at lower rates than licensed insurers, making them

particularly attractive to some small employers that

nd it dicult to obtain aordable health insurance

coverage for their employees. Due to insucient

funding and inadequate reserves, and in some

situations, fraud, some MEWAs have become insolvent

and unable to pay benet claims. In addition, certain

promoters set up arrangements that they claim are not

MEWAs subject to state insurance regulation, because

they are established pursuant to collective bargaining

agreements. Often, however, these collective

bargaining agreements are nothing more than shams

designed to avoid state insurance regulation.

Employees and their dependents have become

nancially responsible for paying medical claims they

presumed were covered by insurance after paying

health insurance premiums to fraudulent MEWAs.

The impact, nancial and otherwise, on individuals

and families can be devastating when MEWAs become

insolvent. Moreover, employees and their dependents

may be deprived of medical services if they cannot

aord to pay medical claims out-of-pocket that are not

paid by the MEWA.

Before the enactment of ERISA section 521, the

Department’s primary enforcement tool against

fraudulent and abusive MEWAs was court-ordered

injunctive relief. In order to obtain this relief, the

Department must present evidence to a federal court

that an ERISA duciary breach occurred and that the

Department is likely to prevail based on the merits

of the case. Gathering sucient evidence to prove a

duciary breach is time-consuming and labor-intensive,

in most cases, because the Department’s investigators

must work with poor or nonexistent nancial records

and uncooperative parties. As a result, the Department

at times has been unable to shut down fraudulent and

abusive MEWAs quickly enough to preserve their assets

and ensure that outstanding benet claims are timely

paid.

States also encountered problems in their

enforcement eorts against MEWAs in the absence of

federal authority to shut down fraudulent and abusive

MEWAs nationally. When one State succeeded in

shutting down an abusive MEWA, in some cases, its

operators continued operating in another State.

ERISA

section 521 provides the Department with stronger legal

remedies to combat fraudulent and abusive MEWAs.

ERISA section 521(f) provides the Secretary of

Labor with the authority to promulgate regulations

that may be necessary and appropriate to carry out

the Department’s authority under ERISA section 521.

These regulations are necessary, because they set forth

standards and procedures the Department would use to

implement this new enforcement authority. They also

are necessary to provide procedures that a person who

is adversely aected by the issuance of a cease and

desist order may follow to request an administrative

hearing regarding the order pursuant to ERISA section

521(b).

2. ERISA Section 521(a) and (e), Ex Parte Cease

and Desist and Summary Seizure Orders--Multiple

Employer Welfare Arrangements (29 CFR 2560.521-1)

a. Benets of Final Rules

As discussed earlier in this preamble, ERISA section

521(a) authorizes the Secretary to issue an ex parte

cease and desist order if it appears to the Secretary that

the alleged conduct of a MEWA is fraudulent, or creates

an immediate danger to the public safety or welfare,

or is causing or can reasonably be expected to cause,

signicant, imminent, and irreparable public injury.

ERISA section 521(e) allows the Secretary to issue a

summary seizure order if it appears that a MEWA is in a

nancially hazardous condition. These nal regulations

implement the Department’s enhanced enforcement

authority by setting forth the standards and procedures

the Department will follow in issuing cease and

desist and summary seizure orders. They also dene

important statutory terms and clarify the scope of the

Department’s authority under ERISA sections 521(a)

and (e).

ERISA section 521 and these nal regulations

will potentially benet approximately two million

MEWA participants

by ensuring that MEWA assets

are preserved and benets timely paid. In some cases,

individuals have incurred signicant medical claims

before they learn that their claims are not being paid

by improperly operated MEWAs and that they are

responsible for paying these claims out-of-pocket.

These regulations will help such individuals avoid the

nancial hardship and adverse health eects that result

from unpaid health claims. They also will benet

health care providers that are detrimentally impacted

when

they are not paid for services they have performed.

ERISA section 521 and these nal regulations also will

improve MEWA compliance and deter abusive practices

of fraudulent MEWAs, potentially lessening the need

for future use of these provisions. As a result of these

statutory and regulatory provisions, the Department will

be able to take enforcement action against fraudulent

and abusive MEWAs much more quickly and

eciently than under prior law. Common examples

of such fraudulent and abusive conduct include a

systematic failure to pay benets claims or a diversion

of premiums for personal use. For example, Employers

Mutual, a MEWA covering 22,000 individuals

which turned out to be a nationwide health insurance

fraud, advertised deceptively low premium rates

that were far less than necessary to pay promised

benets and misrepresented that the benets were

fully insured. Operators of this MEWA misused and

misappropriated premiums so extensively that by the

time the Department was able to shut down the MEWA

and appoint an independent duciary to take over, the

fraud left $27 million in unpaid benets. With this new

authority, the Department can take steps to protect plan

participants and small employers much earlier in the

process and before a MEWA’s assets have been

exhausted. In addition, the Department will be able

The Department’s estimate is based on the number of MEWA

participants reported on the 2010 Form M-1. Please note that this is

GAO Report, supra note 2.

an undercount, because the Form M-1 denition of participants

Id.

specically excludes dependents.

to take action against fraudulent and abusive MEWAs

nationally, which will prevent unscrupulous MEWA

operators from moving their operations to another State

when they are shut down in a State.

b. Costs of the Final Rules

As discussed earlier in this preamble, the nal rules

provide standards and procedures the Department

would follow to issue ex parte cease and desist and

summary seizure orders with respect to MEWAs. The

Department does not expect the rules to impose any

signicant costs, because it does not require any action

or impose any requirements on MEWAs as dened

in ERISA section 3(40). Therefore, the Department

concludes that the nal rules would enhance the

Department’s ability to take immediate action against

fraudulent and abusive MEWAs without imposing

major costs.

3. ERISA Section 521(b), Procedures for

Administrative Hearings on the Issues of Cease

and Desist Orders--Multiple Employer Welfare

Arrangements (29 CFR 2571.1 Through 2571.12)

a. Benets of Final Rule

The Department expects that administrative

hearings held pursuant to ERISA section 521(b) and

the procedures set forth in the nal regulations would

benet the Department and parties requesting a hearing.

The Department foresees improved eciencies

through use of administrative hearings, because such

hearings should allow the parties involved to obtain a

decision in a more timely and ecient manner than is

customary in federal court proceedings, which would

be the alternative adjudicative forum. The Department

expects that these nal rules setting forth the standards

and procedures the Department would use to implement

its cease and desist authority under ERISA section

521 will allow it to take action against fraudulent and

abusive MEWAs much more quickly and eciently

than under prior law. These benets have not been

quantied.

To access the benet of improved eciencies that

would result from an administrative proceeding, the

Department compared the cost of contesting a cease

and desist order under the nal regulations to the cost

of contesting an action taken against a MEWA by the

Department before the enactment of the Aordable

Care Act. The Department’s primary enforcement

tool against fraudulent and abusive MEWAs before

Congress enacted ERISA section 521 was court-

ordered injunctive relief. In order to obtain this relief,

the Department must present evidence to a court that

an ERISA duciary breach occurred and that the

Department likely would prevail based on the merits

of the case. Gathering sucient evidence to prove a

duciary breach is very time-consuming and labor-

intensive, in most cases, because the Department’s

investigators must work with poor or nonexistent

nancial records and uncooperative parties.

The Department believes that an administrative

hearing should result in cost savings compared with the

baseline cost of litigating in federal court. Because the

procedures and evidentiary rules of an administrative

hearing generally track the Federal Rules of Civil

Procedure and Evidence, document production will be

similar for both an administrative hearing and a federal

court proceeding. It is unlikely that any additional

cost will be incurred for an administrative hearing than

would be required to prepare for federal court litigation.

Moreover, certain administrative hearing practices and

other new procedures initiated by these regulations are

expected to result in cost savings over court litigation.

For example, parties may be more likely to appear pro

se; the prehearing exchange is expected to be short and

general; a motion for discovery only will be granted

upon a showing of good cause; the general formality

of the hearing may vary, particularly depending on

whether the petitioner is appearing pro se; and the

administrative law judge would be required to make

its decision expeditiously after the conclusion of the

ERISA section 521 proceeding. The Department cannot

with certainty predict that any or all of these conditions

will exist nor that any of these factors represent a cost

savings, but it is likely that the administrative hearing

process will create a consistent legal standard for

section 521 proceedings.

The Department invited public comments on the

comparative cost of a federal court proceeding versus

an administrative hearing. The Department did not

receive any comments that addressed this issue.

b. Costs of Final Rule

The Department estimates that the cost of the

nal regulation would total approximately $548,900

annually. The total hour burden is estimated to be

approximately 20 hours, and the dollar equivalent of

the hour burden is estimated to be approximately $564.

The data and methodology used in developing these

estimates are described more fully in the Paperwork

Reduction Act section, below.

C. Paperwork Reduction Act

This issuance of the cease and desist order nal

regulation is not subject to the requirements of the

Paperwork Reduction Act of 1995 (44 U.S.C. 3501

et seq.), because it does not contain a “collection of

information’’ as dened in 44 U.S.C. 3502(3). The

Final Rule on Procedures for Administrative Hearings

Regarding the Issuance of Cease and Desist Orders

under ERISA section 521--Multiple Employer Welfare

Arrangements contains a collection of information

and the associated hour and cost burden are discussed

below.

In accordance with the requirements of the

Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.

3506(c)(2)), the Department submitted an information

collection request (ICR) to OMB in accordance with 44

U.S.C. 3507(d), contemporaneously with the

publication of the proposed regulation, for OMB’s

review and solicited public comment. No public

comments were received related to the administrative

hearing procedures for cease and desist orders. OMB

assigned OMB control number 1210-0148 to the ICR

but did not approve the ICR at the proposed rule stage.

In connection with publication of these nal rules,

the Department submitted a revision to the ICR under

OMB Control Number 1210-0116. OMB approved the

revised ICR, which is scheduled to expire on February

29, 2016. A copy of the revised ICR may be obtained

by contacting the PRA addressee shown below or at

http://www.RegInfo.gov.

PRA ADDRESSEE: G. Christopher Cosby, Oce

of Policy and Research, U.S. Department of Labor,

Employee Benets Security Administration, 200

Constitution Avenue NW., Room N 5647, Washington,

DC 20210. Telephone (202) 693-8410; Fax: (202) 219-

4745. These are not toll free numbers.

This nal regulation establishes procedures for

hearings and appeals before an administrative law

judge and the Secretary when a MEWA or other

person challenges a temporary cease and desist

order. As stated in the Regulatory Flexibility Act

analysis below, the Department estimates that, on

average, a maximum of 10 MEWAs would initiate

an adjudicatory proceeding before an administrative

law judge to revoke or modify a cease and desist

order.

Most of the factual information necessary to

prepare the petition should be readily available to the

MEWA and is expected to take approximately two

hours of clerical time to assemble and forward to legal

professionals resulting in an estimated total hour burden

of approximately 20 hours.

The Department believes that MEWAs will hire

outside attorneys to prepare and le the appeal, which

is estimated to require 120 hours at $457 per hour.

The

majority of the attorneys’ time is expected to be spent

drafting motions, petitions, pleadings, briefs, and other

documents relating to the case. Based on the foregoing,

the total estimated legal cost associated with the

information collection would be approximately $54,840

per petition led. Additional costs material and mailing

costs are estimated at approximately $50.00 per

petition.

Type of Review: New.

As stated in the Department’s December l, 2011 Fact Sheet on MEWA

Enforcement, the Department has led 99 civil complaints against

MEWAs since 1990, which averages approximately ve complaints

per year. With the expanded enforcement authority provided to

the Department under the Aordable Care Act, the number of civil

complaints brought against MEWAs by the Department could increase.

Therefore, for purposes of this Paperwork Reduction Act analysis, the

Department assumes that twenty complaints will be led as an upper

bound. The Department is unable to estimate the number of cease

and desist orders that will be contested; therefore, for purposes of this

analysis it assumes that half of the MEWAs will contest cease and desist

orders. The Department’s fact sheet on MEWA enforcement can be

found on the EBSA Web site at http://www.dol.gov/ebsa/newsroom/

fsMEWAenforcement.

The Department’s estimate for the attorney’s hourly rate is taken from the

Laey Matrix which provides an estimate of legal service for court cases

in the DC area. It can be found at http://www.laeymatrix.com/see.html.

The estimate is an average of the 4-7 and 8-10 years of experience rates.

The proposed rule included an estimate of 40 hours of outside attorney

time for an administrative appeal. Though no comments were submitted

on that estimate and we cannot state an estimate with certainty, after

further consideration of the potential tasks involved we determined that a

higher number would be more appropriate.

Agency: Employee Benets Security Administration

Title: Final Rule on Procedures for Administrative

Hearings Regarding the Issuance of Cease and Desist

Orders under ERISA section 521--Multiple Employer

Welfare Arrangements.

OMB Number: 1210-0148.

Aected Public: Business or other for prot; not for

prot institutions; State government.

Respondents: 10.

Responses: 10.

Estimated Total Burden Hours: 20 hours.

Estimated Total Burden Cost (Operating and

Maintenance): $548,900.

D. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et

seq.) (RFA) applies to most Federal rules that are

subject to the notice and comment requirements of

section 553(b) of the Administrative Procedure Act (5

U.S.C. 551 et seq.). Unless an agency certies that

such a rule will

not have a signicant economic impact on a substantial

number of small entities, section 603 of the RFA

requires the agency to present an initial regulatory

exibility analysis at the time of the publication of the

notice of proposed rulemaking describing the impact

of the rule on small entities. Small entities include

small businesses, organizations and governmental

jurisdictions. In accordance with the RFA, the

Department prepared an initial regulatory exibility

analysis at the proposed rule stage and requested

comments on the analysis. No comments were

received. Below is the Department’s nal regulatory

exibility analysis and its certication that these nal

regulations do not have a signicant economic impact

on a substantial number of small entities.

The Department does not have data regarding the

total number of MEWAs that currently exist. The best

information the Department has to estimate the number

of MEWAs is based on ling of the Form M-1, which is

an annual report that MEWAs and certain collectively

bargained arrangements le with the Department. Form

M-1 was led with the Department by 436 MEWAs in

2010, the latest year for which data is available.

The Small Business Administration uses a size

standard of less than $7 million in average annual

receipts to determine whether businesses in the nance

and insurance sector are small entities.

While the

Department does not collect revenue information on the

Form M-1, it does collect data regarding the number

of participants covered by MEWAs that le Form M-1

and can use average premium data to determine the

number of MEWAs that are small entities because they

do not exceed the $7 million dollar threshold. For

2009, the average annual premium for single coverage

was $4,717 and the average annual premium for family

U.S. Small Business Administration, “Table of Small Business Size

Standards Matched to North American Industry Classication System

Codes.” http://www.sba.gov/sites/default/les/Size_Standards_Table.pdf.

Kaiser Family Foundation and Health Research Educational Trust

“Employer Health Benets, 2009 Annual Survey.” The reported numbers

are from Exhibit 1.2 and are for the category Annual, all Small Firms

(3-199 workers).

coverage was $12,696.

Combining these premium

estimates with estimates from the Current Population

Survey regarding the fraction of policies that are for

single or family coverage at employers with less than

500 workers, the Department estimates approximately

60 percent of MEWAs (258 MEWAs) are small entities.

In order to develop an estimate of the number of

MEWAs that could become subject to a cease and

desist order, the Department examined the number

of civil claims the Department led against MEWAs

since FY 1990. During this time, the Department led

99 civil complaints against MEWAs, an average of

approximately ve complaints per year. For purposes

of this analysis, the Department believes that an average

of twenty complaints a year is a reasonable upper bound

estimate of the number of MEWAs that could be subject

to a cease and desist order

and that half this number,

or an average of ten complaints a year, is a reasonable

upper bound estimate of the number of MEWAs that

could be expected to request an administrative hearing

in a year.

Based on the foregoing, the Department estimates

that the greatest number of small MEWAs likely to

be subject to a cease and desist order (20/258 or 7.8

percent) and the greatest number of MEWAs likely to

petition for an administrative hearing (10/258 or 3.9

percent) represents a small fraction of the total number

of small MEWAs.

Accordingly, the Department hereby certies that

these nal regulations will not have a signicant

economic impact on a substantial number of small

entities.

E. Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act

of 1995 (2 U.S.C. 1501 et seq.), as well as Executive

Order 12875, these nal rules do not include any

federal mandate that may result in expenditures by

State, local, or tribal governments, or the private sector,

which may impose an annual burden of $100 million

adjusted for ination since 1995.

F. Executive Order 13132

When an agency promulgates a regulation that has

federalism implications, Executive Order 13132 (64

FR 43255, August 10, 1999), requires the Agency

to provide a federalism summary impact statement.

Pursuant to section 6(c) of the Order, such a statement

must include a description of the extent of the agency’s

consultation with State and local ocials, a summary

of the nature of their concerns and the agency’s position

supporting the need to issue the regulation, and a

statement of the extent to which the concerns of the

With the expanded enforcement authority provided to the Department

under the Aordable Care Act, the number of civil complaints brought

against MEWAs by the Department could increase. Therefore, for

purposes of this analysis, the Department assumes that twenty complaints

will be led as an upper bound. The Department is unable to estimate

the number of cease and desist orders that will be contested; therefore, it

assumes that half the MEWAs will contest cease and desist orders.

State have been met.

This regulation has federalism implications,

because the States and the Federal Government share

dual jurisdiction over MEWAs that are employee

benet plans or hold plan assets. Generally, States

are primarily responsible for overseeing the nancial

soundness and licensing of MEWAs under State

insurance laws. The Department enforces ERISA’s

provisions, including its duciary responsibility

provisions against MEWAs that are ERISA plans or that

hold or control plan assets.

