Not a MEWA because we share BOD companies?

[Guest Diana Prewitt]

Self-insured med/dental plan where my organization serves as sponsor, administrator, and fiduciary. Other smaller organization has been in the plan for several years. We have the same outside council and some of the same companies are represented on both boards. We are being told that having these common board member companies puts us under "common control" and therefore not a MEWA. I don't read the PWBA booklet this way. I have just read the third installment of Q's and A's and note that Q 20 does address "a common control interest of at least 25 percent at any time during the plan year." Any clarification or further source of info would be much appreciated.

[Brigid Anderson]

As far as we know, the third set of DOL Q&As is the first time the DOL has said that something as little as a 25% interest can create common control. So that's a big change since most practitioners probably have required an 80% interest, analogizing to the Code section 414 test.

I'm no common control expert, but common board membership is one of the indicators of common control. Of course, conclusions are difficult because the test is so fact specific.

[pjkoehler]

Nothing in the IRC Sec. 414© regulations makes board membership a surrogate for equity ownership. The term "controlling interest" is central to the definitions of "parent-subsidiary" and "brother-sister" controlled groups. "Controlling interest" is variously defined for different forms of organizations, but the unifying element is equity interest. Reg. Sec. 1.414©-2(B). In the case of incorporated entities, a "controlling interest" means owership of stock possessing at least [the threshold percentage of either (1) total value of all classes of stock or (2) voting power of all voting shares.]" The brother-sister form of controlled group is also defined by reference to the existence of "effective control" among the same five or fewer persons who collectively hold a "controlling interest." "Effective control" is similarly defined solely by reference to ownership of an equity interest.

The 3rd version of the PWBA Qs&As regarding Form M-1 says that the principles of Code Sec. 414 apply, with the exception that 25% is the threshold percentage, but I don't see even a hint that board membership is a substitute for equity ownership in determining the existence of a "control group" for MEWA purposes.