MEWAs in Affiliated Service Groups

[401 Chaos]

I have been reviewing the May 24, 2004 DOL Information Letter which indicates that having a number of employers included as part of an affiliated service group (ASG) under 414(m) is not, in and of itself, sufficient to establish the group as a single employer for ERISA purposes and thereby avoid MEWA classification.

In the Information Letter, the DOL notes that because an ASG can exist without 25% or more common ownership, common ownership / single employer status cannot automatically be assumed. It then goes on to note other guidance under 414(m) suggesting that 80% ownership is required but deferring to the IRS's interpretation of 414.

My question is how have others interpreted the Information Letter where an ASG exists with two companies jointly and equally ( 50 / 50) owning a third company as part of an ASG under 414(m). Based on the letter, I would assume that without an 80% ownership level established, there is some question as to whether a single employer exists because the DOL has not issued regulations addressing whether a lower than 80% interest is appropriate for MEWA purposes. Just wondering (hoping) that others may have a different interpretation or be aware of further guidance or arguments that common ownership exists in an ASG provided the ownership interest is more than 25%.

[Ron Snyder]

414(b) & © provide controlled group rules and provide for both the 80% rule and the 50% rule.

MEWA rules apply to health and welfare benefit plans. If a plan covers unrelated employers, it is required to comply with EBSA registration and filing requirements.

414(m) ASG rules require only > 10% overlapping ownership. But these rules apply to retirement plans and require aggregation of affiliated companies for testing purposes.

Why would you wish to cover the employees of such entities under 1 self-funded health or welfare benefit plan?

We are required to file as a MEWA with respect to plans that we administer. The MEWA filing requirements are not onerous, but a fairly reasonable nuisance.

Warning: If you administer such a plan, it is likely required to comply with state insurance laws for the state or states in which the corporations operate. Most states don't regulate single-employer self-funded plans, but to regulate MEWAs or other arrangements which cover employers that do not meet the single-employer definition.

[Guest Stuartt]

My take on the DOL's MEWA position is that there must be at least a 25% common ownership to avoid being classified as a MEWA

[401 Chaos]

Stuartt,

Thanks, I agree the guidance is clear that there must be at least 25% common ownership. Are you saying that if you have 25% or more in an ASG context that you avoid MEWA status? What leaves me confused is whether having more than 25% but less than 80% in an ASG setting is enough to avoid MEWA status. The DOL Information Letter does not seem to address that other than to suggest that, in the absence of specific DOL regulations on MEWA stauts, interpretation of the default rules is really the IRS's issue. At bottom, I read it to say that there is no certain ability to avoid MEWA status unless you meet the typical 414© thresholds--i.e., 80% or 80/50.

If 25% is enough to avoid MEWA status, what do you think of a situation where there is one management company performing services for two unrelated entities so that each entity holds more than 25% interest in the management company but there is no common ownership among the other two companies. In other words, each company is clearly in an ASG with the management group but not directly connected to each other. If the management company sponsors the plan, can it take position that it is really one big ASG by virtue of separate, overlapping ASGs?

Vebaguru,

Thanks for your response. I am not sure I fully understand your post. Are you saying that it is not generally possible to rely on the ASG rules in a welfare plan / MEWA context--that they only apply to pension plans?

As to situation / reason group wants to avoid MEWA status, we have two large emergency room physician groups, each located in a different state. Per state law professional association entity rules, each physician group is owned 100% by licensed physicians working in the one state. That is to say no physician owns an interest in both physician groups and the two groups cannot generally be combined into one big group and function as a professional association or PLLC.

Both physicain groups use the same management company and thus clearly appear to be part of an ASG with the management company under the ASG rules (actually maybe two overlapping ASGs). The management company, in turn, sponsors the self-funded health plan covering employees of all three entities. (Group is actually considering adding another large emergency room practice group located in a third state to the mix so the number of states involved could grow.)

At any rate, because multiple states are involved and thus multiple state insurance requirements and MEWA regulations, the group does not wish to be classified as a MEWA. As physicians, they don't really like the state insurance departments--bad blood there. In addition, the insurer used to administer the plan and network has far different rules, procedures, rates for MEWAs. Suffice it to say, they would like to avoid MEWA status if at all possible even though the general MEWA filing requirements may not be that onerous.

[Don Levit]

401 chaos:

Assuming this is a MEWA, I agree with you that the law since 1983 is for states to regulate insurance products which are self-funded MEWAs. However, it is my opinion, based on Supreme Court decisions, that the regulation must be uniform and consistent, if more than one state is involved.

I assume the states involved wish to regulate the arrangement, as if it existed in only one state, correct?

Don Levit

[Guest Stuartt]

Take a look at page 21 of the DOL's MEWA guide. Also, take a look at the DOL Advisory Opinions on MEWAs and PEOs. That will give you a better idea of what the position of the DOL is on this.

[Don Levit]

Stuartt:

Looking over page 21, I read that the states can regulate self-funded MEWAs.

I have no problem with that.

And, the states can regulate MEWAs to a great extent - as long as the regulation is not inconsistent with ERISA.

Courts have ruled, including the Supreme Court, that multi-state regulation of ERISA plans is different than single state regulation of ERISA plans.

This holds true whether or not the entity is a MEWA.

Can you cite where the AOs would state a different position?

Don Levit

[401 Chaos]

Stuartt:

Not sure whether your last post was for me or Don but the language included on page 21 is pretty much identical to the language in the 2004 letter. My reading of that is that if you are below the requisite 80% level, then you really have little argument for single employer status. Is that your take as well?

For what it is worth, I think my situation is fairly distinguishable from the PEO--type arrangements. In my case, there are no leased employees--all three organizations have their own separate employees. The management group does not lease or provide any employees to the practice groups but it does provide typical professional management services and so we think is clearly part of a management ASG for qualified plan purposes. The piece that seems problematic in our case is that regular management ASG rules do not require the percentage ownership levels that is arguably required to avoid MEWA status. Thanks.