Over the years, the Department and State insurance

departments have worked closely and coordinated their

investigations and other actions against fraudulent and

abusive MEWAs. For example, EBSA regional

oces have met with State ocials in their regions

and provided information necessary for States to obtain

cease and desist orders to stop abusive and insolvent

MEWAs. The Department also has relied on States

to obtain cease and desist orders against MEWAs

in individual States while it pursued investigations

to gather sucient evidence to obtain injunctive

relief in the federal courts to shut down MEWAs

nationally. States have often lobbied for stronger

federal enforcement tools to help combat fraudulent

and insolvent MEWAs. By providing procedures and

standards the Department would follow to issue ex

parte cease and desist and summary seizure orders and

providing procedures for use by administrative law

judges and the Secretary of Labor when a MEWA or

other person challenges a temporary cease and desist

order, these nal rules address the States’ concerns

and enhance the State and Federal Government’s joint

mission to take immediate action against fraudulent

and abusive MEWAs and limit the losses suered by

American workers and their families when abusive

MEWAs become insolvent and fail to reimburse

medical claims.

List of Subjects

29 CFR Part 2560

Administrative practice and procedure, Employee

welfare benet plans, Employee Retirement Income

Security Act, Law enforcement, Pensions, Multiple

employer welfare arrangements, Cease and desist,

Seizure.

29 CFR Part 2571

Administrative practice and procedure, Employee

benet plans, Employee Retirement Income Security

Act, Multiple employer welfare arrangements, Law

enforcement, Cease and desist.

For the reasons set out in the preamble, 29 CFR

chapter XXV is amended as follows:

PART 2560--RULES AND REGULATIONS FOR

ADMINISTRATION AND ENFORCEMENT

•1. The authority citation for part 2560 is revised to

100

read as follows:

Authority: 29 U.S.C. 1002(40), 1132, 1133, 1134,

1135, and 1151; and Secretary of Labor’s Order 1-2011,

77 FR 1088 (Jan. 9, 2012).

•2. Sections 2560.521-1 through 2560.521-4 are added

to read as follows:

§2560.521-1 Cease and desist and seizure orders

under section 521.

(a) Purpose. Section 521(a) of the Employee

Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. 1151(a), authorizes the Secretary of Labor to

issue an ex parte cease and desist order if it appears

to the Secretary that the alleged conduct of a multiple

employer welfare arrangement (MEWA) under section

3(40) of ERISA is fraudulent, or creates an immediate

danger to the public safety or welfare, or is causing

or can be reasonably expected to cause signicant,

imminent, and irreparable public injury. Section

521(e) of ERISA authorizes the Secretary to issue a

summary seizure order if it appears that a MEWA is

in a nancially hazardous condition. An order may

apply to a MEWA or to persons having custody or

control of assets of the subject MEWA, any authority

over management of the subject MEWA, or any role

in the transaction of the subject MEWA’s business.

This section sets forth standards and procedures for

the Secretary to issue ex parte cease and desist and

summary seizure orders and for administrative review

of the issuance of such cease and desist orders.

(b) Denitions. When used in this section, the

following terms shall have the meanings ascribed in this

paragraph (b).

(1) Multiple employer welfare arrangement (MEWA)

is an arrangement as dened in section 3(40) of ERISA

that either is an employee welfare benet plan subject

to Title I of ERISA or oers benets in connection with

one or more employee welfare benet plans subject

to Title I of ERISA. For purposes of section 521 of

ERISA, a MEWA does not include a health insurance

issuer (including a health maintenance organization)

that is licensed to oer or provide health insurance

coverage to the public and employers at large in each

State in which it oers or provides health insurance

coverage, and that, in each such State, is subject to

comprehensive licensure, solvency, and examination

requirements that the State customarily requires for

issuing health insurance policies to the public and

employers at large. The term health insurance issuer

does not include group health plans. For purposes of

this section, the term ``health insurance coverage’’ has

the same meaning as in ERISA section 733(b)(1).

(2) The conduct of a MEWA is fraudulent:

(i) When the MEWA or any person acting as an agent

or employee of the MEWA commits an act or omission

knowingly and with an intent to deceive or defraud plan

participants, plan beneciaries, employers or employee

organizations, or other members of the public, the

Secretary, or a State regarding:

(A) The nancial condition of the MEWA (including

the MEWA’s solvency and the management of plan

assets);

(B) The benets provided by or in connection with

the MEWA;

(D) The existing or lawful regulatory status of the

MEWA under Federal or State law; or,

(E) Any other material fact, as determined by the

Secretary, relating to the MEWA or its operation.

(ii) Fraudulent conduct includes any false statement

regarding any of paragraphs (b)(2)(i)(A) through (b)

(2)(i)(E) of this section that is made with knowledge

of its falsity or that is made with reckless indierence

to the statement’s truth or falsity, and the knowing

concealment of material information regarding any

of paragraphs (b)(2)(i)(A) through (b)(2)(i)(E) of this

section. Examples of fraudulent conduct include, but

are not limited to, misrepresenting the terms of the

benets oered by or in connection with the MEWA

or the nancial condition of the MEWA or engaging

in deceptive acts or omissions in connection with

marketing or sales or fees charged to employers or

employee organizations.

(3) The conduct of a MEWA creates an immediate

danger to the public safety or welfare if the conduct

of a MEWA or any person acting as an agent or

employee of the MEWA impairs, or threatens to

impair, a MEWA’s ability to pay claims or otherwise

unreasonably increases the risk of nonpayment of

benets. Intent to create an immediate danger is not

required for this criterion. Examples of such conduct

include, but are not limited to, a systematic failure

to properly process or pay benet claims, including

failure to establish and maintain a claims procedure

that complies with the Secretary’s claims procedure

regulations (29 CFR 2560.503-1 and 29 CFR 2590.715-

2719), failure to establish or maintain a recordkeeping

system that tracks the claims made, paid, or processed

or the MEWA’s nancial condition, a substantial failure

to meet applicable disclosure, reporting, and other

ling requirements, including the annual reporting and

registration requirements under sections 101(g) and 104

of ERISA, failure to establish and implement a policy

or method to determine that the MEWA is actuarially

sound with appropriate reserves and adequate

underwriting, failure to comply with a cease and desist

order issued by a government agency or court, and

failure to hold plan assets in trust.

(4) The conduct of a MEWA is causing or can be

reasonably expected to cause signicant, imminent, and

irreparable public injury:

(i) If the conduct of a MEWA, or of a person acting

as an agent or employee of the MEWA, is having, or is

reasonably expected to have, a signicant and imminent

negative eect on one or more of the following:

(A) An employee welfare benet plan that is, or

oers benets in connection with, a MEWA;

(B) The sponsor of such plan or the employer or

employee organization that makes payments for benets

provided by or in connection with a MEWA; or

101

(ii) If it is not reasonable to expect that such eect

will be fully repaired or rectied.

Intent to cause injury is not required for this

criterion. Examples of such conduct include, but

are not limited to, conversion or concealment of

property of the MEWA; improper disposal, transfer,

or removal of funds or other property of the MEWA,

including unreasonable compensation or payments to

MEWA operators and service providers (e.g. brokers,

marketers, and third party administrators); employment

by the MEWA of a person prohibited from such

employment pursuant to section 411 of ERISA, and

embezzlement from the MEWA. For purposes of

section 521 of ERISA, compensation that would be

excessive under 26 CFR 1.162-7 will be considered

unreasonable compensation or payments for purposes

of this regulation. Depending upon the facts and

circumstances, compensation may be unreasonable

under this regulation even it is not excessive under 26

CFR 1.162-7.

(5) A MEWA is in a nancially hazardous condition

if:

(i) The Secretary has probable cause to believe that a

MEWA:

(A) Is, or is in imminent danger of becoming, unable

to pay benet claims as they come due, or

(B) Has sustained, or is in imminent danger of

sustaining, a signicant loss of assets; or

(ii) A person responsible for management, control, or

administration of the MEWA’s assets is the subject of a

cease and desist order issued by the Secretary.

(6) A person, for purposes of this section, is an

individual, partnership, corporation, employee welfare

benet plan, association, or other entity or organization.

Secretary may issue a temporary cease and desist order

when the Secretary nds there is reasonable cause to

believe that the conduct of a MEWA, or any person

acting as an agent or employee of the MEWA, is -

(A) Fraudulent;

(B) Creates an immediate danger to the public safety

or welfare; or

signicant, imminent, and irreparable public injury.

(ii) A single act or omission may be the basis for a

temporary cease and desist order.

(2) A temporary cease and desist order, as the

Secretary determines is necessary and appropriate

to stop the conduct on which the order is based,

and to protect the interests of plan participants, plan

beneciaries, employers or employee organizations, or

other members of the public, may--

(i) Prohibit specic conduct or prohibit the

transaction of any business of the MEWA;

(ii) Prohibit any person from taking specied actions,

or exercising authority or control, concerning funds or

property of a MEWA or of any employee benet plan,

regardless of whether such funds or property have been

commingled with other funds or property; and,

(iii) Bar any person either directly or indirectly,

from providing management, administrative, or other

services to any MEWA or to an employee benet plan

or trust.

(3) The Secretary may require documentation from

the subject of the order verifying compliance.

(d) Eect of order on other remedies. The issuance

of a temporary or nal cease and desist order shall

not foreclose the Secretary from seeking additional

remedies under ERISA.

(e) Administrative hearing. (1) A temporary cease

and desist order shall become a nal order as to any

MEWA or other person named in the order 30 days

after such person receives notice of the order unless,

within this period, such person requests a hearing in

accordance with the requirements of this paragraph (e).

(2) A person requesting a hearing must le a written

request and an answer to the order showing cause why

the order should be modied or set aside. The request

and the answer must be led in accordance with 29

CFR part 2571 and §18.4 of this title.

(3) A hearing shall be held expeditiously following

the receipt of the request for a hearing by the Oce

of the Administrative Law Judges, unless the parties

mutually consent, in writing, to a later date.

(4) The decision of the administrative law judge

shall be issued expeditiously after the conclusion of the

hearing.

(5) The Secretary must oer evidence supporting

the ndings made in issuing the order that there is

reasonable cause to believe that the MEWA (or a person

acting as an employee or agent of the MEWA) engaged

in conduct specied in paragraph (c)(1) of this section.

(6) The person requesting the hearing has the burden

to show that the order should be modied or set aside.

To meet this burden such person must show by a

preponderance of the evidence that the MEWA (or a

person acting as an employee or agent of the MEWA)

did not engage in conduct specied in paragraph (c)

(1) of this section or must show that the requirements

imposed by the order, are, in whole or part, arbitrary

and capricious.

(7) Any temporary cease and desist order for which

a hearing has been requested shall remain in eect and

enforceable, pending completion of the administrative

proceedings, unless stayed by the Secretary, an

administrative law judge, or by a court.

(8) The Secretary may require that the hearing and

all evidence be treated as condential.

(f) Summary seizure order. (1) Subject to paragraphs

(f)(2) and (3) of this section, the Secretary may issue

a summary seizure order when the Secretary nds

there is probable cause to believe that a MEWA is in a

nancially hazardous condition.

(2) Except as provided in paragraph (f)(3) of this

section, the Secretary, before issuing a summary seizure

order to remove assets and records from the control

and management of the MEWA or any persons having

custody or control of such assets or records, shall obtain

judicial authorization from a federal court in the form

of a warrant or other appropriate form of authorization

and may at that time pursue other actions such as those

set forth in paragraph (f)(5) of this section.

(3) If the Secretary reasonably believes that any

delay in issuing the order is likely to result in the

removal, dissipation, or concealment of plan assets or

102

records, the Secretary may issue and serve a summary

seizure order before seeking court authorization.

Promptly following service of the order, the Secretary

shall seek authorization from a federal court and may at

that time pursue other actions such as those set forth in

paragraph (f)(5) of this section.

(4) A summary seizure order may authorize the

Secretary to take possession or control of all or part

of the books, records, accounts, and property of the

MEWA (including the premises in which the MEWA

transacts its business) to protect the benets of plan

participants, plan beneciaries, employers or employee

organizations, or other members of the public, and

to safeguard the assets of employee welfare benet

plans. The order may also direct any person having

control and custody of the assets that are the subject

of the order not to allow any transfer or disposition of

such assets except upon the written direction of the

Secretary, or of a receiver or independent duciary

appointed by a court.

(5) In connection with or following the execution of

a summary seizure order, the Secretary may--

(i) Secure court appointment of a receiver or

independent duciary to perform any necessary

functions of the MEWA;

(ii) Obtain court authorization for the Secretary,

the receiver or independent duciary to take any

other action to seize, secure, maintain, or preserve the

availability of the MEWA’s assets; and

(iii) Obtain such other appropriate relief available

under ERISA to protect the interest of employee

welfare benet plan participants, plan beneciaries,

employers or employee organizations or other

members of the public. Other appropriate equitable

relief may include the liquidation and winding up of the

MEWA’s aairs and, where applicable, the aairs of

any person sponsoring the MEWA.

(g) Eective date of orders. Cease and desist and

summary seizure orders are eective immediately

upon issuance by the Secretary and shall remain

eective, except to the extent and until any provision

is modied or the order is set aside by the Secretary, an

administrative law judge, or a court.

(h) Service of orders. (1) As soon as practicable after

the issuance of a temporary or nal cease and desist

order and no later than ve business days after issuance

of a summary seizure order, the Secretary shall serve

the order either:

(i) By delivering a copy to the person who is the

subject of the order. If the person is a partnership,

service may be made to any partner. If the person is a

corporation, association, or other entity or organization,

service may be made to any ocer of such entity or

any person designated for service of process under State

law or the applicable plan document. If the person is

an employee welfare benet plan, service may be made

to a trustee or administrator. A person’s attorney may

accept service on behalf of such person;

(ii) By leaving a copy at the principal oce, place of

business, or residence of such person or attorney; or

(iii) By mailing a copy to the last known address of

such person or attorney.

(2) If service is accomplished by certied mail,

service is complete upon mailing. If service is done by

regular mail, service is complete upon receipt by the

addressee.

(3) Service of a temporary or nal cease and desist

order and of a summary seizure order shall include a

statement of the Secretary’s ndings giving rise to the

order, and, where applicable, a copy of any warrant or

other authorization by a court.

§2560.521-2 Disclosure of order and proceedings.

(a) Notwithstanding §2560.521-1(e)(8), the Secretary

shall make available to the public nal cease and desist

and summary seizure orders or modications and

terminations of such nal orders.

(b) Except as prohibited by applicable law, and

at his or her discretion, the Secretary may disclose

the issuance of a temporary cease and desist order or

summary seizure order and information and evidence

of any proceedings and hearings related to an order, to

any Federal, State, or foreign authorities responsible

for enforcing laws that apply to MEWAs and parties

associated with, or providing services to, MEWAs.

information and evidence under this section does not

constitute a waiver of any applicable privilege or claim

of condentiality.

§2560.521-3 Eect on other enforcement authority.

The Secretary’s authority under section 521 shall not

be construed to limit the Secretary’s ability to exercise

his or her enforcement or investigatory authority under

any other provision of title I of ERISA. 29 U.S.C.

1001 et seq. The Secretary may, in his or her sole

discretion, initiate court proceedings without using the

procedures in this section.

§2560.521-4 Cross-reference.

See 29 CFR 2571.1 through 2571.13 for procedural

rules relating to administrative hearings under section

521 of ERISA.

•3. Add part 2571 to read as follows:

PART 2571--PROCEDURAL REGULATIONS FOR

ADMINISTRATION AND

ENFORCEMENT UNDER THE EMPLOYEE

RETIREMENT INCOME SECURITY ACT

Subpart A--Procedures for Administrative Hearings

on the Issuance of Cease and Desist Orders Under

ERISA Section 521--Multiple Employer Welfare

Arrangements

Sec.

2571.1 Scope of rules.

2571.2 Denitions.

2571.3 Service: copies of documents and pleadings.

2571.4 Parties.

2571.5 Consequences of default.

2571.6 Consent order or settlement.

2571.7 Scope of discovery.

2571.8 Summary decision.

2571.9 Decision of the administrative law judge.

2571.10 Review by the Secretary.

2571.11 Scope of review by the Secretary.

103

2571.12 Procedures for review by the Secretary.

2571.13 Eective date.

Subpart B--[Reserved]

Authority: 29 U.S.C. 1002(40), 1132, 1135; and

1151, Secretary of Labor’s Order 1-2011, 77 FR 1088

(January 9, 2012).

Subpart A--Procedures for Administrative Hearings

on the Issuance of Cease and Desist Orders Under

ERISA Section 521--Multiple Employer Welfare

Arrangements

§2571.1 Scope of rules.

The rules of practice set forth in this part apply to ex

parte cease and desist order proceedings under section

521 of the Employee Retirement Income Security

Act of 1974, as amended (ERISA). The rules of

procedure for administrative hearings published by the

Department’s Oce of Administrative Law Judges at

Part 18 of this Title will apply to matters arising under

ERISA section 521 except as modied by this

section. These proceedings shall be conducted as

expeditiously as possible, and the parties and the Oce

of the Administrative Law Judges shall make every

eort to avoid delay at each stage of the proceedings.

§2571.2 Denitions.

For section 521 proceedings, this section shall apply

in lieu of the denitions in §18.2 of this title:

(a) Adjudicatory proceeding means a judicial-type

proceeding before an administrative law judge leading

to an order;

(b) Administrative law judge means an

administrative law judge appointed pursuant to the

provisions of 5 U.S.C. 3105;

supported by reference to specic circumstances or

facts surrounding the temporary order issued pursuant

to 29 CFR 2560.521-1(c);

(d) Commencement of proceeding is the ling of an

answer by the respondent;

(e) Consent agreement means a proposed written

agreement and order containing a specied proposed

remedy or other relief acceptable to the Secretary and

consenting parties;

(f) Final order means a cease and desist order

that is a nal order of the Secretary of Labor under

ERISA section 521. Such nal order may result from

a decision of an administrative law judge or of the

Secretary on review of a decision of an administrative

law judge,

or from the failure of a party to invoke the procedures

for a hearing under 29 CFR 2560.521-1 within the

prescribed time limit. A nal order shall constitute a

nal agency action within the meaning of 5 U.S.C.

