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Guest Fourohonekay

Can this VEBA be a MEWA?

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Guest Fourohonekay

Is a self-funded VEBA that is established by a group of "unrelated employers who are engaged in the same line of business in the same geographic locale" (VEBA membership reqt.) to provide group health benefits to the employees of those employers also a MEWA since it is also "welfare benefit plan which is established for the purpose of providing a welfare benefit to the employees of two or more unrelated employers"?

The VEBA is not established under a collective bargaining agreement, by a rural electric cooperative, or by a rural telephone cooperative association.

Thanks.

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By every definition that I have seen, this is a MEWA. I also wonder if it is even a VEBA. Although my first impression is that it is not even a VEBA, I would need more info to be sure of what it really is.

Why do you think that it qualifies as a VEBA?

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Guest ElmoT

Your plan is both a VEBA and a MEWA.

There are 2 kinds of VEBAs.... a multiple employer VEBA and a single employer VEBA.

A single employer VEBA can never be a MEWA, because only one employer contributes to the VEBA trust and thus only one employer participates in the welfare benefit arrangement.

A mutiple employer VEBA is always a MEWA, because mutiple employers contribute to the VEBA trust and participate in the welfare benefit arrangement.

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Guest Fourohonekay

GBurns: Thanks for your comments. The arrangement's status as a VEBA is not in doubt -- it has an IRS determination letter (as required of all VEBAs). Although I'm really trying to steer this discussion towards what might make this arrangement a MEWA (or not), I'm curious ... what in the original post makes you wonder about its VEBA status?

Elmo: Thanks for your comments. So if this MEWA goes belly up (runs out of $ to pay claims) and never filed an M-1 or made an attempt to comply with state insurance laws (re: reserves, mandated benefits, financial soundness, etc.), is it the participating employers who are in hot water or the VEBA's individual trustees?

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If it runs afoul of state insurance laws and the DOL, everyone, promoter, selling agent, trustees, employer etc will be penalized.

I suggest that you read the IRS Determination Letter. I bet that you will see that it makes no comment on anything but the structure of the VEBA and the tax exempt status of certain items only. I bet that it says nothing about what you can do with the VEBA, how it can or should be marketed, whether the actual items that you have in the VEBA allowed or not etc etc. The Determination Letter probably does not tell you anything except the general tax exempt status and definitely nothing about what you are trying to do with it.

The IRS Determination Letter serves a purpose other that what you seem to think that it does and so it is not the status of the arrangement that is in question, it is what is being done with this VEBA that would disqualify it as a VEBA etc.

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Guest ElmoT

I have no idea who is liable.

However, the problem might go away by itself (if you're lucky).

Here's why:

PWBA might not pursue the matter, because although an ERISA plan was involved ... it is not a self-insured plan. In other words, benefits are not paid from the employer's general assets. Benefits (claims) were paid from the VEBA's (trust) assets.

The "state" might not get involved ... because some states are still slow (or maybe lazy) in pursuing such matters, because in the state's mind, the plan is an ERISA self-insured plan and thus preempted by ERISA.

Just keep your fingers crossed that no participants complain to loud. If they nag loud enough to either the state of PWBA, the s_it

might hit the fan.

Good Luck

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IRS regs 1.501©(9) -1 provides that a VEBA may cover employees of unrelated employers in the same geographic locale. However, covering employees of unrelated employers may subject the VEBA to regulation as an Insurance company under state law. ERISA 514(b)(6). A welfare plan that uses a VEBA which is a MEWA will not be subject to regulation as a MEWA. 514(b)(6)©. The employer who participates in a VEBA needs to retain counsel to determine what is the risk under ERISA of participating in a VEBA which may not be able to pay all claims (whether or not it would be subject to state law law as a MEWA).

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Guest Fourohonekay
If it runs afoul of state insurance laws and the DOL, everyone, promoter, selling agent, trustees, employer etc will be penalized.

Why would the employers be penalized (and by whom)? They don't have any discretionary authority over the management of the VEBA or the VEBA's assets (the VEBA Trustees have that authority), and so the employers aren't ERISA fiduciaries -- or are they? The employers aren't the ones who must comply with state insurance laws (assuming the VEBA is a MEWA) -- that's the VEBA/MEWA trustee's job, and so the employers don't have state insurance law liability. What is your basis for including the employers in the group of characters with liability? Thanks.

