Question 328: What is the likelihood that the DOL's stance on open MEPs will be overturned by the courts or by Congress?
Answer: There is little chance a court will overturn the Advisory Opinion 2012-04A (herein referred to as the "Opinion") which determined that the underlying employers of an open MEP each have established separate ERISA plans. This is because the Opinion is grounded not only in DOL precedent, but also follows the reasoning of judicial opinions.
It is important to recognize that the situation for open MEPs is hardly unique. The analysis used in the Opinion has been used repeatedly when the DOL has confronted plans sponsored by more than one employer. Whether it's a welfare plan or a pension plan, a plan of a trade association or an open MEP, the DOL asks whether a bona fide group or association of employers exists. When it asks that question, it reviews the same factors in case after case to find the answer. If a bona fide group or association of employers does not exist, then the DOL rules that the plan is not a single plan under ERISA, but rather a series of separate plans.
As the Opinion points out, courts have also demanded an organization nexus between adopting employers in order to have a single ERISA plan. In Advisory Opinion 2008-07A, the DOL noted:
Courts have also held that there must be some cohesive relationship between the provider of benefits and the recipient of benefits under the plan so "that the entity that maintains the plan and the individuals that benefit from the plan are tied by a common economic or representation interest, unrelated to the provision of benefits." Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Bd. of Public Instruction, 804 F.2d 1059, 1064 (8th Cir. 1986). Indeed, one court reasoned that "an overly broad interpretation of the term 'employee welfare benefit plan' ignores congressional intent to limit such plans to situations where the nexus between the plan's sponsor and all of its beneficiaries excludes it from the state-regulated entrepreneurial arena in which private insurance companies operate." Id. The representational link between employees and an association of employers in the same industry who establish a trust for the benefit of those employees also supplies the requisite connection. See Advisory Opinion 2001-04A; Advisory Opinion 2003-13A; National Business Ass'n Trust v. Morgan, 770 F. Supp. 1169, 1174-75 (W.D.Ky. 1991); MDPhysicians & Associates, Inc. v. State Bd. of Ins., 957 F.2d 178 (5th Cir. 1992), cert. denied, 506 U.S. 861 (1992). See also Nat'l Business Conf. Employee Benefits Ass'n v. Anderson, 451 F. Supp. 458, 461 (S.D. Iowa 1977) (employees must have common interest in employment relationship for ERISA plan).
For those interested in further reading on the subject, I highly recommend the MDPhysicians case cited above (and in the Opinion). A physician practice offered and marketed a health plan to which over 100 disparate employers in the area subscribed for their employees. The language of the ruling is helpful in that there are remarkable similarities in motivations between this case and a TPA or investment advisor or vendor setting open an open MEP for its clients. In ruling that the plan was not an ERISA employee welfare benefit plan, the court held:
We hold that MDP did not act indirectly "for the [Subscribing Employers]" in relation to the MDP Plan. Rather, it acted for itself in relation to the MDP Plan. MDP advertised the MDP Plan as a "commercial product" to "employers at large" in the Texas panhandle. . . .The record indicates that MDP sometimes used insurance agents to sell the Plan to employers for a commission. MDP established, marketed, and maintained the MDP Plan to enable the physician practice association, MDP Physicians, to compete with other exclusive providers of medical and health services. . . . To allow an entrepreneurial venture to qualify as an "employer" by establishing and maintaining a multiple employer welfare arrangement without input by the employers who subscribe to the plan would twist the language of the statute and defeat the purposes of Congress.
For further discussion of this case and a list of other court decisions supporting the DOL's position, see my article Multiple Employer Plans: An ERISA Enigma, appearing in the Winter 2012 issue of the Journal of Pension Benefits (Vol. 19, No. 2, p.6).
Is it possible that Congress will intervene and create a MEP design that it will declare to be a single ERISA plan? Of course, it is possible. In fact, a bill has been introduced that would do just that, and others may be considered. But I see little or no chance of such a bill passing in the current Congress. In other words, for the time being employers and MEP organizers will need to live with what we have today.
What about the bills or laws in state legislatures, to create state-run MEPs for certain employers? Such plans clearly would not be governmental plans, and thus would be subject to DOL regulation. The logic of the Opinion, as well as all the advisory opinions that came before it, suggest that these plans would be separate ERISA plans, subject to the same issues and limitations we have been discussing about open MEPs. One also must ask if a state agency has the resources and know-how to effectively administer something as complex as a MEP with hundreds or thousands of employers, or what the state hopes to accomplish that the private sector cannot do as well or better.
For further discussion of the qualification issues related to MEPs in general, see Chapter 18 of the new 6th Edition of my book, Who's the Employer.