Guest Article

Can Substance Abuse Testing Be Provided as a Benefit by a Health and Welfare Fund?

by William K. Ecklund
Felhaber, Larson, Fenlon and Vogt, P.A.

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Issue

Can substance abuse testing be provided as a benefit by a health and welfare fund?

Conclusion

A multiemployer health and welfare fund can provide substance abuse testing provided the trustees have authorized it, the plan documents provide for it and the collective bargaining agreement is either silent or is structured such that it does not prohibit drug testing through the health and welfare fund.

Discussion

Multiemployer health and welfare funds are governed primarily by three statutes:

ERISA; The Taft-Hartley Act; and The Internal Revenue Code.

It is these three statutes that have to be examined to determine if substance abuse testing can be provided by a health and welfare fund.

I. ERISA

ERISA Section 3(1) defines the term "Employee Welfare Benefit Plan" in part as follows:

The terms "Employee Welfare Benefit Plan" and "Welfare Benefit Plan" mean 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 . . . .

The Department of Labor has been asked to opine on substance abuse testing and employee assistance programs. In DOL Advisory Opinion Letter 83-35A, the Department of Labor issued an opinion that an employee assistance program sponsored by an employer was an employee welfare benefit plan under ERISA. The plan provided for counseling for employees who have certain described personal problems. The counselor identifies the problem and suggests a plan of action and refers the employee to an outside service. The cost of the plan of action is not covered under the assistance program, although the plan of action may be among benefits offered by other programs maintained by the employer. The personal problems referred to in the program include alcoholism, drug abuse and people problems.

In DOL Opinion Letter 88-4A, the DOL again issued an opinion that an employee assistance program which provided assistance for a wide range of problems, including drug and alcohol abuse was in fact an employee welfare benefit plan under ERISA. The opinion letter contained the following statement:

It is the view of the Department that benefits for the treatment of drug and alcohol abuse, stress, anxiety, depression and similar health and medical problems constitute "medical" benefits or "benefits in the event of sickness" within the meaning of Section 3(1).

As in the prior opinion letter, the assistance program provided counseling services to participants who could then also be referred out for further services. Active participation in the program is generally voluntary for employees, spouses and dependents; however, some employees agree to participate as a condition of continued employment.

In DOL Opinion Letter 91-26A, the DOL had occasion to look at another employee assistance program. The program was primarily voluntary for employees, but was mandatory for employees identified under the company's random drug testing program as substance abusers. The program consisted of providing substance abuse testing and then referrals for employees who were found to have tested positive for drugs. There was no counseling as part of the program, merely a referral by an employee who had no special training in counseling. In this case, the Department of Labor found that this was not an employee welfare benefit plan under § 3(1) of ERISA. In that opinion letter, the DOL stated:

It has consistently been the view of the Department that benefits for treatment of drug and alcohol abuse . . . constitutes "medical" benefits or "benefits in the event of sickness" within the meaning of § 3(1). On the basis of your representations, however, it appears that the program provides only referrals and does not provide any benefits which are in the nature of "medical" benefits or "benefits in the event of sickness." The program, accordingly, does not appear to provide any employee benefit within the meaning of § 3(1) of ERISA . . . . Unlike employee assistance programs identified as employee welfare benefit plans and ERISA Opinions 88-4A and 83-35A, the program employs no counselors, either in-house or on a contractual basis, and apparently provides no benefits in addition to referrals an employee could obtain free of charge regardless of employee status. The programs use (by the employer) in connection with its random drug testing program as a mandatory step for employees identified as substance abusers further differentiates the program from an employee welfare benefit plan.