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If the VEBA turns out to regarded as a MEWA and subject to state insurance dept regulation, it most likely be treated as an unlicensed entity. Anyone promoting an unlicensed entity would be violating state law. Operators of unlicensed entities usually end facing fraud charges etc. All involved would most likely face charges of condoning, facilitating, conspiring, inducement in the committing of insurance fraud. You might want to look at the regulatory action that is taking place re American Benefits Plan, Employers Mutual, UEVEBA, TRG Marketing etc etc.

In the posted case the whole arrangement would have been created and fosted by and through the employer. A lot also depends on whether or not the employer was profiting from the deal.

To answer you directly..

It was the employer who set the VEBA up,.. It was the employer who selected the Trustees, ..Anyone who uses an illegal product is guilty, ... Punishment would be by both the State and DOL as in the cited cases.

My basis for my comment is just the case law created by the regulators as they have prosecuted theses cases over the last 5 years.

That is why the DOL found it necessary (at the request of a few states and the NAIC Task Force on Unlicensed Entities) to issue the MEWA booklet, and a large number of state Depts of Insurance have permanent postings on their websites warning agents, consumers and employers about unlicensed entities, MEWAs and bogus "ERISA exempt" health plans and arrangements. Look at a few.

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GB: We would all be interested in any citations that you have which shows employer liability under state law for establishing a welfare plan that is funded through a VEBA subject to state regulation given the preemption of state insurance laws under ERISA 514(b)(6)© as to the welfare plan. Also the Supreme Ct held in the Curtis Wright Case that the employer decision to establish or terminate a welfare plan is a settlor decision not a fiduciary decision under ERISA. Under Sup Ct decisions in Delta Airlines and Ingersoll Rand employer action regarding a plan subject to ERISA is not subject to state regulation even if there is no regulation of the plan under ERISA. As I indicated in my prior post the employer needs to retain counsel to review the above cases and other precedents to determine whether there is any employer liability. Finally parties who are not acting as an agent or insurance carrier are not subject to state insurance laws.

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mbozek

As usual, I have to tell you.... Read the post again. I referenced a few recent and current cases in my post.

It does not matter what our interpretation of ERISA or anything is if the courts determine otherwise. The courts have and are determining who is at fault and the penalties to be imposed in many cases where you might think they should not. But they are doing it any way and the states are prosecuting more and more of theses cases.

Your reference to Curtis Wright and Delta etc is spurious and intellectually dishonest, since they did not involve plans that were "defective", disallowed or determined to be illegal or in violation of anything, as is being discussed as a possibility in this posted case. If any of those had been declared illegal etc then referencing them would have served a purpose, but once again you cite and reference erroneous or irrelevant items.

Anyone involved in an insurance matter is subject to state insurance law ask your state Dept of Insurance Enforcement and Unlicensed Entitity prosecutors. You do not have to be a licensed entity to fall under their jurisdiction, much in the same way a person does not have to be a lawyer to be charged and found guilty of practicing law without a license, or a person does not have to be adoctor to be charged or convicted of practicing medicine without a license. To even make it simpler a person does not have to have been the murderer to be guilty of being an accessory, accomplice, aiding and abetting, obstructing justice etc etc. I expected a lawyer to know better.

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The questions posed by fourohonekay relate to the liability of the employer whose employees participate in a VEBA not the liability of the VEBA and or promoters. Since the welfare plan funded by the VEBA is not subject to state law as an insurer under ERISA I dont see any liability of the plan (as opposed to the VEBA ) under state insurance law if the VEBA is subject to state insurance law as a MEWA . Also state insurance laws regulate parties acting as insurers in transacting an insurance business and their agents. Policy holders are not not subject to state insurance regulation ( e.g., see NY Ins. Law 1102) since parties who are protected under state insurance laws should not prosecuted for buying a policy from an entity that is not licensed. Under the case law established by the US Supreme Ct, state laws are prempted from applying to an employer who establishes a plan subject to ERISA to the extent the plan is exempt from state laws.