704;

(g) Hearing means that part of a section 521

proceeding which involves the submission of evidence,

either by oral presentation or written submission, to the

administrative law judge;

(h) Order means the whole or any part of a nal

procedural or substantive disposition of a section 521

proceeding;

(i) Party includes a person or agency named or

admitted as a party to a section 521 proceeding;

(j) Person includes an individual, partnership,

corporation, employee welfare benet plan, association,

or other entity or organization;

(k) Petition means a written request, made by a

person or party, for some armative action;

(l) Respondent means the party against whom the

Secretary is seeking to impose a cease and desist order

under ERISA section 521;

(m) Secretary means the Secretary of Labor or his or

her delegate;

(n) Section 521 proceeding means an adjudicatory

proceeding relating to the issuance of a temporary order

under 29 CFR 2560.521-1 and section 521 of ERISA;

(o) Solicitor means the Solicitor of Labor or his or

her delegate; and

(p) T emporary order means the temporary cease

and desist order issued by the Secretary under 29 CFR

2560.521-1(c) and section 521 of ERISA.

§ 2571.3 Service: copies of documents and

pleadings.

For section 521 proceedings, this section shall apply

in lieu of §18.3 of this title:

(a) In general. Copies of all documents shall be

served on all parties of record. All documents should

clearly designate the docket number, if any, and short

title of all matters. All documents to be led shall be

delivered or mailed to the Chief Docket Clerk, Oce of

Administrative Law Judges, 800 K Street NW., Suite

400, Washington, DC 20001-8002, or to the OALJ

Regional Oce to which the section 521 proceeding

may have been transferred for hearing. Each document

led shall be clear and legible.

(b) By parties. All motions, petitions, pleadings,

briefs, or other documents shall be led with the Oce

of Administrative Law Judges with a copy, including

any attachments, to all other parties of record. When

a party is represented by an attorney, service shall be

made upon the attorney. Service of any document

upon any party may be made by personal delivery

or by mailing a copy to the last known address. The

Secretary shall be served by delivery to the Associate

Solicitor, Plan Benefits Security Division, ERISA

Section 521 Proceeding, P.O. Box 1914, Washington,

DC 20013 and any attorney named for service of

process as set forth in the temporary order. The person

serving the document shall certify to the manner of date

and service.

Service of orders, decisions, and all other documents

shall be made in such manner as the Office of

Administrative Law Judges determines to the last

known address.

(d) Form of pleadings.

(1) Every pleading or other paper led in a section

104

521 proceeding shall designate the Employee Benets

Security Administration (EBSA) as the agency under

which the proceeding is instituted, the title of the

proceeding, the docket number (if any) assigned by the

Oce of Administrative Law Judges and a designation

of the type of pleading or paper (e.g., notice, motion to

dismiss, etc.). The pleading or paper shall be signed

and shall contain the address and telephone number of

the party or person representing the party. Although

there are no formal specications for documents, they

should be printed when possible on standard size 81/2 x

11 inch paper.

(2) Illegible documents, whether handwritten,

printed, photocopies, or otherwise, will not be accepted.

Papers may be reproduced by any duplicating process

provided all copies are clear and legible.

§2571.4 Parties.

For section 521 proceedings, this section shall apply

in lieu of §18.10 of this title:

(a) The term “party” wherever used in these rules

shall include any person that is a subject of the

temporary order and is challenging the temporary

order under these section 521 proceedings, and the

Secretary. A party challenging a temporary order shall

be designated as the “respondent.” The Secretary shall

be designated as the “complainant.”

(b) Other persons shall be permitted to participate

as parties only if the administrative law judge nds

that the nal decision could directly and adversely

aect them or the class they represent, that they may

contribute materially to the disposition of the section

521 proceeding and their interest is not adequately

represented by the existing parties, and that in

the discretion of the administrative law judge the

participation of such persons would be appropriate.

wishing to participate as a respondent under this

section shall submit a petition to the administrative

law judge within fteen (15) days after the person has

knowledge of, or should have known about, the section

521 proceeding. The petition shall be led with the

administrative law judge and served on each person

who has been made a party at the time of ling. Such

petition shall concisely state:

(1) Petitioner’s interest in the section 521 proceeding

(including how the section 521 proceedings will

directly and adversely aect them or the class they

represent and why their interest is not adequately

represented by the existing parties);

(2) How his or her participation as a party will

contribute materially to the disposition of the section

521 proceeding;

(3) Who will appear for the petitioner;

(4) The issues on which petitioner wishes to

participate; and

(5) Whether petitioner intends to present witnesses.

(d) Objections to the petition may be led by a

party within fteen (15) days of the ling of the

petition. If objections to the petition are led, the

administrative law judge shall then determine whether

petitioners have the requisite interest to be a party in

the section 521 proceeding, as dened in paragraph (b)

of this section, and shall permit or deny participation

accordingly. Where persons with common interest

le petitions to participate as parties in a section 521

proceeding, the administrative law judge may request

all such petitioners to designate a single representative,

or the administrative law judge may designate one or

more of the petitioners to represent the others. The

administrative law judge shall give each such petitioner,

as well as the parties, written notice of the decision

on his or her petition. For each petition granted, the

administrative law judge shall provide a brief statement

of the basis of the decision. If the petition is denied, he

or she shall briey state the grounds for denial and may

consider whether to treat the petition as a request for

participation as amicus curiae.

§2571.5 Consequences of default.

For section 521 proceedings, this section shall

apply in lieu of §18.5(b) of this title. Failure of

the respondent to le an answer to the temporary

order within the 30-day period provided by 29

CFR 2560.521-1(e) shall constitute a waiver of the

respondent’s right to appear and contest the temporary

order. Such failure shall also be deemed to be an

admission of the facts as alleged in the temporary order

for purposes of any proceeding involving the order

issued under section 521 of ERISA. The temporary

order shall then become the nal order of the Secretary,

within the meaning of 29 CFR 2571.2(f), 30 days from

the date of the service of the temporary order.

§2571.6 Consent order or settlement.

For section 521 proceedings, this section shall apply

in lieu of §18.9 of this title:

(a) In general. At any time after the commencement

of a section 521 proceeding, the parties jointly may

move to defer the hearing for a reasonable time

in order to negotiate a settlement or an agreement

containing ndings and a consent order disposing of

the whole or any part of the section 521 proceeding.

The administrative law judge shall have discretion to

allow or deny such a postponement and to determine

its duration. In exercising this discretion, the

administrative law judge shall consider the nature of

the section 521 proceeding, the requirements of the

public interest, the representations of the parties and the

probability of reaching an agreement that will result in

a just disposition of the issues involved.

(b) Content. Any agreement containing consent

ndings and an order disposing of the section 521

proceeding or any part thereof shall also provide:

(1) That the consent order shall have the same force

and eect as an order made after full hearing;

(2) That the entire record on which the consent

order is based shall consist solely of the notice and the

agreement;

(3) A waiver of any further procedural steps before

the administrative law judge;

(4) A waiver of any right to challenge or contest the

validity of the consent order and decision entered into

in accordance with the agreement; and

(5) That the consent order and decision of the

105

administrative law judge shall be nal agency action

within the meaning of 5 U.S.C. 704.

the time granted for negotiations, the parties or their

authorized representatives or their counsel may:

(1) Submit the proposed agreement containing

consent ndings and an order to the administrative law

judge;

(2) Notify the administrative law judge that the

parties have reached a full settlement and have agreed

to dismissal of the action subject to compliance with the

terms of the settlement; or

(3) Inform the administrative law judge that

agreement cannot be reached.

(d) Disposition. If a settlement agreement containing

consent ndings and an order, agreed to by all the

parties to a section 521 proceeding, is submitted within

the time allowed therefor, the administrative law

judge shall incorporate all of the ndings, terms, and

conditions of the settlement agreement and consent

order of the parties. Such decision shall become a nal

agency action within the meaning of 5 U.S.C. 704.

(e) Settlement without consent of all respondents.

In cases in which some, but not all, of the respondents

to a section 521 proceeding submit an agreement and

consent order to the administrative law judge, the

following procedure shall apply:

(1) If all of the respondents have not consented to the

proposed settlement submitted to the administrative law

judge, then such non-consenting parties must receive

notice and a copy of the proposed settlement at the time

it is submitted to the administrative law judge;

(2) Any non-consenting respondent shall have

fteen (15) days to le any objections to the proposed

settlement with the administrative law judge and all

other parties;

(3) If any respondent submits an objection to the

proposed settlement, the administrative law judge

shall decide within thirty (30) days after receipt of

such objections whether to sign or reject the proposed

settlement. Where the record lacks substantial evidence

upon which to base a decision or there is a genuine

issue of material fact, then the administrative law judge

may establish procedures for the purpose of receiving

additional evidence upon which a decision on the

contested issue may be reasonably based;

(4) If there are no objections to the proposed

settlement, or if the administrative law judge decides

to sign the proposed settlement after reviewing any

such objections, the administrative law judge shall

incorporate the consent agreement into a decision

meeting the requirements of paragraph (d) of this

section; and

(5) If the consent agreement is incorporated into a

decision meeting the requirements of paragraph (d) of

this section, the administrative law judge shall continue

the section 521 proceeding with respect to any non-

consenting respondents.

§2571.7 Scope of discovery.

For section 521 proceedings, this section shall apply

in lieu of §18.14 of this title:

(a) A party may le a motion to conduct discovery

with the administrative law judge. The administrative

law judge may grant a motion for discovery only upon

a showing of good cause. In order to establish “good

cause” for the purposes of this section, the moving

party must show that the requested discovery relates to

a genuine issue as to a fact that is material to the section

521 proceeding. The order of the administrative law

judge shall expressly limit the scope and terms of the

discovery to that for which ``good cause’’ has been

shown, as provided in this paragraph.

(b) Any evidentiary privileges apply as they would

apply in a civil proceeding in federal district court.

For example, legal advice provided by an attorney to a

client is generally protected from disclosure. Mental

impressions, conclusions, opinions, or legal theories of

a party’s attorney or other representative developed in

anticipation of litigation are also generally protected

from disclosure. The administrative law judge may

not, however, protect from discovery or use, relevant

communications between an attorney and a plan

administrator or other plan duciary, or work product,

that fall under the duciary exception to the attorney-

client or work product privileges. The duciary

exception to these privileges exists when an attorney

advises the plan administrator or other plan duciary on

matters concerning plan administration or other

duciary activities. Consequently, the administrative

law judge may not protect such communications

from discovery or from use by the Secretary in the

proceedings. The administrative law judge also

may also not protect attorney work product prepared

to assist the duciary in its duciary capacity

from discovery or from use by the Secretary in the

proceedings. The duciary exception does not apply,

however, to the extent that communications were

made or documents were prepared exclusively to aid

the duciary personally or for non-duciary matters

(e.g. settlor acts), provided that the plan did not pay

for the legal services. The Secretary need not make a

special showing, such as good cause, merely to obtain

information or documents covered by the duciary

exception. Other relevant exceptions to the attorney-

client or work product privileges shall also apply.

§2571.8 Summary decision.

For section 521 proceedings, this section shall apply

in lieu of §18.41 of this title:

(a) No genuine issue of material fact. Where

the administrative law judge nds that no issue of a

material fact has been raised, he or she may issue a

decision which, in the absence of an appeal, pursuant to

§§2571.10 through 2571.12, shall become a nal

agency action within the meaning of 5 U.S.C. 704.

(b) A decision made under this section, shall include

a statement of:

(1) Findings of fact and conclusions of law, and the

reasons thereof, on all issues presented; and

(2) Any terms and conditions of the ruling.

106

served on each party.

§2571.9 Decision of the administrative law judge.

For section 521 proceedings, this section shall apply

in lieu of §18.57 of this title:

(a) Proposed ndings of fact, conclusions, and

order. Within twenty (20) days of the ling of the

transcript of the testimony, or such additional time as

the administrative law judge may allow, each party

may le with the administrative law judge, subject

to the judge’s discretion, proposed ndings of fact,

conclusions of law, and order together with a supporting

brief expressing the reasons for such proposals. Such

proposals and briefs shall be served on all parties,

and shall refer to all portions of the record and to all

authorities relied upon in support of each proposal.

(b) Decision of the administrative law judge. The

administrative law judge shall make his or her decision

expeditiously after the conclusion of the section 521

proceeding. The decision of the administrative law

judge shall include ndings of fact and conclusions

of law with reasons therefore upon each material issue

of fact or law presented on the record. The decision of

the administrative law judge shall be based upon the

whole record and shall be supported by reliable and

probative evidence. The decision of the administrative

law judge shall become nal agency action within the

meaning of 5 U.S.C. 704 unless an appeal is made

pursuant to the procedures set forth in §§2571.10

through 2571.12.

§2571.10 Review by the Secretary.

(a) The Secretary may review the decision of an

administrative law judge. Such review may occur only

when a party les a notice of appeal from a decision of

an administrative law judge within twenty (20) days of

the issuance of such a decision. In all other cases, the

decision of the administrative law judge shall become

the nal agency action within the meaning of 5 U.S.C.

704.

(b) A notice of appeal to the Secretary shall state

with specicity the issue(s) in the decision of the

administrative law judge on which the party is seeking

review. Such notice of appeal must be served on all

parties of record.

request the Chief Administrative Law Judge to submit

to the Secretary a copy of the entire record before the

administrative law judge.

§2571.11 Scope of review by the Secretary.

The review of the Secretary shall be based on the

record established before the administrative law judge.

There shall be no opportunity for oral argument.

§2571.12 Procedures for review by the Secretary.

(a) Upon receipt of a notice of appeal, the Secretary

shall establish a brieng schedule which shall be served

on all parties of record. Upon motion of one or more of

the parties, the Secretary may, in her discretion, permit

the submission of reply briefs.

(b) The Secretary shall issue a decision as promptly

as possible after receipt of the briefs of the parties. The

Secretary may arm, modify, or set aside, in whole

or in part, the decision on appeal and shall issue a

statement of reasons and bases for the action(s) taken.

Such decision by the Secretary shall be the nal agency

action with the meaning of 5 U.S.C. 704.

§2571.13 Eective date.

This regulation is eective with respect to all cease

and desist orders issued by the Secretary under section

521 of ERISA at any time after April 1, 2013.

Subpart B--[Reserved]

Signed at Washington, DC, this 26th day of February,

2013.

Phyllis C. Borzi,

Assistant Secretary, Employee Benets Security

Administration, Department of Labor.

[FR Doc. 2013-04862 Filed 2-28-13; 8:45 am]

BILLING CODE 4510-29-P

107

DEPARTMENT OF LABOR

Employee Benets Security Administration

29 CFR Part 2520

RIN 1210-AB51

Filings Required of Multiple Employer Welfare

Arrangements and Certain Other Related Entities

AGENCY: Employee Benets Security Administration,

Department of Labor.

ACTION: Final rules.

SUMMARY: This document contains nal rules under

Title I of the Employee Retirement Income Security

Act (ERISA) that implement reporting requirements for

multiple employer welfare arrangements (MEWAs) and

certain other entities that oer or provide benets that

consist of medical care (within the meaning of section

733(a)(2) of ERISA and 29 CFR 2590.701-2) for

employees of two or more employers. These nal

rules amend the existing Form M-1 reporting rules

by incorporating new provisions enacted as part of

the Patient Protection and Aordable Care Act (the

“Aordable Care Act”). They also amend

existing Form 5500 annual reporting rules for ERISA-

covered plans subject to Form M-1 reporting rules.

Elsewhere in this edition of the Federal Register, the

Employee Benets Security Administration is

publishing nal rules related to the Secretary of Labor’s

new enforcement authority with respect to MEWAs, a

notice adopting nal revisions to the Form 5500 Annual

Return/Report and its instructions to add new Form

M-1 compliance questions, as well as an additional

notice announcing the nalized revisions to the Form

M-1 and its instructions. These improvements in

reporting, together with stronger enforcement tools

authorized by the Aordable Care Act, are designed to

reduce MEWA fraud and abuse, protecting consumers

from unpaid medical bills.

DATES: Eective date. These nal rules are eective

on April 1, 2013.

Applicability dates: These nal rules pertaining to

Form M-1 lings generally apply for all ling events

beginning on or after July 1, 2013, except that in the

case of the 2012 Form M-1 annual report, the deadline

is now May 1, 2013 with an extension until July 1,

2013 available. The rules pertaining to Form 5500

annual reporting will be applicable for all Form 5500

Annual Return/Report lings beginning with the 2013

Form 5500.

FOR FURTHER INFORMATION CONTACT:

Allison Goodman or Suzanne Bach, Employee Benets

Security Administration, Department of Labor, at (202)

693-8335. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

Customer Service Information: Individuals interested

in obtaining information from the Department of Labor

concerning employment-based health coverage laws

may call the EBSA Toll-Free Hotline at 1-866-444-

EBSA (3272) or visit the Department of Labor’s Web

site (http://www.dol.gov/ebsa). Information on health

reform can be found at http://www.healthcare.gov.

I. Executive Summary

A. Purpose of the Regulatory Action

1. Need for Regulatory Action

ERISA section 101(g), 29 U.S.C. 1021(g), as

amended by the Aordable Care Act, directs the

Department of Labor (the Department) to promulgate

rules requiring MEWAs that are not group health plans

(non-plan MEWAs) to register with the Secretary of

Labor (the Secretary) prior to operating in a State.

The statute also allows the Department to promulgate

rules requiring non-plan MEWAs to report annually

for the purpose of determining the extent to which

the requirements of ERISA part 7 are being carried

out in connection with such benets. While the

statutory authority is directed at non-plan MEWAs, the

Department asserts its authority under ERISA sections

505, 29 U.S.C. 1135, 104, 29 U.S.C. 1024(b), and

734, 29 U.S.C. 1191c, consistent with the MEWA

annual reporting rule promulgated in 2003 (the

2003 rule or 2003 regulation), to apply these ling

requirements to MEWAs which are group health plans

(plan MEWAs) as well.

The Form M-1 and the MEWA reporting

requirements were originally developed under the

2003 rule and used as a mechanism to help States

identify MEWAs in order to combat a history of

MEWA fraud and abuse. Despite these reporting rules,

MEWA abuses persist and often lead to insolvency.

As a result, aected employees and their dependents

become nancially responsible for medical claims even

though they previously paid premiums to MEWAs for

their medical coverage.