Finally, in DOL Opinion Letter 97-08A, the Department of Labor again issued an opinion that a fund established pursuant a collective bargaining agreement (in a construction industry) which established a plan to cover drug testing was not an employee welfare benefit plan under ERISA. The DOL stated as follows:

Based on your representations, it appears that the Fund pays only the cost of the annual drug testing required by the collective bargaining agreement, in order to meet a condition of eligibility for covered employment. The Fund does not provide union members with any counseling or care in connection with the drug screening. It is our view that payment for drug testing in these circumstances does not provide any union member with benefit that are in the nature of medical benefits or benefits in the event of sickness. Further, the payments for drug testing are not conditioned on or otherwise related to the actual status of unemployment in such a manner as to constitute a benefit in the event of unemployment. The program provided by the Fund is merely a method of making it easier for union members to satisfy the eligibility requirements for employment. Because the Fund does not provide any benefits specified in § 3(1) of ERISA, we conclude that the Fund is not an employee welfare benefit plan within the section.

Most health and welfare funds provide for substance abuse treatment, many health and welfare funds have established employee assistance programs as part of the health and welfare fund itself. Clearly, these health and welfare funds are employee welfare benefit plans within the meaning of § 3(1) of ERISA, although a fund established strictly for drug testing purposes would not qualify as an employee welfare benefit plan under ERISA, the fact that a health and welfare fund added substance abuse testing as one of medical procedures provided by the Fund, would not change the status of the health and welfare fund as an employee welfare benefit plan under ERISA.

At best, if a health and welfare fund were to offer substance abuse testing, it would be deemed to be an incidental benefit. Although a technical argument could be made that if substance abuse testing itself is not an employee benefit, then it is not appropriate for a health and welfare fund to pay for such a benefit, the Department of Labor would probably rule otherwise. A very recent advisory opinion letter from the DOL (2001-01A) contained a footnote as follows:

The Supreme Court has recognized that plan sponsors receive a number of incidental benefits by virtue of offering an employee benefit plan, such as attracting and retaining employees, providing increased compensation without increasing wages, and reducing the likelihood of lawsuits by encouraging employees who would otherwise be laid off to depart voluntarily. The mere receipt of such benefits by plan sponsors does not convert a settlor activity into a fiduciary activity or convert an otherwise permissible plan expense into a settlor expense. See Lockheed Corp. v. Spink, 517 U.S. 882 (1996), Hughes Aircraft Company v. Jacobson, 525 U.S. 432 (1999).

II. The Taft Hartley Act

Section 302(c)(5) of the Taft Hartley Act is the statutory section that allows jointly-administered health and welfare funds and the payment of monies into those funds. The limitation is that any such payments are held in trust for the purpose of paying:

For the benefit of employees, their families and dependents, for medical or hospital care . . . compensation for injuries or illness resulting from occupational activities or insurance to provide any of the foregoing, or unemployment benefits or life insurance, disability and sickness insurance, or accident insurance.

The payment of testing for substance abuse would clearly be considered to be within the realm of payments authorized under § 302(c)(5) of the Taft Hartley Act.

III. The Internal Revenue Code

Health and welfare fund are qualified under § 501(c)(9) of the Internal Revenue Code which allows a health and welfare fund to maintain a tax-exempt status as a "voluntary employees' beneficiary association providing for the payment of life, sick, accident or other benefits to the members of such association or their dependents or designated beneficiary, if no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual.

Assuming that the health and welfare fund is not assuming the obligation placed upon an employer through a collective bargaining agreement (for example, mandatory drug testing required to be paid by the employer), substance abuse testing can certainly be provided within the parameters of § 501(c)(9) of the Internal Revenue Code.

In order to properly provide for substance abuse testing under a health and welfare fund, health and welfare fund documents must provide for it and the collective bargaining agreement must not be inconsistent with the proposition that drug testing would be funded through the health and welfare fund.

The best method for accomplishing this would be to have the collective bargaining agreement establish the drug testing requirements and state that it would be provided through the health and welfare fund, and then have the trustees take action to accept the contributions under the collective bargaining agreement and establish the drug testing program as contemplated by the agreement.

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William K. Ecklund (wecklund@felhaber.com) is a shareholder in the Twin Cities law firm of Felhaber, Larson, Fenlon and Vogt, P.A. To learn more about Mr. Ecklund or the Felhaber law firm, contact him at (612) 373-8509, or visit the firm's web site at www.felhaber.com.

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