Overview
For many years, promoters have established and operated multiple employer welfare arrangements (MEWAs) as vehicles for marketing health and welfare benefits to employers. Promoters typically represented to employers and state regulators that the MEWA is an employee benefit plan covered by ERISA and therefore exempt from state insurance regulation under ERISA’s broad preemption provisions.
By avoiding state insurance reserve, contribution and other requirements, MEWAs can market coverage at rates substantially below those of regulated insurance companies. In practice, however, a number of MEWAs have been unable to pay claims due to insufficient funding and inadequate reserves — or because operators drained assets through excessive fees and outright embezzlement.
This chapter examines: (1) what constitutes an ERISA-covered plan; (2) what is and is not a MEWA; and (3) the extent to which states are permitted to regulate MEWAs that are also ERISA-covered welfare benefit plans.
Part 1 — ERISA-Covered Plans
Under ERISA, an “employee welfare benefit plan” is a plan, fund, or program established or maintained by an employer, an employee organization, or both, which provides participants or their beneficiaries with benefits such as medical, surgical, or hospital care; disability income; death benefits; unemployment benefits; apprenticeship or training; day care; scholarship; prepaid legal services; or vacation benefits.
To qualify as an ERISA-covered employee welfare benefit plan, the plan must be established by an employer, an employee organization, or an association of employers or employee organizations. Plans established solely to comply with workers’ compensation, unemployment compensation, or disability insurance laws are excluded from ERISA coverage, as are government plans and church plans.
The Pension and Welfare Benefits Administration (Department of Labor) is responsible for administration and enforcement of ERISA. ERISA’s fiduciary requirements to act prudently and not engage in prohibited transactions apply to: any ERISA-covered plan; anyone exercising control over the assets of an ERISA-covered plan; and anyone exercising control over a plan’s assets even if the plan is not covered by ERISA.
If an employee welfare benefit plan is covered by ERISA, the following requirements apply to it: fiduciary responsibility rules; continued health benefit coverage mandated by COBRA; portability of health benefits as mandated by HIPAA; the Mental Health Parity Act; the Women’s Health and Cancer Rights Act; and the Newborns’ and Mothers’ Health Protection Act.
ERISA’s continuation of coverage provisions mandate continued health benefits for employees and their beneficiaries in the event of termination of employment, retirement of the employee, or an employee’s child no longer qualifying as a dependent. Enforcement of the COBRA continuation provisions is split between the Department of Labor and the IRS.
Medical or hospital benefits provided through a MEWA do not constitute an ERISA-covered employee welfare benefit plan. A MEWA that offers an “employee welfare benefit plan” is never exempt from state insurance laws. ERISA’s primary jurisdiction over MEWAs is through its enforcement of its fiduciary responsibility standards. When an employer purchases an employee benefit package from a MEWA, the assets of the MEWA are considered to be the assets of the employee benefit package and are subject to ERISA fiduciary responsibility rules.
When analyzing a group of employers, the Department of Labor considers the group to be a “bona fide” association under ERISA if the benefit package is controlled by the employer-members. If an employee welfare benefit plan is not established by an employer, a bona fide association of employers, or an employee organization as defined by ERISA, the plan is considered not an ERISA-covered plan.
Part 2 — What Is a MEWA?
A multiple employer welfare arrangement (MEWA) is a plan that offers benefits to employees of two or more employers. Under ERISA’s definition, a MEWA does not need to be classified as a “bona fide” employer, a bona fide association, or an employee organization — the definition is broader.
The following are exempt from ERISA’s definition of a MEWA:
- Single employer plans
- Plans offered by multiple employers under common control
- Plans offered under a collective bargaining arrangement
- Plans offered through a rural electric cooperative
- Plans offered through a rural telephone cooperative
Under what circumstances may a plan offer benefits to employees of more than one employer and not be considered a MEWA? When the plan covers multiple employers under “common control.” An advisory opinion from the Department of Labor alone does not create an exemption.
Under an employee leasing arrangement, the employer in the employer-employee relationship is the one who sets the terms of employment such as job description, compensation level, and termination — not the PEO that processes payroll. To determine whether a direct employer-employee relationship exists, the Department of Labor relies on common law principles.
Under ERISA’s definition of a MEWA, the plan must be classified as none of the above (employer, bona fide association of employers, or employee organization) for it to be a MEWA — meaning the MEWA definition captures arrangements that fall outside the normal single-employer or bona fide association structures.
Part 3 — State Regulation of MEWAs
| Clause | What It Means |
|---|---|
| Preemption Clause | ERISA’s provisions supersede state law governing employee benefit plans. ERISA preempts any state law that “relates to” an employee benefit plan. |
| Savings Clause | Exception to preemption — effectively allows continued application of state insurance laws. State laws that regulate insurance are “saved” from ERISA preemption. |
| Deemer Clause | Limits states’ ability to classify (or “deem”) ERISA-covered employee benefit plans as an insurance company. The 1983 amendment to ERISA specifically exempts MEWAs from the deemer provision. |
Prior to 1983, states attempted to subject MEWAs to state insurance law requirements, but were frustrated by MEWA-promoter claims of ERISA-plan status and federal preemption. Recognizing that it was appropriate and necessary for states to establish and enforce state insurance laws with respect to MEWAs, Congress amended ERISA in 1983. This amendment provides an exception to ERISA’s broad preemption provisions for the regulation of MEWAs under state insurance laws.
The practical effect of the 1983 amendment to ERISA’s “deemer” clause was to bring MEWAs under state insurance regulation. Under ERISA’s definition, a MEWA is subject to state insurance jurisdiction whether or not it is an ERISA-covered plan.
- State licensing requirements
- State reserve requirements
- State reporting and auditing provisions
- All other applicable state insurance laws, provided they are not inconsistent with ERISA
State laws governing MEWAs may not be inconsistent with provisions of ERISA. A state law would be inconsistent with ERISA if it required a MEWA to make investments prohibited under ERISA. State laws that require longer periods of continued coverage than mandated by COBRA, or laws that require licensing of MEWAs, or laws that subject MEWAs to penalties for non-compliance — these are not inconsistent with ERISA.
The U.S. Department of Labor has not issued any exemptions from state regulation for MEWAs and has no regulations allowing such exemptions. A state does not need to obtain an ERISA Advisory Opinion before asserting its jurisdiction over MEWAs — if the plan is a MEWA as defined by ERISA, it is automatically under the state’s jurisdiction.