Guest Article

Trade Association Operating as MEWA Is Single Employer Plan, DOL Rules

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Summary: The U.S. Department of Labor determined in an advisory opinion that a member-governed organization that is a multiple employer welfare arrangement is also a bona fide association and qualifies as a single employer for ERISA protection.

(July 12, 2001) - A member-governed association of auto and truck dealers that provides services unrelated to benefits -- as well as group health benefits -- is a bona fide association. Therefore, it qualifies as a single employer for ERISA purposes, the U.S. Department of Labor (DOL) determined in a recent advisory opinion.

The interpretation in Advisory Opinion 2001-04A (March 22, 2001), which was based on a distinct set of facts, means that participating members of the bona fide association, which also is a multiple employer welfare arrangement (MEWA), are not responsible for meeting certain ERISA reporting and disclosure requirements. Rather, the association must meet those requirements. Therefore, subscribing members are not treated as plan sponsors individually responsible for disclosures and reports, such as annual Form 5500 reporting.

The ruling also means that individuals operating the association have ERISA protection from state law claims.

The MEWA's governing structure and its member services were critical to determining that the association operates a single employer plan. Although the advisory opinion does not explicitly state so, association members that participate in the plan but have no voting power in governance would be treated as individual plan sponsors. This is consistent with a DOL official's informal comments that employer members of a MEWA benefit plan who have no voice in governing an association are treated as individual plan sponsors. This creates the anomaly that some employers participating in a MEWA benefit program are not plan sponsors, where other employers in that same program are plan sponsors.

Background

The Wisconsin Automobile and Truck Dealers Association, Inc. (WATDA) was formed in 1928 to lobby against a Wisconsin property tax law that applied to automobiles. The WATDA was incorporated in 1935 to promote automotive trade in Wisconsin and is a trade association. WATDA's by-laws provide for two classes of members:

regular members, which are entities whose primary business is to operate a motor vehicle dealership; and associate members, which are entities that do not qualify as regular members, but are actively engaged in the automotive industry or allied industries.

Under the by-laws, only regular members may vote to elect the board of directors that manages the association. Officers are elected by the board and may be removed by the directors.

An association trust was established in 1948 to provide group life, accident and health benefits to employees of eligible members that elect to participate. The trust's benefit program is available to regular association members that are eligible and apply to participate. Eligible, participating regular members are called "subscribers."

The trust qualifies as a voluntary employees beneficiary association (VEBA), and is a MEWA under ERISA. The WATDA is the plan administrator of the trust's benefit programs and has the power, along with the trustees, to obtain insurance on the trust's behalf. In addition, trustees can construe trust provisions.

The trust may be terminated by a majority of subscribers, and may be amended in writing. The amendment must be signed by all trustees or by subscribers whose contributions during the preceding year totaled more than 50 percent of all contributions.

There are seven trustees, consisting of the current association president and six elected trustees (which are elected by the incumbent trustees). The association proposed to amend the trust agreement so that the six elected trustees would be elected by a majority of the subscribers.

Each of the elected trustees must be a principal in a dealership that is a trust subscriber. Any trustee may be removed from office by a majority vote of the WATDA's directors or by a majority of subscribers.

Only regular association members with at least two full-time employees eligible for personal coverage under the benefit program may participate as trust subscribers. The employer must agree to maintain coverage on at least 75 percent of its eligible employees at all times and have a minimum of two employees covered at all times.

The WATDA asked the DOL whether its trust qualifies as a single employee welfare benefit plan. ERISA defines "employee welfare benefit plan" to include any plan, fund or program established or maintained by an employer, an employee organization or both an employer and an employee organization that provides benefits in the event of sickness, accident, disability, death or unemployment.

To be an employee welfare benefit plan, the trust must be established or maintained by an employer, an employee organization or both. No indication existed that an employee organization is involved in the trust. Therefore, the DOL advisory opinion only addressed whether the trust is established or maintained by an employer.

ERISA defines "employer" 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 has taken the view that, in the absence of an employee organization, a "multiple employer" plan (that is, a plan to which more than one employer contributes) may exist where a bona fide association of employers: (1) establishes a benefit program for employees of member employers; and (2) exercises control of the amendment process, plan termination and other similar functions on these members' behalf.

On the other hand, where several unrelated employers merely execute participation agreements or similar documents as a means to fund benefits -- in the absence of any genuine organizational relationship between the employers -- no employer association can be recognized.

Determining whether a group or association of employers is a bona fide employer group or association must be made based on all the facts and circumstances involved. Among the factors considered are:

• how members are solicited;
• who is entitled to participate and who actually participates in the association;
• how the association was formed, why it was formed, and what, if any, were the pre-existing relationships of its members; and
• the powers, rights and privileges of employer members that exist by reason of their employer status, and who actually controls and directs the activities and operations of the benefit program.

In addition, the employers that participate in a benefit program must directly or indirectly control the program in order to act as a bona fide employer association.

In concluding remarks, the DOL said that, according to the WATDA's representations, regular members are all entities involved in the motor vehicle dealer industry in Wisconsin and the WATDA's voting membership consists of regular members. Trust participation is limited to regular members with at least two full-time employees who are eligible for personal coverage under the benefit program. In addition, the employer must agree to maintain coverage on at least 75 percent of its eligible employees at all times and cover a minimum of two employees at all times. Moreover, under the WATDA's by-laws and trust agreement -- including the amendment relating to election and nomination of trustees -- subscribers will control and direct the benefit program's activities and operations.

Based on that information and the amendment's adoption, the DOL determined that, at least in form, the WATDA would constitute a bona fide employer association. Therefore, the trust at least in form constitutes a single employee welfare benefit plan under ERISA.

Excerpted from the July 2001 supplement to Employer's Guide to Self-Insuring Health Benefits, ©Thompson Publishing Group, Inc., 2001. All rights reserved.

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