Non-union participation in union plan

[Guest FAQ]

Here's one I haven't seen before. An employer with a large percentage of union workers has a self-insured health plan for its nonunion employees (mostly administrative and managerial personnel). The reinsurance costs have increased dramatically and the union has offered to allow the nonunion employees to participate in the union health plan & trust, under the same conditions that would apply to a union employee (i.e. the employer would contribute x$ per month for coverage for each employee).

Ignoring the union negotiation issues (the union could be in a stronger position if it is providing benefits to those with whom it is negotiating), has anyone seen this kind of arrangement? Could there be withdrawal-type liability if the employer terminates its participation as to the non-union employees? Solvency concerns? What kind of due diligence should they do on the union plan, if any? Any other concerns?

I did notice that under the final regulations issued 4/9/03 (68 Fed Register 17472), a health plan could be treated as a MEWA if less than 85% of the employees covered by the plan are union employees. I do not yet know whether this is the case with the plan at issue. If it did turn out to be a MEWA, are there special concerns there?

Thanks in advance for any thoughts!

[mal]

We represent a number of multiemployer (union) health plans

in the construction industry. Almost every one of our plans allows

contractors to enroll their administrative staffs, etc., in the plan.

It is done through a participation agreement and the

benefits are typically different for a non-union employee. For example,

the union employee is credited with contributions for each

hour of service and can accumulate extra hours in a "dollar bank."

Contributions for the non-union employees are based on the

monthly cost of insurance to the plan. THere is also a carve-out

of benefits such as disability coverage, etc.

I don't think there is any concern over withdraw liability as

the welfare coverage is not a vested benefit. If the plan

became too expensive the employer could seek alternative

arrangements.

[KJohnson]

I haven't kept up with the MEWA stuff, but my recollection is that there very well may be a Code issue as well. I would be very careful on issues of funding and tax deductibility. In particular you should look at 419A and the definition of collectively bargained plan in 1.419A-2T Q&A 2. The language in (4) of Q&A 2 about losing the collectively bargained exemption from 419A if the number of employees in the fund who are not collectively bargained increases has been a troubling factor. I have not looked at this for years, but it might be something you want to get comfortable with---especially if the collectively bargained welfare plan has a healthy reserve.