Don Levit

Lori: I agree with you, if the plan is fully insured. If it is a self-insured VEBA, the VEBA and the insurer are one and the same. Don Levit

masteff: You may want to read the first several pages. Page 1 is pretty informative. Don Levit

I am not too familiar with social clubs. I just read an article published by the IRS which seems to suggest that retirement plans are not part of their exempt purpose. Go to: http://www.irs.gov/pub/irs-tege/eotopicc96.pdf Don Levit

George: Well, you're no longer in my top 10. With friends like you, who needs enemas. Don Levit

Folks: Okay, I realize I do go overboard, at times. It's like Churchill said when defining a fanatic - He is one that is unable to change his mind, and is unwilling to change the subject. Why do I feel like George is a friend of mine? Don Levit

J2D2: Why form a MEWA? They have such bad PR. And, it would probably have to meet similar requirements to a commercial insurer. Why bother? Don Levit

Folks: I agree that the posting is inappropriate. I wonder, though, if Ric could share some of his expertise on how to deal with large premium increases? Don Levit

John: Thanks for your reply. Very astute observation about plan assets. By defining plan assets as either amounts a participant pays to an employer, or has withheld from his wages by the employer, this seems to definitely assert they are employee contributions, not employer contributions, right? Also, aren't salary reductions not considered ERISA plans, but, rather, "payroll practices." For example, payroll deductions for IRAs are not considered ERISA plans. Don Levit

George: You make a lot of sense in your assessment of employer involvement. If a person already had an individual medical policy before coming to his employer, and it is payroll deducted, would you see any problem with that policy being part of an ERISA plan, even if the employer reimburses the employee for part of the premium? John, that is very interesting about ERISA saying that the premiums are paid by the employee. Do you have the citation in Title 1? Don Levit

Folks: I gave the incorrect web site for Roy Harmon's excellent blog. It is www.healthplanlaw.com. Don Levit

Folks: For an interesting explanation of what we are discussing, you may want to go to the current blog at www.healthplan.com to get Roy Harmon's views. Don Levit

Folks: We have some very bright people in our midst. Together, we border on the genius! I agree with John Simmons that the only viable course is by suing the fiduciary. There is very little, if no chance at all, that the participants will be forced to surrender parts of their accounts to make LaRue whole. We know that, according to this decision, that "misconduct by the administrators of a defined benefit plan will not affect an individual's entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan." It also mentioned that "The disability plan at issue in Russell did not have individual accounts." I am wondering, then, if only the fiduciary breach would be applicable to suits involving welfare benefits, which are, typically, "defined benefit" plans? Also, wouldn't fidiciary insurance cover losses such as the one in LaRue? Or, would that be considered willful negligence, and typically be excluded? Don Levit

Everett: Thanks for providing that link. One of the respondents mentioned that earnings on trust assets are taxable as unrelated business income (UBIT). As I understand UBIT in VEBAs, if the amount set aside is within the limits, there is no UBIT. I don't know much about Section 115 trusts, but I do believe that increases in health care costs are allowed in the pre-funding. This is not allowed in VEBAs. Don Levit

ERISAatty: Regarding state MEWA laws, it sounds like your multiple employer VEBA is in more than one state. Would you agree that state regulation of MEWAs would differ, depending on whether the MEWA is in one state or more than one state? I am referring to the uniform regulation of ERISA plans located in more than one state. I noticed you are in Wisconsin. Have you discussed MEWA regulation with Fred Nepple? Don Levit

Jeremy: What state is your client located in? Don Levit

ERISAatty: Thanks for providing that very intersting PLR. While the "other benefits" qualified for the VEBA, I did notice that part of the reason seemed to be that the funds disbursed for those benefits were only one-tenth of one percent of the funds available. So, in order to qualify, the benefits may have to be a very minor part of the total benefits available. In addition, no reserve could be set up for these benefits. If any funds were left over at the end of the year, they were subject to UBIT. The ruling did say, though, that if the benefits were part of a collective bargaining agreement, they could accumulate from year to year, and not be subject to UBIT. While not saying so, I assume a reserve could also be accumulated, and not subject to UBIT, if the payments into the VEBA for these benefits were made by the employees on an after-tax basis. Don Levit

ERISAatty: Qualified benefits are those designed to safeguard or improve the health of members. Social, recreational, and cultural benefits designed to promote members' physical, mental, and emotional well-being may also qualify as VEBA benefits. Don Levit