These regulations amend the

2003 rule and establish new registration and reporting

requirements under the amended section 101(g) of

ERISA. Specically, these nal rules establish ling

requirements and deadlines that apply to MEWAs

annually and upon specied events.

See, e.g., Chao v. Graf, 2002 WL 1611122 (D. Nev. 2002), In re

Raymond Palombo, et al., 2011 WL 1871438 (Bankr. C.D. CA 2011) and

Solis v. Palombo, No. 1:08-CV-2017 (N.D. Ga 2009); Chao v. Crouse,

346 F.Supp.2d 975 (S.D. Ind. 2004).

See Kofman, Mila, Bangit, Eliza, and Lucia, Kevin, MEWAs: The

Threat of Plan Insolvency and Other Challenges (The Commonwealth

Fund March 2004), and Employee Benets: States Need Labor’s Help

Regulating Multiple Employer Welfare Arrangements, March 1992, GAO/

HRD-92-40.

108

The statute is detailed but not self-implementing,

contains ambiguities, and specically requires the

Department to develop regulations. Therefore, these

consumer protections cannot be established without

these regulations.

2. Legal Authority

The substantive authority for these regulations is

generally ERISA section 101(g), which explicitly

requires the Department to issue regulations requiring

MEWAs to register with the Secretary prior to

operating in a State. It further provides the Secretary

with authority to issue regulations requiring MEWAs

to report annually on their compliance with part 7 of

ERISA. Section 505 of ERISA also gives the

Secretary authority to prescribe such regulations as

necessary or appropriate to carry out the provisions of

Title I of ERISA, which includes the amended ERISA

section 101(g). Further, ERISA section 734

authorizes the Secretary to promulgate regulations

necessary or appropriate to carry out the provisions of

ERISA part 7.

In addition, section 104(a)(3) authorizes the

Secretary to exempt any welfare plan from all or part

of the reporting and disclosure requirements of Title

I or provide for simplied reporting and disclosure if

she nds that such requirements are inappropriate as

applied to welfare plans.

B. Summary of the Major Provisions of This

Regulatory Action

Paragraph (a) of §2520.101-2 in these nal rules

implements the general registration and reporting

requirements and explains which entities are required

to le. The regulations explain that while the language

in section 101(g) of ERISA only applies to non-

plan MEWAs, the regulations preserve the structure

promulgated as part of the 2003 rule, which required

both plan MEWAs and non-plan MEWAs to le the

Form M-1 based on authority found in sections 505 and

734 of ERISA.

Paragraph (b) denes the terms used in the nal

regulations, with some additions and modications

from the 2003 rule. Paragraph (c) sets forth the

requirement that, with certain exceptions, the

administrators of MEWAs and certain entities that

claim not to be a MEWA solely due to the exception in

section 3(40)(A)(i) of ERISA (referred to as Entities

Claiming Exception or ECEs) le reports with the

Department.

Paragraph (d) describes how MEWAs and ECEs will

comply with the nal rules by ling the Form M-1, and

the conditions under which the Secretary may reject a

ling.

Paragraphs (e) and (f) set forth the timeframes when

MEWAs and ECEs must le the Form M-1. Paragraph

(g) directs that the Form M-1 be led electronically.

The information provided through Form M-1 lings

will then be accessible by the public and other

interested parties such as State regulators.

Paragraph (h) explains the civil penalties that may

result from a failure to comply with these nal rules.

Civil penalties for failure to le a report required

by ERISA section 101(g) or §2520.101-2 have been

applicable for non-plan MEWAs under ERISA section

502(c)(5) since May 1, 2000.

These nal rules also amend regulations under

ERISA sections 103 and 104 to further enhance the

Department’s ability to enforce §2520.101-2 by making

the ling of the Form M-1 an integral part of

compliance with ERISA’s annual reporting

requirements for plans subject to the Form M-1 ling

requirements under §2520.101-2. As a result, failure to

provide information on the Form 5500 about

compliance with the requirement to le a Form

M-1 may result in the rejection of the Form 5500 as

incomplete and the assessment of civil penalties under

ERISA section 502(c)(2).

Finally, new criminal penalties were added by the

Aordable Care Act under ERISA section 519 for

any person who knowingly submits false statements

or false representations of fact in connection with a

MEWA’s nancial condition, the benets it provides, or

its regulatory status as a MEWA. The Aordable Care

Act also amended ERISA section 501(b) to impose

criminal penalties on any person who is convicted of

violating the prohibition in ERISA section 519. The

nal rules retain the cross-reference to sections 501(b)

and 519 for the purpose of implementing these new

rules as these provisions relate to ling a Form M-1.

Final rules published elsewhere in today’s Federal

parte cease and desist and summary seizure orders for

MEWAs.

C. Costs and Benets

These nal regulations are designed to impose

a minimal amount of burden on legally compliant

MEWAs and ECEs while implementing the

Secretary’s authority under the Aordable Care Act to

take enforcement action against fraudulent or abusive

MEWAs and working to protect health benets for

businesses and their employees. This rule implements

the new provisions while preserving the ling structure

and provisions of the 2003 rule, which directed plan

MEWAs and non-plan MEWAs to le the Form M-1.

The additional ling requirements will enhance the

State and Federal governments’ joint mission to take

enforcement action against fraudulent and abusive

MEWAs, thus limiting the losses suered by American

workers, their families, and businesses when abusive

MEWAs become insolvent and fail to reimburse

medical claims.

Under the nal regulations, MEWAs and ECEs

will incur costs to ll out and electronically le the

Form M-1 and Form 5500. The Department estimates

that the annualized cost may be approximately $0.1

million. As is common with regulations implementing

new policies, there is considerable uncertainty

arising from general data limitations and the degree

to which economies of scale exist for disclosing this

109

information. Nonetheless, the Department believes

that these nal regulations lower overall administrative

costs from the 2003 rule because of the move to an

electronic only ling system.

In accordance with Executive Orders 12866 and

13563, the Department believes that the benets of this

regulatory action justify the costs.

II. Background

The term “multiple employer welfare arrangement”

(MEWA) is dened in section 3(40) of ERISA, 29

U.S.C. 1002(40), in pertinent part, as an employee

welfare benet plan, or any other arrangement (other

than an employee welfare benet plan), which is

established or maintained for the purpose of oering

or providing welfare benets to the employees of

two or more employers (including one or more self-

employed individuals), or to their beneciaries, except

that such term does not include any such plan or other

arrangement which is established or maintained under

or pursuant to one or more agreements which the

Secretary nds to be collective bargaining agreements,

by a rural electric cooperative, or by a rural telephone

cooperative association. For purposes of this denition,

two or more trades or businesses, whether or not

incorporated, shall be deemed a single employer if

such trades or businesses are within the same control

group. The term “control group” means a group of

trades or businesses under common control. The

determination of whether a trade or business is under

“common control” with another trade or business

shall be determined under regulations of the Secretary

applying principles similar to the principles applied

in determining whether employees of two or more

trades or businesses are treated as employed by a single

employer under section 4001(b) of ERISA, 29 U.S.C.

1301(b), except that, for purposes of this paragraph,

common control shall not be based on an interest of less

than 25 percent.

The Health Insurance Portability and Accountability

Act of 1996 (Pub. L. 104-191, 110 Stat. 1936) (1996))

(HIPAA) amended ERISA to provide for, among other

things, improved portability and continuity of health

insurance coverage. HIPAA also added section 101(g)

to ERISA, providing the Secretary with the authority

to require, by regulation, annual reporting by non-plan

MEWAs. The Secretary exercised the authority under

the HIPAA provision by creating the Form M-1 under

a 2000 interim nal rule and 2003 rule.

Those rules

generally required the administrator of both non-plan

and plan MEWAs and ECEs to le the Form M-1

This provision was added to ERISA by section 302(b) of the Multiple

Employer Welfare Arrangement Act of 1983, Public Law 97-473, 96

Stat. 2611, 2612 which also amended section 514(b) of ERISA, 29

U.S.C. 1144(a). Section 514(a) of ERISA provides that State laws that

relate to employee benefit plans are generally preempted by ERISA.

Section 514(b) sets forth several exceptions to the general rule of section

514(a) and subjects employee benefit plans that are MEWAs to various

levels of State regulation depending on whether the MEWA is fully

insured. Sec. 302(b), Public Law 97-473, 96 Stat. 2611, 2613 (29

U.S.C. 1144(b)(6)).

65 FR 7152 (02/11/2000) and 68 FR 17494 (04/09/2003). The Form

M-1 is reissued each year in December by the Department and has been

annually with the Secretary. The purpose of this form

was to allow the Department to determine whether

the requirements of part 7 were being met. Part 7 of

ERISA includes statutory amendments made by HIPAA

and other statutes for which MEWAs must annually

report compliance.

The original MEWA reporting requirement created

under HIPAA was also enacted in response to a

1992 General Accounting Oce (GAO) report

that

detailed a history of MEWA fraud and abuse.

combat fraudulent MEWAs, the GAO recommended

that the Department develop a mechanism to help

States identify MEWAs. Although the annual MEWA

reporting rules enabled the Department to develop

a registry of MEWAs that led the Form M-1, the

requirement alone has not stopped the abuses discussed

in the GAO report. MEWAs are frequently marketed

by unlicensed entities that do not comply with

State insurance reserve, contribution, and consumer

protection requirements. As a result, such entities often

oer health coverage at rates substantially lower than

licensed insurers, making them particularly attractive

to some small employers that nd it dicult to obtain

aordable health insurance for their employees.

Unfortunately, due to insucient funding and

inadequate reserves, and in some situations, excessive

administrative fees and fraud, some MEWAs have

become insolvent and unable to pay medical benet

claims. This results in aected employees and their

dependents becoming nancially responsible for

paying medical claims even after they paid premiums

for their medical coverage. The unfortunate reality is

that currently, the Department often does not nd out

about insolvent or fraudulent MEWAs until signicant

harm has occurred to employers and participants.

Furthermore, while the Department--often working with

State insurance departments--has had some success with

both civil and criminal cases against MEWA operators,

the monetary judgments are often uncollectible, leaving

the employers and/or individual participants without

coverage for claims that can be considerable.

The Patient Protection and Aordable Care Act

(Pub. L. 111-148, 124 Stat. 119) and the Health Care

and Education Reconciliation Act of 2010 (Pub.

L.111-152, 124 Stat. 1029) (these are collectively

known as the “Aordable Care Act”), have established

a multipronged approach to MEWA abuses. The

principal provisions include sections 6601, 6605,

and 6606 of the Aordable Care Act. Section

6601 prohibits false statements and representations

in connection with the marketing or sale of a

modified to address changes to the statutory provisions in part 7 of ERISA.

See, Employee Benefits: States Need Labor’s Help Regulating Multiple

Employer Welfare Arrangements, March 1992, GAO/HRD-92-40.

For example, the 1992 GAO report indicated that between 1988 and

1991, MEWAs left at least 398,000 participants and beneficiaries with

over $123 million in unpaid claims. Meanwhile more than 600 MEWAs

failed to comply with State insurance laws. See supra note 3.

See United States v. Gerald Rising, Jr., plea agreement, 11-cr-00117-

WYD-01 (U.S.D.Ct.CO) (In 2012, the owner of a MEWA that sold

stop-loss insurance pled guilty for understating the claim amounts that

would trigger stop-loss payments in order to charge excessive fees; the

110

MEWA. Section 6605 enables the Secretary to issue

administrative cease and desist orders when MEWAs

engage in certain conduct and summary seizure orders

against MEWAs in a nancially hazardous condition.

In addition, section 6606 amended section 101(g)

of ERISA. Under this last amendment, MEWAs

providing benets consisting of medical care (within

the meaning of section 733(a)(2) of ERISA, 29 U.S.C.

1191b(a)(2)), which are not group health plans must

now register with the Secretary prior to operating in a

State. Congress left untouched the Secretary’s authority

to issue regulations directing such MEWAs to report,

not more frequently than annually, in such form and

such manner as the Secretary species for the purpose

of determining the extent to which the requirements of

part 7 of ERISA are being met. These nal regulations

implement the ERISA section 101(g) MEWA annual

reporting provision by directing all MEWAs, including

those that are plan MEWAs, to report compliance with

the part 7 rules, including the Public Health Service

Act (PHS Act) market reforms (PHS Act sections 2701

through 2728) incorporated by reference in ERISA

section 715 by the Aordable Care Act. These nal

regulations also require MEWAs to register with the

Department before operating in a State. The additional

information provided on the Form M-1 as a result of

these nal rules will enhance the State and Federal

governments’ joint mission to prevent harm and take

enforcement action against fraudulent and abusive

MEWAs, thus limiting the losses suered by American

workers, their families, and businesses when abusive

MEWAs become insolvent and fail to reimburse

medical claims. These nal rules implement the

statutory requirements in a way that limits the burden

on legitimate MEWAs but gives the Secretary, States,

employers, and the participants and beneciaries of the

plans additional information about these entities and a

stronger enforcement scheme.

On December 6, 2011, the Department published

in the Federal Register proposed regulations (76 FR

76222) implementing the new reporting requirements

for MEWAs and ECEs. The Department received six

comments on the proposed rules. After consideration

of the comments received, the Department is publishing

owner also commingled clients’ premiums, overcharged fees, and issued

fraudulent invoices, to a cost of over $3.6 million to his victims, which

included over 250 individuals, businesses and government agencies.) See

also United States v. Edwards, plea agreement, 1:05CR 265 (M.D.N.C.

2006) (In 2005, a MEWA operator, whom the Department showed

collected over 36 million dollars in healthcare insurance premiums and

failed to obtain health insurance coverage for its employer clients which

resulted in thousands of uncovered employees and approximately $8

million in unpaid claims), and Solis v. W.I.N. Ass’n, L.L.C., et. al., slip

op. 4:11-cv-00616 (S.D. Tex. 2011) (The Department investigated a

MEWA which failed to make payments on health care claims, charged

excessive fees, engaged in self-dealing, and failed to disclose fees to

the client employers in the plan. The Department obtained a Consent

Judgment and Order against the MEWA operators for leaving hundreds

of participants without coverage and permanently enjoining them from

acting as duciaries in the future. Also, the court authorized the Secretary

to bring a collection action for the plan losses against one of the MEWA

operators relative to his ability to restore those plan losses.) For additional

information about MEWAs, see http://www.dol.gov/ebsa/newsroom/

fsMEWAenforcement.html.

these nal regulations. While these nal rules reect

a few changes and add some clarications in response

to questions posed by commenters, they do not

signicantly modify the requirements set forth in the

proposed rules.

III. Overview of the Final Regulations

A. Amendment of 29 CFR 2520.101-2 Under ERISA

Section 101(g).

To implement the changes made to ERISA section

101(g) by the Aordable Care Act, these nal rules

amend the 2003 rule. In the 2003 rule, ECEs and

MEWAs were largely subject to the same ling

requirements. ECEs, however, were only required to

submit an annual M-1 ling for the rst three years

following an origination event. In keeping with this

structure, these nal rules extend the new ling events

prescribed by the Aordable Care Act to MEWAs

and ECEs alike. They also preserve the three-year

limitation included in the 2003 regulation for ECEs.

Based on comments on the proposed rules from the

multiemployer plan community, the nal rules limit

the events that will constitute an origination to those

dened as such in the 2003 rule.

Paragraph (a) of §2520.101-2 in these nal

regulations describes the provisions of section 101(g)

of ERISA that direct MEWAs that provide benets

consisting of medical care (within the meaning of

section 733(a)(2) of ERISA) to register with the

Secretary prior to operating in a State, and to report

annually regarding compliance with part 7 of ERISA.

Paragraph (b) denes the terms used in the nal

regulations, with some additions and modications

from the 2003 rule. Paragraph (c) sets forth the

requirement that, with certain exceptions, the

administrators of MEWAs or ECEs le reports with the

Department.

Paragraph (d) describes how MEWAs and ECEs will

comply with the nal rules by ling the Form M-1, and

the conditions under which the Secretary may reject a

ling.

Paragraphs (e) and (f) set forth the timeframes when

MEWAs and ECEs must le the Form M-1. Paragraph

(g) directs that the Form M-1 be led electronically.

In addition to minimizing errors and providing faster

access to reported data, electronic ling will also be less

burdensome on the ler. Once information about

the MEWA or ECE is entered into the system, lers

will have the option of allowing the system to copy

information provided on a past ling into a new ling.

This transfer of past information provides lers an easy

way to update or verify information. The information

provided through Form M-1 lings will then be

accessible by the public and other interested parties

such as State regulators.

Paragraph (h) explains the civil penalties that may

result from a failure to comply with the rule. Civil

penalties for failure to le a report required by ERISA

111

section 101(g) or §2520.101-2 have been applicable for

non-plan MEWAs under ERISA section 502(c)(5) since

May 1, 2000.

Finally, new criminal penalties were added by the

Aordable Care Act under ERISA section 519 for any

person who knowingly submits false statements or false

representations of fact in ling reports required under

the rule.

1. Basis and Scope

These nal regulations set forth rules implementing

section 101(g) of ERISA, as amended by section 6606

of the Aordable Care Act, which directs MEWAs that

are not group health plans to register with the Secretary

prior to operating in a State. These regulations also

update the existing requirement in section 101(g) of

ERISA, that MEWAs, which are group health plans,

and certain other entities claiming an exception, le

the Form M-1 annually and upon the occurrence of

specied events. While the language in section 101(g)

of ERISA only applies to non-plan MEWAs, these nal

rules preserve the structure promulgated as part of the

2003 regulation, which required both plan and non-

plan MEWAs to le the Form M-1, based on authority

found in sections 505 and 734 of ERISA. Section 505

of ERISA states that the Secretary may prescribe such

regulations as she nds necessary or appropriate to

carry out the provisions of Title I of ERISA. Section

734 of ERISA allows the Secretary to promulgate such

regulations as may be necessary or appropriate to carry

out the provisions of part 7 of ERISA.

