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benelux

building trades participation of non-building trades employees in health care plan

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Good morning... in the case of a multiemployer health plan maintained by one of the building and construction trades, an issue has arisen as to whether employees of some of the employers who do not perform work traditionally in the trade, e.g. clerical, could be permitted to join the plan.  The concept would be not to include them as non-bargaining unit employees, but to actually have them join the union and participate as bargaining unit employees.  Any knowledge as to whether this is permissible or not?

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I am not a ERISA attorney, but yes participation is permitted in BCTD Multi-employer Health Plans by non-CBA employees, to a limit, etc.  Although I never have met Mr. Salemi, he did author a recent article on this very subject.  Morgan Lewis is a solid ERISA Law firm.  His contact info is shown below. 

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There are a number of legal hurdles to permit participation.  In the case of a multiemployer health plan it is not as clear or as easy as in the case of a pension plan.  First, union membership may have little do do with this.  The issue that will be most important is whether the plan is a VEBA under Code 501(c)(9) or is exempt under Code 501(c)(5).  If the plan is exempt under 501(c)(9) and depending on the other employees covered, the inclusion of this category may violate the "employment related common bond" requirement under that section of the Code.  I had heard that a few years ago the Service was taking the position that a VEBA violated this section if it covered employees under CBAs and both employees of the trust and employees of the union. 

You also need to look at the regulations Code 419A(f)(5) which provides an exemption from the Code asset account limits for collectively bargained plans.  The definition of collectively bargained plan is a temporary regulation and its revision has been on the IRS priority guidance plan for several years but no actual proposal has been made.  And, significantly for your question, the regulation states that--

(4) Notwithstanding the preceding paragraphs and pending the issuance of regulations setting account limits for collectively bargained welfare benefit funds, a welfare benefit fund will not be treated as a collectively bargained welfare benefit fund for purposes of Q&A-1 if and when, after July 1, 1985, the number of employees who are not covered by a collective bargaining agreement and are eligible to receive benefits under the fund increases by reason of an amendment, merger, or other action of the employer or the fund. In addition, pending the issuance of such regulations, for purposes of applying the 50 percent test of paragraph (2) to a welfare benefit fund that is not in existence on July 1, 1985, “90 percent” shall be substituted for “50 percent”.

So adding this category of non-collectively bargained employees to the plan could result in loss of the plan's exempt status or the loss of employer deductions for contributions because most multiemployer health plans exceed the Code 419A asset account limits.  It probably won't because the Service doesn't pay that much attention to health plans and it is overwhelmed but it is something you should factor in.  Also, you cannot ethically advise your client under IRS ethics rules based on the likelihood that they will or will not be caught.

You could request a PLR but recent PLRs on this have generally been denied.  I do wish IRS would issue the new reg because they have signaled that the approach may be different but in the current environment who knows when that will be.  I have been watching this for years.

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