My use of leading cases was intended to make the board aware of the general principles regarding employer liability under ERISA for establishing a welfare plan including the difference between settlor and fiduciary functions. As I indicated the issue is complex and a client should seek the advice of counsel. As I understand it, the issue of MEWA regulation is not one of legality but what is the proper forum for regulation of the entity for providing benefits.

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A VEBA is a funding method it is not the Plan.

VEBAs are not subject to state insurance laws, the plans and arrangements that they fund are.

VEBAs do not really become MEWAs, the plans that are provided and the method by which they are provided, under the VEBA become, MEWAs.

As you stated "Policy holders are not not subject to state insurance regulation" BUT the employer is not the party protected by state insurance law it is the participating employees (Certificate holders) even in a Group plan wherein the Master Policy is issued to the employer but the Certificates are issued to the employeees.

As you also stated "state insurance laws regulate parties acting as insurers in transacting an insurance business and their agents" which is exactly the point. In the posted case it is a self insured plan therefore it is provided by the employer with his "plan" acting as an insurer. If the plan is declared illegal etc or a MEWA etc then the insurer of the plan (the employer) would have been the unlicensed entity etc.

Re: "the issue of MEWA regulation is not one of legality but what is the proper forum for regulation of the entity for providing benefits." the DOL was explicitly clear on this issue in their MEWA booklet including Appendix A and B.

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A VEBA is not a funding method. A funding method is individual level premium, aggregate, entry age normal, attained age normal, etc. A VEBA is a funding vehicle or arrangement.

VEBAs are a form of tax-exempt trust used to fund welfare benefit plans. They necessarily imply and generally comprise the plan of benefits.

Some state laws exempt employers from insurance laws; others do not. Most states regulate MEWAs; a few do not.

As to the issue of employer liability: clearly the employer is a named fiduciary under ERISA. As a fiduciary and co-fiduciary the employer may have secondary liability for breaches of duty by other fiduciaries, and primary liability for its own decisions, such as electing to participate in an illegal plan in the first place.

All of you immediately jumped to the conclusion that the plan fourohonekay was referring to was an illegal health plan. There are a lot of multiple-employer VEBAs around. Some provide health benefits for association members. Others provide health benefits for PEO firms. Others provide benefits other than health for those who share an employment-related common bond.

Rather than jump to an unwarranted conclusion, I am surprised that you did not ask what types of benefits are provided, and whether guaranteed benefits are provided by an insurance company. Those are the issues the state insurance departments are interested in. Typically a MEWA may provide benefits that are guaranteed by an insurance company without having to comply with state insurance laws. Of course all such arrangements are required to file with the DOL and may also have to file with the state insurance department.

I note that at least one state's insurance laws are so broadly drafted that a cafeteria plan (and the Administrator) may be deemed to be an "insurer" simply because they reimburse medical benefits.

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Guest Fourohonekay

This VEBA is a garden variety VEBA providing funding for medical and dental benefits. The question is whether a multiple employer VEBA that provides health and dental benefits to the employees of employers who share a common employment bond in the same geographical area is also a MEWA. If it is, then the plan has been operated without conforming to state MEWA regulation and has failed to file DOL forms. Thus, it seems that the VEBA trustees, who sponsored and promoted the VEBA to the employer-group are the ones who should be responsible for the VEBA's inability to pay continued benefits.

I'm still trying to determine what responsibility one of the employers has. It seems like a lot to expect of an employer to understand what in the world a MEWA is, much less the difference between a compliant MEWA and a non-compliant MEWA, at the time it signs up for participation in the VEBA. How may small employers will know that they should ask about the VEBA's compliance with state MEWA regulation? Holding the employer responsbile for the promises of the VEBA trustee seems to push the matter a little too far.

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When you buy a used car or other pre-owned item, How do you determine if it was stolen and that the seller is the rightful "owner"? If the item that you bought turns out to be stolen, do you not think that you would or could be charged with being the receiver of stolen goods?

Caveat emptor!

It is the buyer's responsibility to check any and all claims made by any seller or promoter.

Regarding the compliance of a VEBA, and the legitimacy of any items provided thereunder, is a very simple matter that only takes a few telephone calls to the DOI, DOL and underwriting insurers, a website visit or two and the requesting of a few items such as a copy of the DOL letter and M1 filing, a copy of the insurance policies.