One commenter questioned the Department’s

authority to require ECEs to le a Form M-1 prior to

operating in a State. As explained in the preamble to

the 2003 rule, the Department has set forth procedures

for administrative hearings to obtain a determination

by the Secretary that a collectively bargained plan is

exempted from ERISA’s denition of a MEWA. 29

CFR 2510.3-40. An entity that has a determination

from an Administrative Law Judge (ALJ) that it is such

collectively-bargained plan is not required to file a

Form M-1 while the opinion remains in effect unless the

circumstances underlying the determination change.

Entities may, however, claim the exemption on their

own accord and sometimes do so incorrectly, including

as part of an insurance fraud scheme using sham unions

and collective bargaining agreements to market health

coverage to small employers. The Secretary remains

concerned about MEWA operators who avoid State

insurance regulation by making false assertions that the

arrangement is pursuant to a collective bargaining

agreement. The requirement that ECEs file the Form

M-1 for only three years after an origination event

continues to provide an important enforcement tool

Under these final regulations, similar civil penalties under ERISA section

502(c)(2) may apply to plan MEWAs and ECEs required to le the Form

M-1 that fail to answer questions on the Form 5500 about compliance with

the requirement to le a Form M-1. See section B of this preamble for

the changes that are being made to §§2520.103-1, 104-20, and 104-41 to

further enhance the Department’s ability to enforce these provisions with

regard to MEWAs and ECEs that are group health plans.

while imposing little burden on bona de collectively

bargained plans. Bona de collectively bargained plans

also benet from the early identication of MEWA

operators using sham unions and collective bargaining

agreements. Consequently, based on the Department’s

authority under ERISA sections 505 and 734, the nal

rules preserve the three-year limitation included in the

2003 regulation for ECEs.

2. Denitions

a. Operating. Paragraph (b)(8) of §2520.101-2 of

the proposed and these nal rules adds a denition of

“operating” and denes it as any activity including

but not limited to marketing, soliciting, providing,

or oering to provide benets consisting of medical

care. This denition, which includes marketing and

administrative activities, governs when Form M-1

lings must be made. Some commenters raised

concerns that the denition in the proposed rules could

be interpreted broadly to include participants receiving

medical care in a State in which the MEWA or ECE

has not been providing medical benets and for which

it is not otherwise required to make any lings. These

commenters noted that MEWAs or ECEs would be

unable to comply with the requirement to le the

Form M-1 30 days before operating in an additional

State because they would not know when a participant

planned, for instance, to move or travel to a new State.

The Department never intended for the denition of

operating to apply to the receipt of medical care without

any action by, or on behalf of, the MEWA or ECE to

market, solicit, provide, or oer to provide medical

benets to a participating employer in that State.

Commenters also noted that, in general, they would

not be aware in advance if an employer or union, on its

own accord, distributes information about medical care

in a State in which the MEWA or ECE has not been

operating and is not registered. ECEs, in particular,

may not be aware of a contract awarded for work in

a new State to a company that is part of a collective

bargaining agreement. The Department agrees that

there are circumstances in which it would be dicult,

if not impossible, for a MEWA or ECE to le the

Form M-1 30 days before operating in an additional

State. Consequently, while the Department has not

revised the denition of operating, as discussed later

in this preamble, provisions in paragraph (e) in these

nal rules on when a MEWA or ECE must le when

it begins operating in an additional State have been

revised to address this concern.

b. Origination and Special Filing Events. The

2003 rule used the term “origination” to determine if

additional lings were necessary for both MEWAs and

ECEs. As in the proposed rules, the Department only

uses the term “origination” when it refers to events that

trigger an additional ling by ECEs in the nal rules.

The term “registration” also continues to be used to

refer to lings by MEWAs.

The denition of origination, however, has been

modied in the nal rules. This change responds to a

commenter who found the provisions in the proposed

rules relating to the application of the three-year

112

limitation to ECEs that begin operating in additional

States to be confusing. These nal rules have been

adjusted to clarify that an ECE is not required to le

a Form M-1 solely because it begins operating in

an additional State or experiences a material change

after the three-year period following any of the three

origination events: (i) The ECE rst begins operating

with regard to the employees of two or more employers

(including one or more self-employed individuals);

(ii) the ECE begins operating following a merger with

another ECE (unless all of the ECEs that participate

in the merger previously were last originated at least

three years prior to the merger); or (iii) the number of

employees receiving coverage for medical care under

the ECE is at least 50 percent greater than the number

of such employees on the last day of the previous

calendar year (unless the increase is due to a merger

with another ECE under which all ECEs that participate

in the merger were last originated at least three years

prior to the merger).

In paragraph (b)(9)(ii) and (v) of §2520.101-2 of

the proposed rules, the denition of origination also

included an ECE that begins operating in an additional

State or experiences a material change. To clarify that

the three-year rule does not restart or extend when

those two events occur, they were moved to a new

paragraph (b)(11) in the nal rules on special ling

events. Additionally, the reference to the three-year

period during which lings are required was removed

from the denition of origination. In the nal rules,

the paragraph (b)(9) origination events and the

corresponding ling rules in paragraph (c)(1)(ii) now

clarify that only the events in paragraph (b)(9) restart or

extend the three-year period for ECEs.

c. Reporting. As in the proposed rules, the nal

rules add a denition of “reporting.” “Reporting” or

“to report” means to le the Form M-1 as required

pursuant to section 101(g) of ERISA; §2520.101-2; or

the instructions to the Form M-1. The term “reporting”

is used in order to correspond to the terminology of

§2560.502c-5, which uses the generic term “report”

to describe the Form M-1 ling process, including the

annual report as well as registration, origination, and all

other required M-1 lings.

d. State. The nal rules also, like the proposed

rules, add a denition of “State” and dene the term by

reference to §2590.701-2. This denition was added

because MEWAs must register, and ECEs must make

an origination ling, prior to operating in a State.

3. Persons Required to Report

Paragraph (c) of §2520.101-2 of the nal rules

set forth the persons required to report. As under

the 2003 rule and the proposed rules, the nal rules

direct the administrator of a MEWA that provides

benets consisting of medical care, whether or not

the MEWA is a group health plan, to le the Form

M-1. It also requires ling by the administrator of an

ECE that oers or provides coverage consisting of

medical care. Several commenters suggested changes

to this section. One commenter sought to have third

party administrators carved out of the denition of

administrator. Another sought to have aliated service

groups exempted from the ling requirements. The

Department considered these comments but declines

to modify these longstanding provisions promulgated

as part of the 2003 rule. However, as noted above, to

clarify the timing requirements for lings required of

ECEs, this paragraph references the requirement that

such lings be made only during the three years after

the ECE is originated.

4. Information To Be Reported

Paragraph (d) of the nal rules is unchanged from

the proposed rules. It claries that the reporting

requirements of §2520.101-2 will only be satised by

ling a completed copy of the Form M-1, including

any additional statements required pursuant to the

Form M-1 instructions. One commenter wanted even

more detailed nancial information collected on the

Form M-1. As noted earlier, after consideration of

the comments made, the Department has reviewed the

Form M-1 but made only minor changes to the content

of the Form M-1 that was proposed to correspond to

these nal rules. A notice announcing the availability

of the nalized revisions to the Form M-1 and its

instructions are published elsewhere in this edition of

the Federal Register.

5. Reporting Requirements and Timing

The nal rules retain from the 2003 rule and the

proposed rules that both MEWAs and ECEs must

le the Form M-1 annually, with ECEs only having

to le annually for the rst three years following

an origination. However, to clarify the application

of the new registration requirements, the annual

ling requirements were moved from paragraph (e)

to paragraph (f) (and paragraphs (f) and (g) were

redesignated paragraphs (g) and (h)).

As mentioned previously, MEWAs and ECEs are

also subject to additional (non-annual) lings in certain

circumstances. Several non-annual ling events were

included in the 2003 regulation, but, as previously

explained, these lings were relabeled and expanded in

the proposed rules and these nal rules to implement

changes to the statutory language. The 2003 regulation

and the proposed rules generally required an additional

ling when a MEWA or ECE: (1) First began oering

or providing coverage for medical care to employees of

two or more employers; (2) began oering or providing

coverage for medical care to employees of two or

more employers after a merger with another MEWA

or ECE; or (3) increased the number of employees

receiving medical care under the MEWA or ECE by

at least 50 percent over the number of employees

on the last day of the previous calendar year. In the

proposed rules, the rst event was modied to conform

to the statutory language under ERISA section 101(g)

directing MEWAs to register with the Secretary by

ling a Form M-1 prior to operating in any State.

Additionally, the proposed rules directed that a ling

be made in the event a MEWA (and in some cases an

113

ECE) expands its operations into additional States or

experiences a material change as dened in the Form

M-1 instructions. These ling events are preserved in

these nal rules.

Several commenters sought to limit lings due to

a material change. This ling event was added to

direct an entity to update its Form M-1 ling in the

event that it experienced changes in certain nancial

or custodial information. The Department intends to

follow the same basic structure for these lings as it

has indicated it will for lings related to operating in a

State. So, for example, if a MEWA or ECE takes action

to add or remove an individual who is a marketer or

promoter, the MEWA or ECE would have experienced

a material change and would need to report. However,

if the MEWA or ECE employs a third party (and

appropriately identies that entity in its lings) and the

third party takes action to add or remove an individual

who is a marketer or promoter, the MEWA or ECE

will not have experienced a material change and no

additional ling will be required. In the event an entity

experiences a material change, the online ling system

will allow them to log on, import data from the most

recently completed ling, and make the necessary

changes. The regulatory provision is retained as

proposed, but in response to these comments, the

Department will continue to ensure the electronic ling

system minimizes the additional burden on entities

that experience a material change. Consistent with

the 2003 rule and the proposed rules, these nal rules

direct MEWAs to submit lings for the duration of their

existence and ECEs to le only during the three-year

period following an origination. As noted above, ECEs

that begin operating in a new State or experience a

material change during their three-year ling period

report those events. ECEs that are not required to le

because they are outside their three-year period do not

need to report those events.

The nal rules also apply new timing standards on

MEWAs and ECEs for these additional lings. Under

the 2003 regulation, MEWAs and ECEs led the Form

M-1 within 90 days of the occurrence of certain events.

The proposed and these nal rules direct entities to

le 30 days prior to or within 30 days of the event,

depending on the type of event which prompts the

ling. The timing requirements in paragraph (e)

implement section 6606 of the Aordable Care Act,

which provides that the ling must happen “prior

to operating in a State” and will also facilitate the

Department’s timely receipt of information related to

the other ling events described above. One

commenter suggested that ECEs not be required to le

30 days prior to operating in an additional State because

it might be dicult for the entity to determine when the

event occurs. The Department considered this comment

and, as previously stated, has revised the provision to

address this concern. In these nal rules, a MEWA or

ECE will need to make a registration or special ling

within 30 days of knowingly operating in any additional

State or States. The Department does, however, expect

MEWAs and ECEs to periodically monitor the activities

of participating employers so that they become aware

of any unilateral actions by participating employers that

have caused them to begin operating in an

additional State. Knowledge by a MEWA or ECE

includes knowledge by an employee or agent of the

MEWA or ECE.

The provision included in the proposed rules

to discourage “blanket lings,” (i.e., registration,

origination, or special lings that cover multiple States,

unless the ler expects to begin operating in all the

named States in the near future), was retained in these

nal rules. Blanket lings that list States where the

ler has no immediate intent to operate could frustrate

the law’s goal of gathering and maintaining timely

and accurate information on MEWAs. Under this

provision, a ling is considered lapsed with respect to

a State if benets consisting of medical care are not

oered or provided in the State during the calendar year

immediately following the ling. A new ling would

be required if the ler intends to resume operating in

that

State.

To minimize the burden of compliance, the nal

rules continue to permit MEWAs and ECEs to make a

single ling to satisfy multiple ling events so long as

the ling is timely for each event.

As in the 2003 rule and the proposed rules, ling

extensions are available. Any ling deadline that is a

Saturday, Sunday, or federal holiday is automatically

extended to the next business day. The proposed rules

provided a more substantial extension for annual lings

if MEWAs and ECEs requested such an extension

following the procedure outlined in the instructions

to the Form M-1. A question was raised regarding

whether extensions were limited to annual lings. The

Department considered this option and believes that any

ling should be eligible for an extension so long as the

request is made in a timely manner and in accordance

with the Form M-1 instructions. A modication to this

eect was made to the operative language in paragraph

(e) of §2520.101-2 of the nal rules.

6. Electronic Filing

As in the proposed rules, paragraph (g) of

§2520.101-2 of the nal rules eliminates the option

to le a paper copy of the completed Form M-1. As

is now the case for Form 5500 Annual Return/Report

filings required under Title I of ERISA and consistent

with the goals of E-government, as recognized by the

Government Paperwork Elimination Act

and the

E-Government Act of 2002,

these final rules require

that the Form M-1 be filed electronically. Electronic

filing of benefit plan information, among other program

strategies, facilitates EBSA’s achievement of its

Strategic Goal to “assure the security of the retirement,

health and other workplace related benefits of American

workers and their families.’’ EBSA’s strategic goal

directly supports the Secretary of Labor’s Strategic Goal

to “secure health benefits.”

A cornerstone of the

Title XVII, Public Law 105-277, 112 Stat. 2681 (Oct. 21, 1998).

Public

Law 107-347, 116 Stat. 2899 (Dec. 17, 2002).

For further information on the Department of Labor’s Strategic Plan and

EBSA’s relationship to it, see http://www.dol.gov/_sec/stratplan/.

114

Department’s enforcement program is the collection,

analysis, and disclosure of benet plan information.

Electronic ling minimizes errors and provides

faster access to reported data, assisting EBSA in its

enforcement, oversight, and disclosure roles and

ultimately enhancing the security of plan benets.

Electronic ling of the Form M-1 also reduces the

paperwork burden and costs related to printing and

mailing forms and, with the use of secure account

access, allows updating of previously reported

information to facilitate simplied future reporting.

Finally, consistent with current practice, the information

will be available for reference by participants,

beneciaries, participating employers, and other

interested parties such as State regulators. A notice

announcing the availability of the updated Form M-1

ling system will be published elsewhere in this edition

of the Federal Register.

7. Penalties

a. Civil penalties and procedures. The nal rules

retain the references to section 502(c)(5) of ERISA, 29

U.S.C. 1132(c)(5) and §2560.502c-5 regarding civil

penalties and procedures.

b. Criminal penalties and procedures. Aordable

Care Act section 6601 added ERISA section 519, which

prohibits a person from making false statements or

representations of fact in connection with a MEWA’s

nancial condition, the benets it provides, or its

regulatory status as a MEWA. The Aordable Care Act

also amended ERISA section 501(b) to impose criminal

penalties on any person who is convicted of violating

the prohibition in ERISA section 519. The nal rules

retain the cross-reference to sections 501(b) and 519

of ERISA, 29 U.S.C. 1131 and 1149, for the purpose

of implementing these new rules as they relate to

ling a Form M-1 prior to operating in a State or other

registration, origination, and special lings.

c. Cease and desist and summary seizure and

procedures. Section 6605 of the Aordable Care Act

added section 521 to ERISA, which authorizes the

Secretary to issue cease and desist orders, without prior

notice or a hearing, when it appears to the Secretary

that the alleged conduct of a MEWA is “fraudulent,

or creates an immediate danger to the public safety or

welfare, or is causing or can be reasonably expected

to cause signicant, imminent, and irreparable public

injury.” This section also allows the Secretary to

issue an order to seize the assets of a MEWA that the

Secretary determines to be in a nancially hazardous

condition. The regulation providing guidance on the

cease and desist orders and summary seizure rules

published elsewhere in this Federal Register also

includes regulatory guidance on the procedural rules

for this process. A cease and desist order containing

a prohibition against transacting business with any

MEWA or plan would prevent the MEWA or a person

from avoiding the cease and desist order by shutting the

MEWA down and re-establishing it in a new location or

under a new identity.

As such, the nal rules retain the cross-reference

to section 521 of ERISA and §2560.521 regarding

the Secretary’s authority to issue cease and desist and

summary seizure orders.

B. Amendment to Regulations Under ERISA Sections

103 and 104

Pursuant to authority in ERISA section 104(a)(3) to

establish reporting exemptions and simplied reporting

for welfare benet plans, this rulemaking also makes

ling the Form M-1 an integral part of compliance

with ERISA’s simplied reporting requirements by

requiring all plans subject to the Form M-1 ling

requirements under §2520.101-2 to le a Form 5500

Annual Return/Report, and include specic Form M-1

compliance information. The revisions to the Form

5500 and instructions reecting these nal rules are

being published simultaneously as a Notice of Adoption

of Revisions to the Form 5500 Annual Return/Report

in today’s Federal Register. That document includes

a discussion of the changes to the Form 5500 and

instructions as well as the Department’s ndings

required under sections 104(a)(3) and 110 of ERISA

with regard to the use of the revised Form 5500 as a

simplied report, alternative method of compliance,

and/or limited exemption pursuant to §2520.103-1(b).

We requested but received no comments on these

changes to the annual reporting requirements; therefore,

these nal rules retain the changes proposed to further

enhance the Department’s ability to enforce the Form

M-1 ling requirements under §2520.101-2, except

for technical changes and a clarication that all plans

required to le the Form M-1 (plan MEWAs and ECEs)

are required to le a Form 5500 and to answer the Form

M-1 compliance questions on the Form 5500.

The primary change to §2520.103-1 being adopted in

this rule is the addition of a new paragraph (f) regarding

the content of the annual report. Existing paragraph

(f) of §2520.103-1 is redesignated paragraph (g), but

is otherwise unchanged. New §2520.103-1(f) applies

to all plans that are subject to the Form M-1 ling

requirements of §2520.101-2 during the plan year. This

change provides that all such plans must demonstrate

compliance with §2520.101-2 (ling the Form M-1)

in order to satisfy the annual reporting requirements of

§2520.103-1. Pursuant to ERISA section 502(c)(2),

29 U.S.C. 1132(c)(2), a plan administrator who fails to

le a Form 5500 Annual Return/Report with a proof

of compliance with §2520.101-2 may be subject to a

civil penalty of up to $1,100 a day (or higher amount

if adjusted pursuant to the Federal Civil Penalties

Ination Adjustment Act of 1990, as amended) for

each day a plan administrator fails or refuses to le a

Unlike plan MEWAs that are under a permanent requirement to file the

Form M-1, 29 CFR 2520.101-2 requires an ECE to le the Form M-1

only during the three years following each origination event (an ECE may

experience more than one origination event). Therefore, the nal Form

5500 rules for plans required to le the Form M-1 apply to ECEs only

during the periods in which ECEs are required to le the Form M-1.

