Pension & Benefits News Health plan that will be established by company and group of cooperative employers is employee welfare benefit plan and MEWA
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Friday, August 16, 2019

Health plan that will be established by company and group of cooperative employers is employee welfare benefit plan and MEWA

By Pension and Benefits Editorial Staff

A cooperative group health plan for Ace Hardware Corporation and subsidiary employees and cooperative member employees would, in form, be an association health plan that is an “employee welfare benefit plan” under ERISA Sec. 3(1)because Ace, its subsidiaries, and the participating employer members of the cooperative would, in form, constitute a bona fide group or association of employers in relation to the plan for purposes of ERISA Sec. 3(5), according to an Employee Benefits Security Administration advisory opinion. Also, based on representations, the plan would be a multiple employer welfare arrangement (MEWA) within the meaning of ERISA Sec. 3(40). However, the Department of Labor was unable to conclude that the plan would be a “fully insured” MEWA.

Ace Hardware Corporation is a hardware retailer cooperative, with most of the Ace retail owners being small, closely-held businesses. The Ace retail owners purchase merchandise from Ace and receive various services from Ace. Ace also owns and operates corporate stores as wholly-owned subsidiaries of Ace. Each Ace retail owner has entered into an Ace Membership Agreement and is a “member” of Ace. Every Member owns stock of Ace, as well.

Ace proposes to amend its existing group health plan and restate it as the Ace Hardware Corporation Cooperative Group Health Plan to provide group health benefits to the members and their employees in addition to employees of Ace and U.S.-based employees of Ace’s wholly-owned subsidiaries. Ace, its subsidiaries, and members who employ at least one common law employee may participate in the plan (collectively Ace plan employers).

The powers, rights and privileges of the Ace plan employers are set out in the plan’s bylaws, which will be adopted by a vote of all the Ace plan employers. The bylaws provide for the establishment of an administrative committee to oversee the day-to-day operations of the plan. The plan administrative committee will have sole authority to control and manage the plan, and is empowered to allocate fiduciary responsibilities, designate persons to carry out fiduciary responsibilities, and hire service providers. The plan administrative committee will make decisions by majority vote. The members of the plan administrative committee must be nominated by an Ace plan employer and selected by plurality vote of the Ace plan employers. The plan will be funded by contributions from Ace plan employers and covered employees, which will be held in the plan’s trust. Plan benefits will be guaranteed through an insurance contract.

Among other things, an “employee welfare benefit plan” under ERISA Sec. 3(1) must be established or maintained by an employer, employee organization, or both. Since there was no indication that an employee organization within the meaning of ERSA Sec. 3(4) was in involved in the plan, EBSA focused on whether the Ace plan employers could act as a bona fide employer group or association for the purpose of establishing the plan within the meaning of ERISA Sec. 3(5). (EBSA notes that this Advisory Opinion is based solely on the criteria set forth in the Department’s sub-regulatory guidance interpreting ERISA Sec. 3(5) prior to the final regulations published on June 21, 2018, which provided alternative criteria for “bona fide group or association of employers” capable of establishing an association health plan. It does not address the application of the criteria set forth in the Department of Labor’s 2018 final regulations.)

EBSA explains that a single “employee welfare benefit plan” may exist where a cognizable, bona fide group or association of employers acts in the interests of its employer members to establish a benefit program for the employees of member employers. A determination of whether there is a bona fide employer group or association must be made on the basis of all the facts and circumstances involved, according to EBSA. Employers that participate in a benefit program must, either directly or indirectly, exercise control over the program, both in form and in substance, in order to act as a bona fide employer group or association with respect to the program. EBSA also looks for a genuine organizational relationship between the employers that is unrelated to the provision of benefits.

EBSA stated that the 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. In addition, the members and subsidiaries that participate in the plan share ownership interests with Ace as evidenced by the Ace common stock that is owned by the members and Ace’s 100% ownership interest in the subsidiaries. Ace plan employers will establish and maintain the plan, and appear, based on representations, to be a group consisting solely of employers of common law employees who will be covered by the plan. Further, the Ace plan employers, and, therefore, only employers of common law employees covered by the plan, have the power to control the plan through their authority to nominate, elect and remove the plan administrative committee.

Assuming that the plan is adopted and operated as represented, EBSA has determined that 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 Sec. 3(5), and that the plan would, at least in form, constitute an association health plan that is an employee welfare benefit plan for purposes of Title I of ERISA. EBSA would not rule on whether the Ace plan employers would exercise control, in substance, over the benefit program because that was an inherently factual issue.

EBSA added that, in its view, based on representations and information provided, the plan would be a MEWA within the meaning of ERISA Sec. 3(40). A MEWA generally is defined as an employee welfare benefit plan, or any other arrangement, which is established or maintained for the purpose of offering or providing any benefits described in ERISA Sec. 3(1) to the employees of two or more employers, EBSA explained. However, EBSA stated that it was unable to conclude that the plan would be” fully insured” within the meaning of ERISA Sec. 514(b)(6)(D) because that would require an examination of the insurance contract, which does not exist yet. EBSA notes, though, that there is nothing in the provided information, however, that would lead EBSA to conclude that the plan would not be fully insured if an insurance policy consistent with provided representations is secured to guarantee all the benefits.

SOURCE: EBSA Advisory Opinion 2019-01A.

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