Plan Participation - HELP!

[Guest ooota]

HELP!

Can a Local Union, who is a noncontributing employer, pay into a multiemployer health & welfare plan for one employee of the union only, excluding all other employees of the union?

Can the union, as a contributing employer, pay into the health & welfare fund on behalf of the union office employees as a subgroup with different benefits?

Can the union, who is a contributing employer paying into a pension plan on behalf of its employees, exclude a part-time employee because of that individual's status as a part-time employee?

If you have cites to regs., statutes, cases, etc. ALL THE BETTER!

Thanks sooooo much for your help!

[Bill Ecklund]

Question 1: Can a local Union, who is a non-contributing employer, pay into a multi-employer health and welfare plan for one employee of the union only, excluding all other employees of the union?

Answer: The answer is yes, provided the trust agreement has a definition of participating employer that would include the sponsoring union and provided that the union signs a participation agreement with the trust setting forth the terms of the participation. The trustees, however, should make a policy decision as to whether or not they would allow such participation. The trustees should consider such things as adverse selection, whether or not they want to promote a policy whereby some employees are provided benefits and other are not. If this were to happen, it would be helpful if the union employees were themselves a member of a union, such as the office workers union.

Although this can legally be done, there are other issues that have to be looked at dealing with discrimination:

• Age Discrimination Employment Act. This Act makes it unlawful for an employer to make less valuable benefits available to older workers solely on account of age.

• Americans with Disabilities Act. This law prohibits an employer from discriminating against a disabled individual with respect to the terms, conditions and privileges of employment including with respect to benefits.

• Pregnancy Discrimination Act.

If all of those issues are solved, then there is one other issue that needs to be looked at. Assuming that this Plan is a self-insured Plan, then you have to examine Internal Revenue Code §105(h) to determine whether or not benefits under the Plan are being provided disproportionately to the highly compensated employees. It is not illegal to discriminate, but if there is discrimination, then the benefits are taxable to the employee. You should also look at the regulations §1.105-11 to examine the specifics of this issue.

Question 2: Can the union, as a contributing employer, pay into the health and welfare fund on behalf of the union office employees as a subgroup with different benefits?

Answer: Yes, again provided the plan provides for it. Also, you have the same considerations as described above that have to be looked at.

Question 3: Can the union, who is a contributing employer, paying into a pension plan on behalf of its employees, exclude a part-time employee because of that individual’s status as a part-time employee?

Answer: You have to examine the participation requirements of the pension plan. Assuming that the plan uses a traditional 1000 hour per year approach, the answer is that if the part-time employee does not work over 1000 hours, the part-time employee can be excluded. However, if the part-time employee works over 1000 hours, then the employee would have to be included. There are two possible exceptions to this:

(a) If the employees themselves are members of a Union, and the Union, as an employer, bargained with the Office Workers Union over pension benefits, then under those circumstances it is possible to exclude the part-time employees.

(b) It is possible that just by excluding the one part-time employee, The Plan would still meet various discrimination requirements under the Code.

IRC §410(b) imposes minimum coverage requirements on qualified plans and IRC §401(a) (4) imposes rules against discrimination in benefit and/or contribution levels. For purposes of both of these sections, the employees of an employer are divided into two categories: (i) Highly Compensated Employees (HCEs), within the meaning of IRC §414(q), and (ii) Non-Highly Compensated Employees (NHCEs). Compliance with IRC §410(b) is tested by comparing the percentage of the HCE group and the NHCE group that is covered by the plan. Compliance with IRC §401(a)(4) is tested by comparing the benefits accrued by, or contributions allocated to, the HCE participants and the NHCE participants.

Under Reg. §1.410(b)7©(5), the portion of a plan that benefits collectively bargained employees is treated as a separate plan from the portion of the same plan that benefits non-collectively bargained employees. Moreover, the portion of a plan that benefits employees covered by one collective bargaining agreement is treated as a separate plan from the portion of the same plan that benefits employees covered by a different collective bargaining agreement. Each of these separate plans covering only collectively bargained employees complies automatically with IRC §410(b), pursuant to Reg. §1.410(b)-2(b)(7), and with IRC §401(a)(4), pursuant to Reg. §1.401(a)(4)-1©(6). Thus, the only coverage and discrimination issues that a multiemployer plan must face are those raised by its inclusion of non-collectively bargained employees.

[Guest Brian4]

A comment on question 3.

Bill's response discusses the minimum coverage and nondiscrimination rules of Internal Revenue Code sections 410(b) and 401(a)(4). There are also the minimum participation requirements of IRC section 410(a), for which there is not a collectively bargained exclusion. The basic rule is participation cannot require an age greater than 21, or more than a one year of service with 1000 or more hours. So, even for union employees, a part time employee could NOT be excluded on that basis if they were age 21 and had a year of service with 1000 or more hours.