115

complete report. Although ERISA sections 505 and

734 give the Secretary the authority to require MEWAs

and ECEs that are employee benet plans to comply

with the requirements of §2520.101-2, unlike MEWAs

that are not employee benet plans, there is no specic

ERISA civil penalty applicable to plan MEWAs and

ECEs for a failure to comply with those requirements.

These changes to the Form 5500 annual reporting

requirements for plan MEWAs and ECEs will enhance

the Department’s ability to enforce the Form M-1 ling

requirements.

The nal rules include conforming changes adding

references to the new §2520.103-1(f) and other

conforming changes in §§2520.103-1(a), (b), (c) and

§2520.104-41. A corresponding change is also made

to §2520.104-20 to expressly provide that the limited

ling exemption under §2520.104-20 is no longer

available to plan MEWAs and ECEs with fewer than

100 participants required to le the Form M-1 (small

plans). In addition, a new paragraph (E) has been

added to §2520.103-1(c)(2)(ii) to provide that small

plans subject to the Form M-1 ling requirements are

not eligible to le the Form 5500-SF (Short Form 5500

Annual Return/Report of Small Employee Benet

Plan) under §2520.103-1(c)(2)(ii) and §2520.104-41.

Although small plans subject to the Form M-1 ling

requirements are not eligible to le the Form 5500-SF,

these plans are still eligible for the simplied Form

5500 annual reporting for small welfare plans, and

these plans that meet all of the requirements for

the relief under §2520.104-44 are exempt from certain

nancial reporting and audit requirements. Small plan

MEWAs and ECEs that qualify for the relief provided

by 29 CFR 2520.104-44 would only need to le the

Form 5500 Annual Return/Report and, if applicable,

Schedule A (Insurance Information) and Schedule G,

Part III (nonexempt transactions).

Such plans are

no longer eligible to use the Form 5500-SF because

that form does not include Schedule A insurance

information. The Department believes that plans

subject to these nal rules that claim to provide insured

benets should be required to complete the Schedule

A so that enforcement ocials and the public have

information about the insurance policy and insurance

company through which the plan is providing insurance

coverage. Thus, these changes give the Secretary an

important enforcement tool while imposing minimal

burden on small plan MEWAs and ECEs.

IV. Regulatory Impact Analysis

A. Executive Order 12866 and 13563

Under Executive Order 12866, a “signicant”

regulatory action is subject to the requirements of the

In addition, an unrelated technical correction to 29 CFR 2520.104-41

is being included in this rulemaking to add an express reference to the

Form 5500-SF.

Neither these final regulations nor the companion revisions to the

Form 5500 change the eligibility requirements for the limited exemption

under 29 CFR 2520.104-44. The Department expects that many plan

MEWAs and ECEs will not satisfy the unfunded and insured eligibility

requirements in the limited exemption and will continue to be ineligible

for the reporting relief under 29 CFR 2520.104-44.

Executive Order and subject to review by the Oce

of Management and Budget (OMB). Under section

3(f) of the Executive Order, a “signicant regulatory

action” is an action that is likely to result in a rule:

(1) Having an annual eect on the economy of $100

million or more, or adversely and materially aecting a

sector of the economy, productivity, competition, jobs,

the environment, public health or safety, or State, local

or tribal governments or communities (also referred

to as “economically signicant”); (2) creating serious

inconsistency or otherwise interfering with an action

taken or planned by another agency; (3) materially

altering the budgetary impacts of entitlement grants,

user fees, or loan programs or the rights and obligations

of recipients thereof; or (4) raising novel legal or policy

issues arising out of legal mandates, the President’s

priorities, or the principles set forth in the Executive

Order. OMB has determined that this action is not

economically signicant within the meaning of section

3(f)(1) of the Executive Order but is signicant under

section 3(f)(4) of the Executive Order because it raises

novel legal or policy issues arising from the President’s

priorities. Executive Order 13563 emphasizes the

importance of quantifying both costs and benets, of

reducing costs, of harmonizing rules, and of promoting

exibility.

The Department estimates that the total cost of this

rule would be approximately $137,400 in the rst

year, or an average of approximately $284 for each of

the 484 entities expected to le the Form M-1. These

costs are all associated with the information collection

request contained in these rules and, therefore, are

discussed in the Paperwork Reduction Act Section,

below.

1. Summary and Need for Regulatory Action

As discussed earlier in this preamble, section 6606

of the Aordable Care Act amended section 101(g) of

ERISA to require the Secretary of Labor to promulgate

regulations requiring MEWAs providing medical care

bene

ts (within the meaning of section 733(a)(2) of

ERISA) that are not ERISA-covered group health plans

(non-plan MEWAs) to register with the Secretary before

operating in a State.

The original MEWA reporting requirement in ERISA

section 101(g) was enacted by Congress as part of

the Health Insurance Portability and Accountability

Act (HIPAA) of 1996 in response to a 1992 General

Accounting Oce (GAO) recommendation.

The

GAO recommended that the Department develop

a mechanism to help States identify fraudulent and

abusive MEW

As. The HIPAA provision led to the

Department creating the Form M-1 under a 2000

interim final rule and 2003 final rule.

See, Employee Bene its: States Need Labor’

s Help Regulating Multiple

Employer Welfare Arrangements, March 1992, GAO/HRD-92-40.

65 FR 715 (02/11/2000) and 68 FR 17494 (04/09/2003). The Form

M-1 has been updated and is reissued each year in December by the

Department and modied periodically to address changes to the statutory

provisions in part 7 of ERISA.

116

ERISA section 101(g), as amended by the Aordable

Care Act, directs the Department of Labor (the

Department) to promulgate rules requiring MEWAs

that are not group health plans (non-plan MEWAs) to

prior to operating in a State. ERISA sections 505 and

734 provide the Secretary with the authority to require

plan MEWAs and ECEs to comply with the Form

M-1 reporting requirements,

but because ERISA

section 101(g) only applies to non-plan MEWAs, only

non-plan MEWAs are subject to civil penalties under

ERISA section 502(c)(5) for failure to comply with

the Form M-1 requirements.

In order to enhance

the Department’s ability to enforce the Form M-1

requirements and ensure that MEWAs are subject

to the same rules under the law, this nal rule will

require all plan MEWAs to prove compliance with the

Form M-1 ling requirements in order to satisfy the

ERISA annual reporting requirements.

In amending

the Department’s MEWA reporting regulation to

require MEWAs to register with the Secretary before

operating in a State, these nal rules direct Form M-1

lers to provide additional information regarding the

MEWA or ECE and apply new timing standards for the

lings that are made when a MEWA’s or ECE’s status

changes. These amendments will aid the Department

in its oversight of MEWAs consistent with its expanded

authority provided by the Aordable Care Act

and

allow the Department to provide critical information

to State insurance departments that coordinate their

investigations and enforcement actions against

fraudulent and abusive MEWAs with the Department.

Over the last several years, the Department has

observed a downward trend in the number of MEWAs

that le the Form M-1, raising concerns that some

existing MEWAs are not ling the form. Under the

2003 regulation, the Department has the ability to assess

penalties against MEWAs that fail to le the Form M-1

only in limited circumstances and if a determination

regarding plan status was made by the Secretary. To

In the preamble to the 2000 interim final rule, the Department explained

“[a]n important reason for requiring these groups to file is that the

administrator of a MEWA may incorrectly determine that it is a group

health plan or that it is established or maintained pursuant to a collective

bargaining agreement. A reporting requirement limited only to MEWAs

that are not group health plans may not result in reporting by many such

MEWAs, thus greatly reducing the value of the data collected.” See 65 FR

7152, 7153 (Feb. 11, 2000).

Pursuant to ERISA section 502(c)(5), a civil penalty of up to $1,100 (or

higher amount if adjusted pursuant to the Federal Civil Penalties Inflation

Adjustment Act of 1990, as amended) a day may be assessed for each day

a non-plan MEWA fails to file a complete Form M-1.

Pursuant to ERISA section 502(c)(2), a plan administrator who fails to

file a Form 5500 Annual Return/Report with a proof of compliance with

the M-1 filing requirements may be subject to a civil penalty of up to

$1,100 a day (or higher amount if adjusted pursuant to the Federal Civil

Penalties Inflation Adjustment Act of 1990, as amended) for each day a

plan administrator fails or refuses to file a complete report.

As part of the Affordable Care Act, Congress also enacted ERISA

section

521, which authorized the Secretary to issue cease and desist

orders, without prior notice or a hearing, when it appears to the Secretary

that a MEWA’s alleged conduct is fraudulent, creates an immediate

danger to the public safety or welfare, or causes or can reasonably be

expected to cause significant, imminent, and irreparable public injury.

Section 521 also authorizes the Secretary to issue a summary order to seize

the assets of a MEWA that the Secretary determines to be in financially

hazardous condition. The Department also is finalizing rules for these

provisions, which are published elsewhere in today’s Federal Register.

address this issue and encourage compliance with the

Form M-1 ling requirement, the Department also is

amending, as part of this regulatory action, the Form

5500 annual reporting requirements. The amendment

will require all plans subject to the Form M-1 ling

requirements, regardless of plan size or type of

funding,

to le the Form 5500 Annual Return/Report

and demonstrate on the form compliance with Form

M-1 ling requirements. Failure to do so may result in

an assessment of penalties under ERISA section 502(c)

(2).

These amendments to the Department’s MEWA

reporting standards would provide a cost eective

means to implement the expanded MEWA reporting as

enacted in the Aordable Care Act. As stated above,

the Department estimates that the average cost for each

entity that the Department expects to le the revised

Form M-1 would average approximately $284 during

the rst year and $181 during each subsequent year.

2. Benets of Rule

As discussed earlier in this preamble, section 6606

of the Aordable Care Act amended section 101(g)

of ERISA directing the Secretary to promulgate

regulations requiring non-plan MEWAs providing

medical care benets (within the meaning of section

733(a)(2) of ERISA) to register with the Secretary

before operating in a State. By implementing this

statutory amendment, the Department would receive

prior notice of a MEWA’s intention to commence

operations in a State. Such notication would help

the Department and State insurance commissioners to

ensure that MEWAs are being lawfully operated and

that sucient insurance has been purchased or adequate

reserves established to pay benet claims before the

MEWAs begin operating

in a State. These nal rules

would improve MEWA compliance and deter fraudulent

and abusive MEWA practices, thereby protecting and

securing the benets of participants and beneciaries by

ensuring that MEWA assets are preserved and benets

timely paid. These potential benets have not been

quantied, but the Department expects that they will

justify the costs.

3. Costs of Rule

The costs of the rule are associated with the

amendments to the Form M-1 and Form 5500 reporting

requirements and are therefore discussed in the

Paperwork Reduction Act section, below.

B. Paperwork Reduction Act

In accordance with the requirements of the

Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.

The nal rules expressly provide that the limited exemption for certain

unfunded and insured small welfare plans under §2520.104-20 is not

available for any plans subject to the Form M-1 ling requirements. In

addition, these plans also are not eligible to use the Form 5500-SF.

A plan administrator who fails to le a Form 5500 with a proof of Form

M-1 compliance could be subject to a civil penalty of up to $1,100 a

day for each day the plan administrator fails or refuses to le a complete

report.

Section 2520.101-2(b)(8) of the proposed rule provides that the term

“operating” means any activity including but not limited to marketing,

soliciting, providing, or oering to provide medical care benets.

117

Fully-insured Not fully-insured

One State Multi States One State Multi States

New Filing...............................................................................

Part I........................................................................................

Part II.......................................................................................

Part III.....................................................................................

120

3506(c)(2)), the Department submitted an information required to be disclosed on the Form

information collection request (ICR) to OMB in M-1 by adding new data elements. Therefore,

accordance with 44 U.S.C. 3507(d), contemporaneously the Department assumes that all administrators of

with the publication of the proposed regulation, for

OMB’s review.

Although no additional public comments were

received that specically addressed the paperwork

burden analysis of the information collections at the

proposed rules stage, the comments that were submitted

and described earlier in this preamble, contained

information relevant to the costs and administrative

burdens attendant to the proposals. The Department

took into account such public comments in connection

with making changes to the nal rules and in developing

the revised paperwork burden analysis summarized

below.

In connection with publication of these nal rules,

the Department submitted a revision to the ICR under

OMB Control Number 1210-0116. OMB approved the

revised ICR, which is scheduled to expire on February

29, 2016. A copy of the revised ICR may be obtained

by contacting the PRA addressee shown below or at

http://www.RegInfo.gov.

PRA ADDRESSEE: G. Christopher Cosby, Oce

of Policy and Research, U.S. Department of Labor,

Employee Benets Security Administration, 200

Constitution Avenue NW., Room N-5718, Washington,

DC 20210. Telephone: (202) 693-8410; Fax: (202) 219-

4745. These are not toll-free numbers.

Between 2006 and 2010, an average of 484 entities

(MEWAs and ECEs) led the Form M-1 with the

Department (a high of 533 in 2006 and a low of

436 in 2010). Of the total lings, on average, 217

were submitted via mail and 267 were submitted

electronically through the Form M-1 electronic ling

system provided by the Department via the Internet.

The fraction ling electronic returns has been increasing

and reached nearly 63 percent in 2010. This rule will

require all lings to be submitted electronically.

As discussed above and pursuant to section 6606

of the Aordable Care Act, these rules amend the

MEWAs and ECEs that le the Form M-1 in-house

(an estimated 10 percent of lers) would spend two

hours familiarizing themselves with the changes to

the form that would be made by the nal regulations.

This would result in a total hour burden of 97 hours

(48 entities * 2 hours). The Department estimates that

Part I of the Form (the identifying information) would

require ve minutes to complete. The time required

to complete Part II would vary based on the number

of States in which the entity provides coverage, and

the Department estimates that this would require 60

minutes for single-State filers and 120 minutes for

multi-State filers. The Department expects the time

required to complete Part III would be 15 minutes for

fully-insured filers and 30 minutes for not fully-insured

filers. Table 1 below summarizes the estimates of time

required to complete each part of the form. Based on

the foregoing, the Department estimates that the total

hour burden for entities to file the Form M-1 using in-

house resources would be 188 hours in the first year

with an equivalent cost of $17,900 assuming all work

will be performed by an employee benefits

professional at $94.91 per hour.

The cost to submit

electronic filings would be negligible.

The Department estimates that the annual hour

burden for Form M-1 filings prepared in-house in

subsequent years would be approximately 100 hours as

summarized in Table 2.

The Department’s estimate is

based on the assumption that approximately 44 new

entities

will file the Form M-1 each year, and thus,

approximately four new entities will prepare the Form

M-1 in-house. The Department estimates that it would

take two hours for these administrators, resulting in an

hour burden of eight hours. The Department estimates

that entities preparing the form in-house would spend

four hours completing Part I, 68 hours completing Part

II, and 15 hours completing Part III. The equivalent

Table 1--Time To Fill Out Form

[Minutes]

The Department estimates 2012 hourly labor rates include wages, other

benets, and overhead based on data from the National Occupational

Employment Survey (June 2011, Bureau of Labor Statistics) and the

Employment Cost Index (September 2011, Bureau of Labor Statistics); the

2010 estimated labor rates are then inated to 2012 labor rates.

These are rounded values. The totals may dier slightly as a result.

An average of 9 percent of entities originate each year according to Form

M-1 data.

118

Fully-insured Not fully-insured

Total

One State Multi States One State Multi States

# of MEWAs and ECEs....................................... 16 18 9 5 48

Review: Year 1....................................................

New Filing: Subsequent Years.............................. 32 36 18 11 97

Part I.................................................................... 3 3 2 1 9

Part II................................................................... 1 2 1 0 4

Part III................................................................. 16 36 9 11 72

Total Time: Year 1............................................... 4 5 4 3 16

Total Time: Subsequent Years............................. 54 78 31 25 188

24 45 15 15 100

Table 2--Hour Burden to Prepare Form M-1, In-House Preparation

cost of this annual hour burden is estimated to be

$8,600, assuming a $94.91 hourly labor rate for an

employee benets professional.

1. Cost Burden

The Department assumes that 90 percent of the

484 entities (435 entities) that will le the Form M-1

will use third-party service providers to complete and

submit the Form M-1.

Because the Department is

adding additional data elements to the form, the

Department assumes that in the year of implementation,

all service providers would spend additional time

familiarizing themselves with the changes. The

Department estimates that entities that use third party

service providers would incur the cost of one hour for

service providers to review the new rule as service

providers likely will provide this service for multiple

entities and therefore spread this burden across multiple

entities. This results in a one-time cost burden of

$41,300 (435 entities * 1 hour * $94.91).

The total estimated cost burden for preparing the

form is arrived at by multiplying the number of lers

(found in Table 3) by the amount of time required to

prepare the documents (Table 1) and multiplying this

result by the hourly cost of an employee benets

professional ($94.91 dollars an hour). Based on the

foregoing, the total cost burden for entities that use

purchased third-party resources to le the Form M-1

is $119,500 in the rst year and $78,200 in later years.

Table 3 summarizes the estimates of the cost burden.

These regulations direct a plan that is subject to Form

M-1 ling requirements to include proof of Form M-1

compliance as part of the Form 5500. Accordingly,

the Department is adding a new Part III to the Form

5500, that asks for information regarding whether the

employee welfare benet plan is subject to the Form

M-1 ling requirements, and if so, whether the plan

is currently in compliance with the Form M-1 ling

requirements under §2520.101-2. Plan administrators

that indicate the plan is subject to the Form M-1 ling

requirements also would be required to enter the

Receipt Conrmation Code for the Form M-1 annual

report or the most recent Form M-1 required to be led

with the Department. Failure to answer the Form M-1

compliance questions will result in rejection of the Form

5500 Annual Return/Report as incomplete and civil

penalties may be assessed pursuant to ERISA section

502(c)(2). The Department believes that the burden

associated with this revision would be de minimis

because plan administrators would know whether the

plan is subject to and in compliance with the Form M-1

ling requirements, and they would have the Receipt

Table 3--Cost Burden to Prepare Form M-1, Third-Party Preparation

Fully-insured Not fully-insured

Total

One State Multi States One State Multi States

# of MEWAs and ECEs....................................... 145 163 79 49 435

Review: Year 1....................................................