It is also common sense that neither insurance agents nor Trustees nor any sales reps (by whatever name called) sell VEBAs. That should be the first warning sign.

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According to the DOL MEWA booklet the operators of a MEWA which is not an ERISA plan may nevertheless be considered fiduciaries under ERISA if such persons are responsible for or exercise control over the assets of ERISA plans, in addition to any state insurance laws that apply. (A MEWA which is an ERISA plan is required to conform to ERISA.) Under ERISA 514(b)(6)© a welfare plan subject to ERISA which uses a MEWA to fund benefits will be subject to regulation under ERISA and not state insurance law. I think the issue of employer liability is not dependent on the VEBA's compliance with state or DOL regulations but on the default risk if the VEBA cannot pay benefits. Employer liability under ERISA would depend on the statements made to employees regarding liability for payment in the SPD and other material, similar to employer liability for a health insurer's refusal to pay a claim which is not covered under the insurance contract. Query- Would there be any employer liability under ERISA for providing benefits under a MEWA that did not comply with state insurance laws if the VEBA paid benefits to participants?

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Guest ElmoT

mbozek: Are you sure you read ERISA 514(b)(6) correctly ?

Do you know when a MEWA is an ERISA plan and when a MEWA is not an ERISA plan ? (I don't think you know what determines it). Have you ever heard the phrase "bona fide employer association" ? I suggest you learn what that phrase means.

Do you really think that a non-ERISA MEWA is subject to state insurance laws ...but a that a ERISA MEWA is not ?

I suggest that you and GBurns make up and be friends.

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We are "friends" (I think), we just write this way.

The relationship reminds me of a case that I had in court, a few months ago, after which 1 attorney called the other a ##### and expressed the desire to kick him, I on the other hand stated that the performance of all the lawyers was so poor none of them should have the audacity to charge their clients and I blamed the Judge for being idiotic. At a subsequent meeting to discuss the reversal of that judge, by the Appeals Court, I learned that those same 2 lawyers were best buddies from law school days and had gone boating together the previous weekend.

The moral is tear his liver out in court but he can come to supper later.

By the way if mbozek is female, I would consider making up.

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"The question is whether a multiple employer VEBA that provides health and dental benefits to the employees of employers who share a common employment bond in the same geographical area is also a MEWA."

Of course such an arrangement is a MEWA. DoL has declined federal pre-emption of state regulation of MEWAs since the mid-1980s. (ERISA left it up to the Secretary of Labor to assert or not to assert federal pre-emption of such laws, unlike retirement plan laws and regulation which do pre-empt state regulation.)

There seems to be some misunderstanding of the impact of whether a plan is an ERISA or a non-ERISA plan. A plan is an ERISA plan if it provides an employee benefit covered under ERISA. However, for MEWAs, the states can and do regulate all MEWAs whether covered under ERISA or not.

The NAIC has some interesting information on their website, including the following list of state MEWA contacts: http://www.naic.org/state_contacts/docs/me...public_list.pdf

It seems to me that an employer who finds itself participating in an illegal MEWA has an affirmative duty to its employees either under state employment law or under ERISA as a co-fiduciary to: (i) get out of the plan ASAP; (ii) ascertain and mitigate damages (losses) to employees; (iii) consult with an attorney regarding its exposure, liability and duties; (iv) potentially, to have its legal counsel report the arrangement to the state insurance department so long as such report is not adverse to the interests of its employees.

Finally, the term "bona fide employer association" does not appear in ERISA, in the US Code or in DOL or IRS regulations. The only place I am aware of its usage was in a 2001 advisory opinion from the DOL. That opinion can be found at: http://www.dol.gov/ebsa/programs/ori/advis...01/2001-04A.htm and it relates to an unusual and limited set of facts. Note: even though the DOL holds that the plan may be treated as a single-employer plan for purposes of reporting and disclosure, it acknowledges that the plan is a MEWA.

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vebaguru,

Thanks for this post. I knew that eventually an experienced lawyer would make a comment regarding the employer's position in an illegal situation. Many people seem to think that the employer could just sit back and say "I didn't know" and that would be all to the matter.

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