Pension & Benefits News Limited partnership health benefit programs are not ERISA employee welfare benefit plans
Thursday, March 5, 2020

Limited partnership health benefit programs are not ERISA employee welfare benefit plans

By Pension and Benefits Editorial Staff

Limited partnership health benefit programs are not “employee welfare benefit plans” under ERISA Sec. 3(1) because the limited partners who might be offered the health benefit programs are not employees or bona fide partners of the limited partnerships and ERISA coverage is based on the provision of benefits in the employment context, according to an Employee Benefits Security Administration advisory opinion.

LP Management Services, LLC (LP Management) requested the Department of Labor’s views on whether health benefit programs that the LP Management limited partnerships might choose to offer to their “limited partners” were employee welfare benefit plans within the meaning of ERISA Sec. 3(1), and, if yes, whether the arrangements constitute single-employer group health plans sponsored by the limited partnerships as an “employer.”

Based on the company’s representations, the DOL was of the opinion that the limited partners as described in the company’s request were not employees or bona fide partners of the limited partnerships. The DOL explained that they do not work for or through the partnership and they do not receive income for performing services for or as partners of the partnership. The company did not provide any facts that would support a conclusion that the limited partners are meaningfully employed by the partnership or perform any services on its behalf. The purported and sole “service” that the limited partners would appear to perform for or through the partnership would be to install specific software on their personal electronic devices that capture data as they browse the Internet or use those devices for their own purposes. Nor has it been suggested that individual limited partners will have any meaningful equity interest in the limited partnership or that they can expect any appreciable financial benefit for their participation in the partnership, except for the health coverage for which the limited partners would pay separate premiums. The DOL noted that ERISA regulates the provision of employee benefits by employers and employee organizations, not the commercial sale of insurance outside the context of employment-based relationships.

The DOL rejected LP Management’s argument that the possible presence of a single common law employee/participant was sufficient to extend ERISA coverage to all the limited partners, without any stated limit. Pursuant to ERISA Sec. 3(1), a benefit program must, among other criteria, be established or maintained by an employer, an employee organization, or both, to provide the specified benefits to participants or their beneficiaries to be treated as an “employee welfare benefit plan” within the meaning of ERISA. In addition, under ERISA Sec. 3(7), a “participant” is any employee or former employee of an employer who is or may become eligible to receive a benefit of any type from an employee benefit plan that covers employees of such an employer. The DOL observed that these provisions and the title of the entire law are replete with references to the employment relationship, and ERISA’s coverage expressly turns on the provision of benefits in the employment context. The DOL stated that the arrangements proposed by LP Management met none of these criteria because the partnership was not the limited partners’ employer, and the partners were neither employees nor employers with respect to the partnership. LP Management also pointed to ERISA Reg. § 2510.3-3(b), which is about plans without employees. The DOL responded that ERISA regulates employment-based benefit programs and the regulation must be read in that context. The fact that one common law employee participates in a purported partnership program does not mean that everyone covered by the arrangement is participating in an ERISA plan. The DOL, however, opined that, to the extent the limited partnership program covers common law employees of the partnership, the Department would consider the limited partnership to have established a separate welfare benefit plan for those employees.

The DOL was also not persuaded by LP Management’s argument that ERISA Sec. 732(d) supports its position. The regulations emphasize the need for an employment or self-employment services-based relationship with respect to the partners participating in a group health plan maintained by a partnership, according to the DOL. Specifically, the regulations clarify that, for purposes of Part 7 of ERISA, a partner must be a “bona fide partner” in order to be considered an employee, and the partnership is considered the employer of a partner only if the partner is a “bona fide partner.” However, under LP Management’s arrangement, the limited partners are not “bona fide partners” within the meaning of ERISA Sec. 732 because they do not work or perform services for the partnership, they have only a nominal (at best) ownership interest in the partnership, and they do not earn income based on work performed for or through the partnership that is a material income-producing factor for the partnership. The limited partners are simply purchasers of health coverage who, like other purchasers of individual health insurance, are responsible for paying all of the health care premiums for their coverage.

Thus, it was the DOL’s view that the proposed LP Management health benefit programs would not be single-employer group health plans or ERISA plans at all. In addition, after consulting with Departments of Health and Human Services and the Treasury, the Departments advised the DOL, that except for the separate welfare plan established for the partnership’s common law employees, the limited partnership programs described by LP Management would not be a group health plan under their regulations, and thus, the limited partnership programs would generally be subject to regulations applicable to the individual market, and not the small or large group markets.

Source: EBSA Advisory Opinion 2020-01A.

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