New Filing: Subsequent Years............................

Part I....................................................................

Part II..................................................................

Part III.................................................................

Total Time: Year 1...............................................

Total Time: Subsequent Years...............................

$13,700

$1,100

$13,700

$3,400

$15,400

$1,300

$30,900

$3,900

$7,500

$600

$7,500

$3,700

$4,700

$400

$9,400

$2,300

$41,300

$3,400

$61,400

$13,400

$32,000

$18,300

$51,400

$36,000

$19,300

$11,800

$16,800

$12,100

$119,500

$78,200

Note: The displayed numbers are rounded to the nearest hundred and therefore may not add up to the totals.

This assumption is made in connection with EBSA’s principal

reporting form, the Form 5500, and was validated through a filer survey.

119

Conrmation Code for the Form M-1 ling readily

available.

The regulations also amend §2520.104-20 to

expressly provide that the exemption from ling the

Form 5500 is not available for small plans required to

le the Form M-1. Following the methodology used

to calculate the burden in the Form 5500 regulations,

the Department estimates that for small plans that meet

the requirements of §2520.104-44, ling a Form 5500

and completing Schedule A and Part III of Schedule

G would cause them to incur an annual cost of $450

to engage a third-party service provider to prepare the

form and schedules for submission. The Department

does not have sucient data to determine the number

of small plan MEWAs and ECEs that would be required

to le the Form 5500 under the nal rules, but believes

that the number of such plans would be small, because

90 percent of the entities that le Form M-1 with the

Department cover more than 100 participants.

2. Cost to the Government

The Department estimates that the cost

to the Federal government to process Form M-1s is

Table 4--Cost of Federal

Government of Form M-1

Processing of M1 Forms

Online.................................................... $2,200

Maintenance of System.......................... 5,000

Total................................................ 7,200

approximately $7,200. This includes the cost to process

online submissions and maintain the processing system,

and was estimated by the oces within EBSA that are

responsible for overseeing these activities.

These paperwork burden estimates are summarized

as follows:

Type of Review: Revised collection.

Agency: Employee Benets Security Administration,

Department of Labor.

Title: MEWA Form M-1

OMB Control Number: 1210-0116

Aected Public: Business or other for-prot; not-for-

prot institutions.

Estimated Number of Respondents: 484 (rst year);

484 (three-year average).

Estimated Number of Responses: 484 (rst year); 484

(three-year average).

Frequency of Response: Annually.

Estimated Annual Burden Hours: 188 (rst year);

130 (three-year average).

Estimated Annual Burden Cost: $119,500 (rst year);

$92,000 (three-year average).

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601

et seq.) (RFA) imposes certain requirements with

respect to Federal rules that are subject to the notice

and comment requirements of section 553(b) of the

Administrative Procedure Act (5 U.S.C. 551 et seq.)

and are likely to have a significant economic impact

on a substantial number of small entities. Unless an

agency certifies that a rule will not have a significant

economic impact on a substantial number of small

entities, section 603 of the RFA requires the agency to

present an initial regulatory flexibility analysis at the

time of the publication of the notice of proposed

rulemaking describing the impact of the rule on small

entities. Small entities include small businesses,

organizations and governmental jurisdictions. In

accordance with the RFA, the Department prepared an

initial regulatory flexibility analysis at the proposed

rule stage and requested comments on the analysis.

No comments were received. Below is the

Department’s final regulatory flexibility analysis and

its certification that these final regulations do not have

a significant economic impact on a substantial number

of small entities.

The Department does not have data regarding the

total number of MEWAs and ECEs that currently exist.

The best information the Department has to estimate

the number of MEWAs and ECEs is based on filings

of the Form M-1, which MEWAs and certain

collectively bargained arrangements have filed

annually with the Department. Just over 436 entities

filed the Form M-1 with the Department in 2010, the

latest year for which data is available.

The Small Business Administration uses a size

standard of less than $7 million in average annual

receipts as the cut off for small business in the finance

and insurance sector.

While the Department does not

collect revenue information on the Form M-1, it does

collect data regarding the number of participants

covered by MEWAs and ECEs that file Form M-1 and

can use participant data and average premium data to

determine the number of MEWAs and ECEs that are

small entities, because their revenues do not exceed

the $7 million threshold. For 2009, the average single

coverage annual premium was $4,717 and the average

annual family coverage premium was $12,696.

Combining these premium estimates with estimates of

the ratio of policies to the covered population from the

Current Population Survey at employers with less than

500 workers (0.309 for single coverage and 0.217 for

family coverage), the Department estimates that 62

percent of entities filing Form M-1 (258 entities) are

small entities.

While this number is a relatively large fraction of

all entities, it is about 7 percent when expressed as a

fraction of all participants covered by MEWAs and

ECEs. In addition, the Department notes that the

U.S. Small Business Administration, “Table of Small Business Size

Standards Matched to North American Industry Classification System

Codes.” http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf

Kaiser Family Foundation and Health Research Educational Trust,

“Employer Health Benefits, 2009 Annual Survey.” The reported numbers

are from Exhibit 1.2 and are for the category Annual, all Small Firms

(3-199 workers).

120

reporting burden that would be imposed on all MEWAs

and ECEs by the rule is estimated as an average cost of

$284 for each entity ling Form M-1. For all but the

smallest MEWAs or ECEs (less than 15 participants),

this represents less than one-half of one percent of

revenues.

The regulations also amend §2520.104-20 to

expressly provide that the limited exemption from ling

the Form 5500 for certain unfunded and insured small

welfare plans is not available for plans required to le

the Form M-1. As discussed in the PRA section above,

the Department estimates that these small plan MEWAs

and ECEs would incur an annual cost of $450 to engage

a third-party service provider to prepare the form and

schedules for submission. Any burden for small ECEs

is even less because these plans are subject to the Form

M-1 ling requirements only for limited periods. The

Department does not have sucient data to determine

the number of small plan MEWAs and ECEs that would

be required to le the Form 5500 under the nal rules.

About 10 percent (48) of MEWAs and ECEs ling

the Form M-1 in 2010 had less than 100 participants.

However, the 2010 Form M-1 lacks information on the

source of funding to determine which of these small

MEWAs and ECEs would be ERISA-covered plans

aected by the Final Rules.

Accordingly, the Department hereby certies that

this regulation does not have a signicant economic

impact on a substantial number of small entities.

D. Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act

of 1995 (2 U.S.C. 1501 et seq.), as well as Executive

Order 12875, this rule does not include any federal

mandate that may result in expenditures by State, local,

or tribal governments, or the private sector, which may

impose an annual burden of $100 million.

E. Executive Order 13132

When an agency promulgates a regulation that has

federalism implications, Executive Order 13132 (64 FR

43255, August 10, 1999) requires the Agency to provide

a federalism summary impact statement. Pursuant to

section 6(c) of the Order, such a statement must include

a description of the extent of the agency’s consultation

with State and local ocials, a summary of the nature

of their concerns and the agency’s position supporting

the need to issue the regulation, and a statement of the

extent to which the concerns of the State have been met.

This regulation has federalism implications,

because the States and the Federal government share

dual jurisdiction over MEWAs that are employee

benet plans or hold plan assets. Generally, States

are primarily responsible for overseeing the nancial

soundness and licensing of MEWAs under State

insurance laws. The Department enforces ERISA’s

duciary responsibility provisions against MEWAs that

are ERISA plans or hold plan assets.

Over the years, the Department and State insurance

departments have worked closely and coordinated their

investigations and other actions against fraudulent

and abusive MEWAs. For example, EBSA regional

oces have met with State ocials in their regions

and supported their enforcement eorts to shut down

fraudulent and abusive MEWAs. States have often

lobbied for stronger Federal enforcement tools to help

combat fraudulent and insolvent MEWAs. By requiring

MEWAs to register with the Department before

operating in a State by ling the Form M-1 and to

provide additional information, these nal rules respond

to the States’ concern and enhance the State and Federal

governments’ joint mission to take enforcement action

against fraudulent and abusive MEWAs and limit the

losses suered by American workers, their families, and

businesses when abusive MEWAs become insolvent

and fail to reimburse medical claims.

List of Subjects in 29 CFR Part 2520

Accounting, Employee benet plans, Pensions,

Reporting and recordkeeping requirements.

For the reasons set out in the preamble, part 2520

of Chapter XXV of Title 29 of the Code of Federal

Regulations is amended as follows:

PART 2520--[AMENDED]

•1. The authority citation for part 2520 is revised to

read as follows:

Authority: 29 U.S.C. 1021-1024, 1027, 1029-31,

1059, 1134 and 1135; Secretary of Labor’s Order

1-2011, 77 FR 1088 (January 9, 2012). Sec. 2520.101-

2 also issued under 29 U.S.C. 1181-1183, 1181 note,

1185, 1185a-d, and 1191-1191c. Sec. 2520.103-1 also

issued under 26 U.S.C. 6058 note. Sec. 2520.101-6

also issued under 29 U.S.C. 1021(k); Secs.2520.102-3,

2520.104b-1 and 2520.104b-3 also issued under 29

U.S.C. 1003, 1181-1183, 1181 note, 1185, 1185a-d,

1191, and 1191a-c. Secs. 2520.104b-1 and 2520.107

also issued under 26 U.S.C. 401 note, 111 Stat. 788;

•2. Section 2520.101-2 is revised to read as follows:

§2520.101-2 Filing by multiple employer welfare

arrangements and certain other related entities.

(a) Basis and scope. Section 101(g) of the Employee

Retirement Income Security Act (ERISA), as amended

by the Patient Protection and Aordable Care Act,

requires the Secretary of Labor (the Secretary) to

establish, by regulation, a requirement that multiple

employer welfare arrangements (MEWAs) providing

benets that consist of medical care (as described in

paragraph (b)(6) of this section), which are not group

health plans, to register with the Secretary prior to

operating in a State. Section 101(g) also permits the

Secretary to require, by regulation, such MEWAs to

report, not more frequently than annually, in such

form and manner as the Secretary may require, for

the purpose of determining the extent to which the

121

requirements of part 7 of subtitle B of title I of ERISA

(part 7) are being carried out in connection with such

benets. Section 734 of ERISA provides that the

Secretary may promulgate such regulations as may be

necessary or appropriate to carry out the provisions

of part 7. This section sets out requirements for

reporting by MEWAs that provide benets that consist

of medical care and by certain entities that claim not

to be a MEWA solely due to the exception in section

3(40)(A)(i) of ERISA (referred to in this section as

Entities Claiming Exception or ECEs). The reporting

requirements apply regardless of whether the MEWA or

ECE is a group health plan.

(b) Denitions. As used in this section, the following

denitions apply:

(1) Administrator means--(i) The person specically

so designated by the terms of the instrument under

which the MEWA or ECE is operated;

(ii) If the MEWA or ECE is a group health plan and

the administrator is not so designated, the plan sponsor

(as dened in section 3(16)(B) of ERISA); or

(iii) In the case of a MEWA or ECE for which an

administrator is not designated and a plan sponsor

cannot be identied, jointly and severally, the person

or persons actually responsible (whether or not so

designated under the terms of the instrument under

which the MEWA or ECE is operated) for the control,

disposition, or management of the cash or property

received by or contributed to the MEWA or ECE,

irrespective of whether such control, disposition, or

management is exercised directly by such person or

persons or indirectly through an agent, custodian, or

trustee designated by such person or persons.

(2) Entity Claiming Exception (ECE) means an entity

that claims it is not a MEWA on the basis that the entity

is established or maintained pursuant to one or more

agreements that the Secretary nds to be collective

bargaining agreements within the meaning of section

3(40)(A)(i) of ERISA and §2510.3-40.

(3) Excepted benets means excepted benets

within the meaning of section 733(c) of ERISA and

§2590.701-2 of this chapter.

(4) Group health plan means a group health plan

within the meaning of section 733(a) of ERISA and

§2590.701-2 of this chapter.

(5) Health insurance issuer means a health

insurance issuer within the meaning of section 733(b)

(2) of ERISA and §2590.701-2 of this chapter.

(6) Medical care means medical care within the

meaning of section 733(a)(2) of ERISA and §2590.701-

2 of this chapter.

(7) Multiple employer welfare arrangement (MEWA)

means a multiple employer welfare arrangement within

the meaning of section 3(40) of ERISA.

(8) Operating means any activity including but not

limited to marketing, soliciting, providing, or oering

to provide benets consisting of medical care.

(9) Origination means, with regard to an ECE, the

occurrence of any of the following events (an ECE is

considered to have been originated only when an event

described below occurs)--

(i) The ECE begins operating with regard to the

employees of two or more employers (including one or

more self-employed individuals);

(ii) The ECE begins operating following a merger

with another ECE (unless all of the ECEs that

participate in the merger previously were last originated

at least three years prior to the merger); or

(iii) The number of employees receiving coverage

for medical care under the ECE is at least 50 percent

greater than the number of such employees on the last

day of the previous calendar year (unless the increase

is due to a merger with another ECE under which all

ECEs that participate in the merger were last originated

at least three years prior to the merger).

(10) Reporting or to report means to le the Form

M-1 as required pursuant to sections 101(g) of ERISA;

§2520.101-2; or the instructions to the Form M-1.

(11) Special ling event means, with regard to an

ECE--

(i) The ECE begins knowingly operating in any

additional State or States that were not indicated on a

previous report led pursuant to paragraph (e)(1)(i) or

(f)(2)(i) of this section; or

(ii) The ECE experiences a material change as

dened in the Form M-1 instructions.

(12) State means State within the meaning of

§2590.701-2 of this chapter.

Except as provided in paragraph (c)(2) of this section,

the following persons are required to report under this

section:

(i) The administrator of a MEWA regardless of

whether the entity is a group health plan; and

(ii) The administrator of an ECE during the three-

year period following an event described in paragraph

(b)(9) of this section.

(2) Exceptions--(i) Nothing in this paragraph (c)

shall be construed to require reporting under this

section by the administrator of a MEWA or ECE

described under this paragraph (c)(2)(i).

(A) A MEWA or ECE licensed or authorized to

operate as a health insurance issuer in every State in

which it oers or provides coverage for medical care to

employees;

(B) A MEWA or ECE that provides coverage

that consists solely of excepted benets, which are

not subject to ERISA part 7. If the MEWA or ECE

provides coverage that consists of both excepted

benefits and other benefits for medical care that are not

excepted benefits, the administrator of the MEWA or

ECE is required to report under this section;

subject to ERISA, including a governmental plan,

church plan, or a plan maintained solely for the purpose

of complying with workmen’s compensation laws,

within the meaning of sections 4(b)(1), 4(b)(2), or 4(b)

(3) of ERISA, respectively; or

(D) A MEWA or ECE that provides coverage only

through group health plans that are not covered by

ERISA, including governmental plans, church plans, or

122

plans maintained solely for the purpose of complying

with workmen’s compensation laws within the meaning

of sections 4(b)(1), 4(b)(2), or 4(b)(3) of ERISA,

respectively (or other arrangements not covered by

ERISA, such as health insurance coverage oered to

individuals other than in connection with a group health

plan, known as individual market coverage).

(ii) Nothing in this paragraph (c) shall be construed

to require reporting under this section by the

administrator of an entity that would not constitute a

MEWA or ECE but for the following circumstances

under this paragraph (c)(2)(ii).

(A) The entity provides coverage to the employees of

two or more trades or businesses that share a common

control interest of at least 25 percent at any time

during the plan year, applying principles similar to the

principles of section 414(c) of the Internal Revenue

Code;

(B) The entity provides coverage to the employees

of two or more employers due to a change in control of

businesses (such as a merger or acquisition) that occurs

for a purpose other than avoiding Form M-1 ling and

is temporary in nature. For purposes of this paragraph,

“temporary” means the MEWA or ECE does not extend

beyond the end of the plan year following the plan year

in which the change in control occurs; or

(excluding spouses and dependents) who are not

employees or former employees of the plan sponsor,

such as non-employee members of the board of

directors or independent contractors, and the number

of such persons who are not employees or former

employees does not exceed one percent of the total

number of employees or former employees covered

under the arrangement, determined as of the last day of

the year to be reported or, determined as of the 60th day

following the date the MEWA or ECE began operating

in a manner such that a ling is required pursuant to

paragraph (e)(1)(i), (2), or (3) of this section.

(3) Examples. The rules of this paragraph (c) are

illustrated by the following examples:

Example 1. (i) Facts. MEWA A begins operating

by oering coverage to the employees of two or more

employers on August 1, 2013. MEWA A is licensed

or authorized to operate as a health insurance issuer in

every State in which it oers coverage for medical care

to employees.

(ii) Conclusion. In this Example 1, the administrator

of MEWA A is not required to report via Form M-1.

MEWA A meets the exception to the ling requirement

in paragraph (c)(2)(i)(A) of this section because it is

licensed or authorized to operate as a health insurance

issuer in every State in which it oers coverage for

medical care to employees.

Example 2. (i) Facts. Company B maintains a group

health plan that provides benets for medical care for

its employees (and their dependents). Company B

establishes a joint venture in which it has a 25 percent

stock ownership interest, determined by applying the

principles similar to the principles under section 414(c)

of the Internal Revenue Code, and transfers some of its

employees to the joint venture. Company B continues

to cover these transferred employees under its group

health plan.

(ii) Conclusion. In this Example 2, the administrator

is not required to le the Form M-1 because Company

B ’s group health plan meets the exception to the ling

requirement in paragraph (c)(2)(ii)(A) of this section.

This is because Company B ’s group health plan would

not constitute a MEWA but for the fact that it provides

coverage to two or more trades or businesses that share

a common control interest of at least 25 percent.