[Guest ooota]

You guys are GREAT! Thanks so much imparting your valuable knowledge in reply to my post!

[Bill Ecklund]

Brian’s point is a very valid one. Having said that however, it is possible for a Plan to exclude certain classifications of employees and not violate the minimum participation standards. Treasury Regulation § 1.410(a)-3 provides as follows:

“(d) Other conditions. Section 410(a), §1.410(a)-4, and this section relate solely to age and service conditions and do not preclude a plan from establishing conditions, other than conditions relating to age or service, which must be satisfied by plan participants. For example, such provisions would not preclude a qualified plan from requiring, as a condition of participation, that an employee be employed within a specified job classification. See section 410(b) and the regulations thereunder for rules with respect to coverage of employees under qualified plans.

(e) Age and service requirements. -- (1) General rule. For purposes of applying the rules of this section, plan provisions may be treated as imposing age or service requirements even though the provisions do not specifically refer to age or service. Plan provisions which have the effect of requiring an age or service requirement with the employer or employers maintaining the plan will be treated as if they imposed an age or service requirement.

* * * * *

Example (3). A plan which requires 1 year of service as a condition of participation also excludes a part-time or seasonal employee if his customary employment is for not more than 20 hours per week or 5 months in any plan year. The plan does not qualify because the provision could result in the exclusion by reason of a minimum service requirement of an employee who has completed a year of service. The plan would not qualify even though after excluding all such employees, the plan satisfied the coverage requirements of section 410(b) .

Paragraph (d) of the regulation clearly states that participation can be conditioned upon being employed within a specified job classification. Certainly the converse must be true, that employees within one or more specified job classifications can be excluded, because they are not within the specifically included specified job classification(s). (See. Technical Advice Memoranda 9508003, last paragraph on page 2.) However, paragraph (e) makes clear that the "specified job classification" cannot be one which has as its defining characteristics the satisfaction of particular age or service requirements, since those topics are effectively pre-empted by the minimum participation standards. These conclusions are reiterated on IRS Directive issued November 22, 1994.

Nothing in the Regulation or in the IRS Ruling provides much meaningful guidance as to what is a permissible "specified job classification," as opposed to an impermissible age or service condition (impermissible if it requires age or service in excess of the minimum participation standards). Example (3) in the regulation, cited above specifically operates to prohibit a classification of part-time employees or seasonal employees. The pre-ERISA Internal Revenue Code set forth the equivalent of today's minimum coverage requirements in IRC §410(b). For purposes of assessing those minimum coverage requirements, employers were permitted to exclude employees whose customary employment was for 20 or fewer hours, at that time, per week, and employees whose customary employment was for 5 or fewer months in a calendar year. This is no longer true. In legislative history to ERISA, it seems clear that Congress intended for the issues of participation of part-time and seasonal employees to be subsumed within the "year of service" determination in connection with the minimum participation standards.' Generally speaking, an employee has a "year of service" if he or she has not fewer than 1,000 hours in the relevant 12-month period. 29 D.S.C. §1052(a)(3)(A); IRC §410(a)(3)(A). There is a special direction that for a seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year, the term "year of service" is to be determined under regulations. 29 U.S.C. §1052(a)(3)(B); IRC §410(a)(3)(B).

Thus, it seems clearly permissible to exclude from participation employees who fall in one or more “specified job classifications”. This is true, even if those employees would otherwise meet the minimum participation standards, so long as the classifications are not based on age or time of service. The only case that I am aware of that directly addresses this point is Central States Welfare Fund v. Hartlage Truck Service, Inc., 991 F.2d 1357, 16 EBC 2243 (7th Cir. 1993).

The Court held that ERISA’s minimum participation standards were not violated by the exclusion from participation of employees who are classified as “casual employees”. There was not an awful lot of analysis in that case, but he Court held that they were excluded from participation “because of their status as casual employees, not because of their age or time of service”. Likewise in the Construction Industry, this is the reason that apprentices cannot be excluded from participation as participants in the Plan. Since apprentices almost always become journeymen, the Internal Revenue Service has concluded that excluding apprentices is a violation of the minimum participation standards, because their four or five years of apprenticeship are much longer than the one year requirement under the minimum participation standards.

This is probably a longer answer than you wanted, but unfortunately, nothing is simple, with respect to multi-employer defined benefit pension plans.

[Guest Brian4]

Thanks for Bill's comments. Looking at the casual employee case, the employees may not have satisfied the ERISA minimum participation requirements. Maybe one satisfied them shortly before termination.

Another casual employee case was just ruled on. The ruling was in favor of the employees getting credit. A press release on it can be found at:

http://www.teamster.org/05news/nr_050407_1.htm