By Pension and Benefits Editorial Staff
In DOL Advisory Opinion 2019-01A, the Department of Labor has confirmed that the proposed Ace Hardware Corporation Cooperative Group Health Plan would qualify as an association health plan (AHP) and a multiple employer welfare arrangement (MEWA) under ERISA, as long as the plan is adopted and operated as described to the DOL.
Ace’s plan. Ace is a hardware retailer cooperative, which currently services approximately 2,700 retail owners who operate nearly 4,400 Ace stores in the U.S. Ace currently maintains a group health plan covering about 4,000 employees of Ace, their beneficiaries, and certain wholly-owned Ace subsidiaries. Ace is proposing to amend this plan to provide group health benefits to the retail owners and their employees, which would include approximately 80,000 full- and part-time employees. The plan will be funded by contributions from Ace plan employers and covered employees. Ace wrote to the DOL to ask whether the new plan would qualify as an AHP within the meaning of section 3(1) of ERISA, meaning that it is maintained by a bona fide group or association of employers for the purposes of section 3(5) of ERISA.
Note that the portions of the DOL’s final rule on AHPs, which was published in June 2018, was vacated by a federal district court in State of New York v. United States Department of Labor. The DOL said that AHPs formed under the DOL’s pre-rule sub-regulatory guidance (sometimes referred to as Pathway 1 AHPs) are unaffected by the district court’s decision, and the DOL’s pre-rule guidance remains in effect and employer groups and associations that meet that criteria continue to be able to act as an “employer” for purposes of sponsoring an ERISA-covered AHP.
Pathway 1 AHP. In the advisory opinion, the DOL focused on whether the proposed Ace plan may act as a bona fide employer group or association for the purpose of establishing the plan within the meaning of section 3(5) of ERISA.
The term “employer” is defined in section 3(5) of ERISA as “… any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity,” the DOL noted. The definitional provisions of ERISA thus recognize that a single employee welfare benefit plan might be established or maintained by a bona fide group or association of employers, acting in the interest of its employer members to provide benefits for their employees.
An important consideration under Pathway 1 is whether the person or group that maintains the plan is tied to the employers and employees that participate in the plan by some common economic or representational interest and genuine organizational relationship unrelated to the provision of benefits. In this case, the DOL said that Ace Plan Employers have a commonality of economic interest and a genuine organizational relationship unrelated to the provision of benefits under the plan. Ace Plan Employers are engaged in the same industry—the hardware retail business.
Thus, under the Department’s Pathway 1 sub-regulatory guidance, and assuming that the plan is adopted and operated as described in the letter, the Ace plan employers would, at least in form, constitute a bona fide employer group or association in relation to the plan for purposes of ERISA section 3(5), and the plan would, at least in form, constitute an AHP that is an employee welfare benefit plan for purposes of Title I of ERISA, the DOL confirmed.
MEWA. Ace also wanted to know if the proposed plan would qualify as a MEWA under ERISA. According to the DOL, based on the representations and information provided, that the plan would meet the criteria of a MEWA within the meaning of section 3(40) of ERISA. The plan would be an arrangement established and maintained for the purpose of providing welfare benefits to employees of two or more employers and it does not fall within any of the exceptions listed in section 3(40).
Interested in submitting an article?
Submit your information to us today!Learn More