414(m) Management Group as a Single Employer Plan- or is it a MEWA?

[Benefits Vet]

Client maintains two companies, one is a professional service corporation (the "PC"); the other provides management, back office and other services to the PC (the "MC"). MC only provides services to the PC, no other clients. There is no cross ownership between the two companies, just a management services agreement. 

MC and PC want combine their employees for purposes of medical plan coverage. Is it a MEWA? Does the answer depend on whether they qualify as a management group under Code 414(m)? I found an old opinion letter that says that whether they are a management group or ASG is not determinative as to whether they can be treated as a single employer for purposes of determining if a MEWA exists, but that doesn't give me much comfort. 

[Brian Gilmore]

My position is that they need to be part of the same §414 controlled group as a parent-subsidiary or brother-sister to avoid MEWA status.  I read that DOL guidance to state that ASG status is not enough to be treated as a single employer and therefore avoid MEWA status.

Here's that guidance:

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/05-24-2004

Trades or businesses with less than a 25 percent ownership interest thus are not under "common control" for purposes of section 3(40) of ERISA, and, therefore, are not a single employer for purposes of determining whether their plan provides benefits to the employees of two or more employers under section 3(40). It is our understanding that "affiliated service group" status within the meaning of section 414(m) of the Code may be based upon an interest of less than 25 percent. Accordingly, "affiliated service group status" under section 414(m) of the Code would not, in and of itself, support a conclusion that a group of two or more trades or businesses would be a single employer for purposes of section 3(40) of ERISA.

 

Here are the materials I've put out on the issue:

• https://www.newfront.com/blog/adding-a-new-ein-to-the-health-plan

• Newfront Office Hours Webinar: M&A for H&W Employee Benefit Plans

[Luke Bailey]

Brian Gilmore hits hits the nail on the head. Many law firms with incorporated partners (414(m)(2)(A) ASG's) have this issue, maybe less so today given that there are fewer incorporated partners. None that I am aware of have were able to resolve the issue favorably, and those that stayed worried about it and were large enough to be self-insured looked at the MEWA issue as just one more reason to be fully insured.