Steelerfan: John Erlenborn also helped write the MEWA Amendment of 1983 I mentioned earlier. Do you think that he, or Congress, had in mind for states to regulate MEWAs, as if they were commercial insurers, such as an Aetna or United Health Group? Don Levit

Folks: I can appreciate turning more authority over to the states. Assuming Congress thought of every possible benefit and cost befioe passing ERISA is a bit illogical. However, if we look at returning more authority to the states, and away from ERISA, this was tried back in 1983. ERISA was preempted by the Congress, when it passed legislation allowing states to regulate MEWAs. Where did that new-found freedom get us? Don Levit

George: Correct about the relative small numbers. As I mentioned, to my knowledge, the vast majority of failed MEWAs were non licensed, non registered entities. I believe there is an even larger number which would arise, as registered, licensed, entities, if the requirements were not as stringent as a full-blown commercial insurer, such as a United Health Group. The ERISA exemption I am referring to is the exemption provided in 1983, when states were given fairly exclusive rights to regulate MEWAs. They are now asking for a similar exclusion in order to offer more creative, innovative plans. States had that opportunity back in 1983. How did they fare? Well, take, for instance, California. Back in 1995, they banned all future self-funded MEWAs from forming. A VEBA has the opportunity to be be creative and innovative, for it is a non commercial insurer. There are distinct differences between non commercial and commercial insurers. One of those differences is for a non commercial insurer to offer innovative plans. If the non commercial insurer fails to do so, and, if it starts to resemble commercial insurers, its tax exempt status could be in jeopardy (Blue Cross Blue Shield, for example). Don Levit

TxCafe: According to the Bulletin, if the employer subsidizes any of the premium, this would be considered a group plan, according to the TX DOI. If that is the case, the premiums cannot be different for the participants, due to a health status factor. Thus, any type of list billing would be prohibited. The interesting dynamic here, in my opinion, is that whether or not an arrangement is a group plan, would be determined by federal law, not by a state Department of n surance bulletin. When I talked to the regulator mentioned in the bulletin, I sent him a fifth circuit court case, which took place in Texas, which seemed to suggest that whether or not individual policies are subject to being a group plan, would be determined on a case-by-case basis, even if the employer subsidizes the premium. When I asked the regulator if he read the court case, he said to me he did not have the time. Don Levit

vebaguru and George: I have heard of the many failures as well. Fortunately, I have read and talked to several people who have successfully run these ventures for many years. To find a list of MEWAs that are licensed, go to: http://askebsa.dol.gov/epds/. The reason that many of these MEWAs have failed are numerous, I am sure. However, the thread that seems to be consistent is that these ventures have been unlicensed, and have attempted to shield themselves from state regulation. For those states that have reasonable requirements to license as a non commercial insurer, the rationale for not being licensed is hard to explain. For those many states who require a non commercial insurer to have the same surplus as a CIGNA, it is not hard to understand why there are few, if any, licensed MEWAs. In regards to ERISA exemption, vebaguru is correct about Hawaii. I was referring to states already having a similar exemption in regards to regulating MEWAs. The federal government is pretty much out of the picture here. Have the states created the type of atmosphere to encourage MEWAs to form? MEWAs are not the only way that innovative plans can come to fruition. However, the arrangement does give small employers the alternative to secure more participants, and thus, obtain the proper pooling to do some creative financing. Don Levit

masteff: Let's first see if these are life or health policies. I assumed they were health policies. Don Levit

TXCafe: Good question. Assuming you wish to explore this option in Texas, how would you deal with a bulletin issued by the Texas Department of Insurance last year? Go to: http://www.tdi.state.tx.us/bulletins/2006/cc9.html. Don Levit

Vvbaguru: I am glad that you are explorting creative ways to fund health benefits. A captive insurer can certainly be an effective way to do so. What is needed, as you seem to endorse, are innovative approaches. The traditional way of funding health care expenses will provide traditional results. You seem to believe there is something inherently flawed about MEWAs. If that was the case, there would be no success stories. The flaws lay in the people operating these entities, rather than the form itself. What is ironic about ERISA preemption, is that the states had the freedom in 1983 to really provide the atmosphere for innovative financing of health benefits through MEWAs, that they are now asking for, in requesting ERISA waivers. The states do not have a good track record in encouraging financially solvent self-funded MEWAs to flourish. Until they show some accountability with the 1983 freedom, why should they be given more? Don Levit