Example 3. (i) Facts. Company C maintains a

group health plan that provides benets for medical

care for its employees. The plan year of Company

C ’s group health plan is the scal year for Company

C, which is October 1st--September 30th. Therefore,

October 1, 2012--September 30, 2013 is the 2013

plan year. Company C decides to sell a portion of its

business, Division Z, to Company D. Company C signs

an agreement with Company D under which Division Z

will be transferred to Company D, eective September

30, 2013. The change in control of Division Z therefore

occurs on September 30, 2013.

Under the terms of the agreement, Company C

agrees to continue covering all of the employees that

formerly worked for Division Z under its group health

plan until Company D has established a new group

health plan to cover these employees. Under the terms

of the agreement, it is anticipated that Company C will

not be required to cover the employees of Division Z

under its group health plan beyond the end of the 2014

plan year, which is the plan year following the plan year

in which the change in control of Division Z occurred.

(ii) Conclusion. In this Example 3, the administrator

of Company C ’s group health plan is not required to

report via the Form M-1 on March 1, 2014 for scal

year 2013 because it is subject to the exception to

the ling requirement in paragraph (c)(2)(ii)(B) of

this section for an entity that would not constitute a

MEWA but for the fact that it is created by a change in

control of businesses that occurs for a purpose other

than to avoid ling the Form M-1 and is temporary in

nature. Under the exception, “temporary” means the

MEWA does not extend beyond the end of the plan year

following the plan year in which the change in control

occurs. The administrator is not required to le the

2013 Form M-1 annual report because it is anticipated

that Company C will not be required to cover the

employees of Division Z under its group health plan

beyond the end of the 2014 plan year, which is the plan

year following the plan year in which the change in

control of businesses occurred.

Example 4. (i) Facts. Company E maintains a

group health plan that provides benets for medical

care for its employees (and their dependents) as well

as certain independent contractors who are self-

employed individuals. The plan is therefore a MEWA.

The administrator of Company E ’s group health plan

uses calendar year data to report for purposes of the

Form M-1. The administrator of Company E ’s group

health plan determines that the number of independent

contractors covered under the group health plan as

of the last day of calendar year 2013 is less than one

123

percent of the total number of employees and former

employees covered under the plan determined as of the

last day of calendar year 2013.

(ii) Conclusion. In this Example 4, the administrator

of Company E ’s group health plan is not required to

report via the Form M-1 for calendar year 2013 (a

ling that is otherwise due by March 1, 2014) because

it is subject to the exception to the ling requirement

provided in paragraph (c)(2)(ii)(C) of this section for

entities that cover a very small number of persons who

are not employees or former employees of the plan

sponsor.

(d) Information to be reported--(1) Any reporting

required by this section shall consist of a completed

copy of the Form M-1 Report for Multiple Employer

Welfare Arrangements (MEWAs) and Certain

Entities Claiming Exception (ECEs) (Form M-1) and

any additional statements required pursuant to the

instructions for the Form M-1.

(2) Rejected lings.--The Secretary may reject any

ling under this section if the Secretary determines that

the ling is incomplete, in accordance with §2560.502c-

5 of this chapter.

(3) If the Secretary rejects a ling under paragraph

(d)(2) of this section, and if a revised ling satisfactory

to the Secretary is not submitted within 45 days after

the notice of rejection, the Secretary may bring a civil

action for such relief as may be appropriate (including

penalties under section 502(c)(5) of ERISA and

§2560.502c-5 of this chapter).

(e) Origination, registration, and other non-annual

reporting requirements and timing--(1) General rule for

ECEs--(i) Except as provided in paragraph (e)(1)(ii) of

this section, and subject to the limitations established

by paragraph (c)(1)(ii) of this section, when an ECE

experiences an event described in paragraphs (b)(9)

or (b)(11) of this section, the administrator of the ECE

shall le Form M-1 by the 30th day following the date

of the event.

(ii) Exception. Paragraph (e)(1)(i) of this section

does not apply to ECEs that experience an origination

as described in paragraph (b)(9)(i) of this section.

Such entities are required, subject to the limitations

established by paragraph (c)(1)(ii) of this section, to le

the Form M-1 30 days prior to the date of the event.

(2) General rule for MEWAs--(i) In general. Except

as provided in paragraph (e)(2)(ii) of this section, the

administrator of the MEWA is required to register with

the Secretary by ling the Form M-1 30 days prior to

operating in any State.

(ii) Exception. Paragraph (e)(2)(i) of this section

does not apply to MEWAs that, prior to the eective

date of this section, were already in operation in a

State (or States). Such entities are required to submit

an annual ling pursuant to annual reporting rules

described in paragraph (f)(2)(i) of this section for that

State (or those States).

(3) Special rule requiring MEWAs to make

additional lings. Subsequent to registering with the

Secretary pursuant to paragraph (e)(2)(i) of this section,

the administrator of a MEWA shall le the Form M-1:

(i) Within 30 days of knowingly operating in any

additional State or States that were not indicated on a

previous report led pursuant to paragraph (e)(2)(i) or

(f)(2)(i) of this section;

(ii) Within 30 days of the MEWA operating with

regard to the employees of an additional employer

(or employers, including one or more self-employed

individuals) after a merger with another MEWA;

(iii) Within 30 days of the date the number of

employees receiving coverage for medical care

under the MEWA is at least 50 percent greater than

the number of such employees on the last day of the

previous calendar year; or

(iv) Within 30 days of experiencing a material

change as dened in the Form M-1 instructions.

(4) Anti-abuse rule. If a MEWA or ECE neither

oers nor provides benets consisting of medical care

within a State during the calendar year immediately

following the year in which a ling is made by the ECE

pursuant to paragraph (e)(1) of this section (due to an

event described in paragraph (b)(9)(i) or (b)(11)(i) of

this section) or a ling is made by the MEWA pursuant

to paragraph (e)(2) or (3) of this section, with respect to

operating in such State, such ling will be considered to

have lapsed.

(5) Multiple lings not required in certain

circumstances. If multiple lings are required under

this paragraph (e), a single ling will satisfy this section

so long as the ling is timely for each required ling.

(6) Extensions. (i) An extension may be granted for

ling a report required by paragraph (e)(1), (2), or (3)

of this section if the administrator complies with the

extension procedure prescribed in the instructions to the

Form M-1.

(ii) If the ling deadline set forth in this paragraph

(e) is a Saturday, Sunday, or federal holiday, the form

must be led no later than the next business day.

(f) Annual reporting requirements and timing--(1)

Period for which reporting is required. A completed

copy of the Form M-1 is required to be led for each

calendar year during all or part of which the MEWA

is operating and for each of the three calendar years

following an origination during all or part of which the

ECE is operating.

(2) Filing deadline--(i) General March 1 ling

due date for annual lings. Except as provided in

paragraph (f)(2)(ii) of this section, a completed copy

of the Form M-1 is required to be led on or before

each March 1 that follows a period for which reporting

is required (as described in paragraph (f)(1) of this

section).

(ii) Exception. Paragraph (f)(2)(i) of this section

does not apply to ECEs and MEWAs if, between

October 1 and December 31, the entity is required to

make a ling pursuant to paragraph (e)(1), (2), or (3) of

this section and makes that ling timely.

(3) Extensions. (i) An extension may be granted for

ling a report required by paragraph (f)(2)(i) of this

section if the administrator complies with the extension

procedure prescribed in the instructions to the Form

M-1.

(ii) If the ling deadline set forth in this paragraph (f)

is a Saturday, Sunday, or federal holiday, the form must

be led no later than the next business day.

124

(4) Examples. The rules of paragraphs (e) and (f) of

this section are illustrated by the following examples:

Example 1. (i) Facts. MEWA A began oering

coverage for medical care to the employees of two or

more employers on July 1, 2003 (and continues to oer

such coverage). MEWA A has satised all ling

requirements to date.

(ii) Conclusion. In this Example 1, the administrator

of MEWA A must continue to le a timely completed

Form M-1 annual report each year, but the administrator

is not required to register with the Secretary because

MEWA A meets the exception to the registration

requirement in paragraph (e)(2)(ii) of this section and

has not experienced any event described in paragraph

(e)(3) that would require registering with the Secretary.

Example 2. (i) Facts. On August 25, 2013, MEWA

B is operating in State P and has made all appropriate

lings related to those operations. On December 22,

2013 one of the employers that participates in MEWA

B is awarded a new contract in State Q. The employer

adds an oce in State Q and the employees there are

eligible to access its group health plan.

(ii) Conclusion. In this Example 2, the administrator

of MEWA B must report the addition of State Q by

ling the Form M-1 within 30 days of knowing that it is

operating in State Q.

Example 3. (i) Facts. As of July 1, 2013, MEWA

C is preparing to operate in States Y and Z. MEWA

C is not licensed or authorized to operate as a health

insurance issuer in any State and does not meet any of

the other exceptions set forth in paragraph (c)(2) of this

section.

(ii) Conclusion. In this Example 3, the administrator

of MEWA C is required to register with the Secretary

by ling a completed Form M-1 30 days prior to

operating in States Y or Z. The administrator of MEWA

C must also report by ling the Form M-1 annually by

every March 1 thereafter.

Example 4. (i) Facts. As of July 28, 2013, MEWA

D is operating in States V and W. MEWA D has

satised the requirements of (e)(2) and, if applicable,

(e)(3) with respect to those States. MEWA D is not

licensed or authorized to operate as a health insurance

issuer in any State and does not meet any of the other

exceptions set forth in (c)(2) of this section. On August

5, 2013 MEWA D knowingly begins operating in State

(ii) Conclusion. In this Example 4, the administrator

of MEWA D is required to make an additional

registration ling with the Secretary by September 4,

2013 (within 30 days of knowingly operating in State

X). Additionally, the administrator of MEWA D must

continue to le the Form M-1 annually by every March

1 thereafter.

Example 5. (i) Facts. ECE A began oering

coverage for medical care to the employees of two or

more employers on January 1, 2007 and ECE A has

not been involved in any mergers or experienced any

other origination as described in paragraph (b)(9) of this

section.

(ii) Conclusion. In this Example 5, ECE A was

originated on January 1, 2007 and has not been

originated since then. Therefore, the administrator of

ECE A is not required to le a 2012 Form M-1 because

the last time the ECE A was originated was January 1,

2007 which is more than three years prior. Further, the

ECE has satised its reporting requirements by making

three timely annual lings after its origination.

Example 6. (i) Facts. ECE B wants to begin oering

coverage for medical care to the employees of two or

more employers on July 1, 2013.

(ii) Conclusion. In this Example 6, the administrator

of ECE B must le a completed Form M-1 on or before

June 1, 2013 (which is 30 days prior to the origination

date). In addition, the administrator of ECE B must le

an updated copy of the Form M-1 by March 1, 2014

because the last date ECE B was originated was July 1,

2013 (which is less than three years prior to the March

1, 2014 due date). Furthermore, the administrator of

ECE B must le the Form M-1 by March 1, 2015 and

again by March 1, 2016 (because July 1, 2013 is less

than three years prior to March 1, 2015 and March 1,

2016, respectively). However, if ECE B is not involved

in any mergers and does not experience any other

origination as described in paragraph (b)(9) of this

section, there would not be a new origination date

and no Form M-1 is required to be led after March 1,

2016.

Example 7. (i) Facts. ECE D, which currently

operates in State A and is still within the three-year

window following its origination and the timely ling

related thereto, is making preparations to operate in

State B beginning on November 1, 2013.

(ii) Conclusion. In this Example 7, by operating in

State B, ECE D experiences a special event within the

three-year window following its origination and must

make a ling by December 2, 2013.

Example 8. (i) Facts. Same facts as Example 7.

ECE D satised its special ling requirement but is

unsure about its annual ling requirements.

(ii) Conclusion. ECE D is exempt from the next

annual ling due March 1, 2014 pursuant to the ling

deadline exception under (f)(2)(ii) of this section.

However, ECE D must continue making annual lings

for the remainder of the three years following its

origination.

Example 9. (i) Facts. MEWA E begins distributing

marketing materials on August 31, 2013.

(ii) Conclusion. In this Example 8, because

MEWA E began operating on August 31, 2013, the

administrator of MEWA E must register with the

Secretary by ling a completed Form M-1 on or before

August 1, 2013 (30 days prior to operating in any

State). In addition, the administrator of MEWA E must

le the Form M-1

annually by every March 1 thereafter.

Example 10. (i) Facts. Same facts as Example 9,

but MEWA E registers on or before August 1, 2013 by

ling a Form M-1 indicating it will begin operating in

every State. However, in the calendar year immediately

following the ling, MEWA E only oered or provided

benets consisting of medical care to participants in

State Z.

125

(ii) Conclusion. In this Example 10, the registration

for all States (other than State Z) have lapsed under (e)

(4) because MEWA E only oered or provided benets

consisting of medical care to participants in State Z in

the calendar year immediately following the ling. If

subsequently, MEWA E begins oering or providing

benets consisting of medical care to participants in any

additional State (or States), it must make a new

registration ling pursuant to (e)(3) of this section.

(g) Electronic ling. A completed Form M-1 is led

with the Secretary by submitting it electronically as

prescribed in the instructions to the Form M-1.

(h) Penalties--(1) Civil penalties and procedures.

For information on civil penalties under section

502(c)(5) of ERISA for persons who fail to le

the information required under this section, see

§2560.502c-5 of this chapter. For information relating

to administrative

hearings and appeals in connection with the assessment

of civil penalties under section 502(c)(5) of ERISA, see

§§2570.90 through 2570.101 of this chapter.

(2) Criminal penalties and procedures. For

information on criminal penalties under section 519

of ERISA for persons who knowingly make false

statements or false representation of fact with regards to

the information required under this section, see section

501(b) of ERISA.

(3) Cease and desist and summary seizure orders.

For information on the Secretary’s authority to issue a

cease and desist or summary seizure order under section

521 of ERISA, see §2560.521.

•3. Section 2520.103-1 is amended by:

•a. Revising paragraphs (a) introductory text, (b)

introductory text and (c)(1),

•b. Amending paragraph (c)(2)(ii)(C) by removing the

reference “and” at the end of the paragraph,

•c. Removing the period at the end of paragraph (c)(2)

(ii)(D) and adding the reference “; and” at the end of

the paragraph,

•d. Adding a new paragraph (c)(2)(ii)(E),

•e. Redesignating paragraph (f) as paragraph (g) and

adding a new paragraph (f).

The revisions and additions read as follows:

§2520.103-1 Contents of the annual report.

(a) In general. The administrator of a plan required

to le an annual report in accordance with section

104(a)(1) of the Act shall include with the annual report

the information prescribed in paragraph (a)(1) of this

section or in the simplied report, limited exemption

or alternative method of compliance described in

paragraph (a)(2) of this section.

* * * * *

(b) Contents of the annual report for plans with 100

or more participants electing the limited exemption or

alternative method of compliance. Except as provided

in paragraph (d) and paragraph (f) of this section and

in §§2520.103-2 and 2520.104-44, the annual report

of an employee benet plan covering 100 or more

participants at the beginning of the plan year which

elects the limited exemption or alternative method of

compliance described in paragraph (a)(2) of this section

shall include:

* * * * *

(1) Except as provided in paragraph (c)(2),

paragraph (d) and paragraph (f) of this section, and in

§§2520.104-43, 2520.104a-6, and 2520.104-44, the

annual report of an employee benet plan that covers

fewer than 100 participants at the beginning of the

plan year shall include a Form 5500 “Annual Return/

Report of Employee Benet Plan” and any statements

or schedules required to be attached to the form,

completed in accordance with the instructions for the

form, including Schedule A (Insurance Information),

Schedule SB (Single Employer Dened Benet Plan

Actuarial Information), Schedule MB (Multiemployer

Dened Benet Plan and Certain Money Purchase Plan

Actuarial Information), Schedule D (DFE/Participating

Plan Information), Schedule I (Financial Information-

-Small Plan), and Schedule R (Retirement Plan

Information). See the instructions for this form.

(2) * * *

(ii) * * *

(E) Is not a plan subject to the Form M-1

requirements under §2520.101-2 (Filing by Multiple

Employer Welfare Arrangements and Certain Other

Related Entities).

* * * * *

(f) Plans subject to the Form M-1 ling requirements

under §2520.101-2. The annual report of an employee

welfare benet plan that is subject to the Form M-1

requirements under Sec. 2520.101-2 (Filing by

Multiple Employer Welfare Arrangements and Certain

Other Related Entities) during the plan year shall also

include any statements or information required by the

instructions to the Form 5500 relating to compliance

with the Form M-1 ling requirements under

§2520.101-2.

* * * * *

•4. Section 2520.104-20 is amended by removing the

reference “and” in paragraph (b)(2)(iii), removing the

period at the end of paragraph (b)(3)(ii) and adding

the reference “; and” in its place, and adding a new

paragraph (b)(4) to read as follows:

§2520.104-20 Limited exemption for certain small

welfare plans.

* * * * *

(b) * * *

(4) Which are not subject to the Form M-1

requirements under §2520.101-2 (Filing by Multiple

Employer Welfare Arrangements and Certain Other

Related Entities).

* * * * *

•5. In §2520.104-41, revise paragraph (c) to read as

follows:

126

§2520.104-41 Simplied annual reporting

equirements for plans with fewer than 100

participants.

* * * * *

pension or welfare benet plan described in paragraph

(b) of this section shall le, in the manner described

in §2520.104a-5, a completed Form 5500 “Annual

Return/Report of Employee Benet Plan” including, if

applicable, the information described in §2520.103-1(f)

or, to the extent eligible, a completed Form 5500-SF

“Short Form Annual Return/Report of Small Employee

Benet Plan,’’ and any required schedules or

statements prescribed by the instructions to the

applicable form, and, unless waived by §2520.104-44

or §2520.104-46, a report of an independent qualied

public accountant meeting the requirements of

§2520.103-1(b).

Signed this 26th day of February, 2013.

Phyllis C. Borzi,

Assistant Secretary, Employee Benets Security

Administration, Department of Labor.

[FR Doc. 2013-04863 Filed 2-28-13; 8:45 am]

BILLING CODE 4510-29-P

127