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1 Sample Topic Awesome Content Supporting material Supporting material Awesome Content Sample image Copyright 2016 Not to be reproduced without express permission of Benefit Express Services, LLC 1

2 Puzzling Precedents: Piecing Together MEWAs Larry Grudzien Attorney at Law

3 About Larry Lawrence (Larry) Grudzien, JD, LLM is an attorney practicing exclusively in the field of employee benefits. He has experience in dealing with qualified plans, health and welfare, fringe benefits and executive compensation areas. He has more than 35 years experience in employee benefit law. Larry Grudzien ERISA Attorney Mr. Grudzien was also an adjunct faculty member of John Marshall Law School s LL.M. program in Employee Benefits and at the Valparaiso University s School of Law. Mr. Grudzien has a B.A. degree in history and political science from Indiana University, J.D. degree from Valparaiso University School of Law and LL.M. degree in tax from Boston University School of Law. He is a member of Indiana and Illinois Bars. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 3

4 Basics It is defined by ERISA as any employee welfare benefit plan or other arrangement that is established or maintained by two or more employers to offer or provide welfare benefits to their employees. MEWAs do not include plans or arrangements established or maintained under collective bargaining agreements. Health insurance issuers and health maintenance organizations that are licensed to provide health insurance to the public and employers also are excluded from the definition of MEWAs. How can employer create a MEWA? Include businesses that are related, but not part of a controlled group. Offer medical coverage to 1099 employees. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 4

5 Basics Are PEOs MEWAs? It depends on the arrangement with the Employer: Payroll provider Full-employer Co-employer Co-employer arrangement is the most common Advantages for Small Employers: MEWAs permit small employers to provide welfare benefits by pooling their risks, resources, and employees to achieve group purchasing power. Benefits are provided either by purchasing insurance at more favorable rates or by establishing a joint self-insured plan funded through a taxexempt trust. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 5

6 Basics Common-Bond MEWAs: Alternatively, a MEWA may be an association-sponsored plan where the employers usually have a common bond such as membership in a trade association representing a common industry. Available Welfare Benefits in a MEWA: Generally, MEWAs are covered by ERISA only if they qualify as employee welfare benefit plans. ERISA defines welfare benefits to include medical, surgical, hospital care, sickness, accident, disability, death, unemployment, vacation benefits, training programs, day-care centers, scholarship funds, prepaid legal services, or financial assistance for employee housing. They do not include pensions, nor insurance to provide pensions. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 6

7 Plans that are not MEWAs Excluded from the MEWA definition are any arrangements that are established or maintained: under or pursuant to one or more arrangements which DOL finds to be collective bargaining agreements by a rural electric cooperative by a rural telephone cooperative by two or more employers who are found to be members of the same control group Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 7

8 ERISA Exemption for State Regulation of MEWAs Although ERISA generally preempts state laws and regulations, ERISA 514(b)(6) subjects insured MEWAs to state insurance laws. Collectively bargained plans, which are not MEWAs, are not subject to state insurance laws. To distinguish legitimate plans from fraudulent insurance schemes marketed under the guise of collectively bargained plans exempt from state regulation, DOL issued final rules at 29 C.F.R laying out factors that would establish a bona fide collective bargaining relationship. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 8

9 State Regulation of MEWAs ERISA 514(b)(6) creates an exception to the ERISA preemption provisions, which allows the states to regulate MEWAs under state insurance laws. In contrast to the expansive nature of ERISA's preemption blanket that covers single-employer welfare plans, Congress permitted states to regulate certain aspects of MEWAs. As a result, the degree of actual MEWA regulation varies from state to state. This definition is determined by the following factors: First, if the MEWA is fully insured and it is an ERISA-covered plan, all state laws are preempted except those specifying standards requiring the maintenance of reserves and the payment of contributions. A MEWA is considered fully insured only if DOL determines that the amounts of all benefits provided by the MEWA are guaranteed under a contract or policy of insurance issued by a licensed insurance company, insurance service, or insurance organization qualified to do business in a state. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 9

10 State Regulation of MEWAs This definition is determined by the following factors: Second, if the MEWA is an ERISA-covered plan which is not fully insured, only those state laws that are inconsistent with ERISA are preempted. This category includes self-funded plans or stop-loss plans. Under a stop-loss arrangement, an insurance company generally agrees to reimburse a plan when claims exceed a certain amount. The plan itself pays benefits out of its own assets until the stop-loss trigger point is reached. State insurance regulation of these plans is not limited to reserve and contribution requirements, but also encompasses other insurance laws that are not inconsistent with ERISA. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 10

11 State Regulation of MEWAs ERISA permits states to regulate MEWAs whether they are self-insured or insured. In practice, states have exercised this authority in diverse ways. Some states have no MEWA-specific laws. Others have simple registration requirements. More typically, states will treat MEWAs, to one degree or another, the same as insurance companies and impose, for example, rules relating to licensing, reserves, surpluses and mandated benefits. Some states may require employers that participate in MEWAs to accept liability for benefits if the MEWA is unable to pay. Some states may prohibit MEWAs completely. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 11

12 State Regulation of MEWAs States often exempt fully insured MEWAs from the operations of their MEWA statutes. However, they are prohibited from imposing regulations relating to reserves and contributions including licensing, registration, certification, financial reporting, examination, audit and other requirements necessary to enforce standards regarding reserves and contributions. In addition, States can effectively regulate them through their group insurance laws that govern the issuance of policies to associations of employers. For example, a state may prohibit issuance of a policy to an association of employers, unless the association meets certain criteria that are unlikely to be met by a group of unrelated employers that wish to associate primarily for the purpose of obtaining insurance. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 12

13 State Regulation of MEWAs MEWAs that are not fully insured are subject to all state laws that are not inconsistent with ERISA. Some states have created special rules that exempt professional employer organizations from their MEWA laws. However, this does not affect their status as MEWAs under federal law. While the specifics will vary with the laws of the respective states, given the wide variations in state regulations, operation of a multi-state MEWA can range from difficult to impossible, particularly if the MEWA is self-insured. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 13

14 State Regulation of MEWAs Examples: Illinois: No registration of MEWAs Prohibit self-insured MEWAs Indiana MEWAs are also required to make quarterly filings. MEWAs must file an annual renewal. Wisconsin: Self-insured MEWAs are treated as unlicensed insurers MEWAs Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 14

15 State Regulation of MEWAs Michigan Michigan requires licensure of MEWAs that do business with Michigan employers and are not fully insured. To obtain licensure, a MEWA must be controlled by its members, have adequate cash reserves, and purchase excess loss insurance. A complete description of MEWA licensure requirements can be found in Chapter 70 or the Michigan Insurance Code. Employers may be subject to other state rules if cover employees in other states Chart of state laws: 95.pdf Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 15

16 MEWAs and Employee Welfare Benefit Plans Generally, MEWAs are covered by ERISA only if they qualify as employee welfare benefit plans. The extent of state regulation of MEWAs depends on whether a MEWA is an ERISA-covered plan. Employee welfare benefit plans are those that are established or maintained by an employer or employee organization, or both, for the purpose of providing health care and other welfare benefits to its participants or their beneficiaries through the purchase of insurance or otherwise. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 16

17 MEWAs and Employee Welfare Benefit Plans Two-Step Process: A two-step process is involved in determining whether a plan constitutes an employee welfare benefit plan: The first step is to determine whether the benefits provided by the plan are welfare benefits. If these benefits are provided, the second step is to determine whether the plan is established or maintained by an employer or an employee organization. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 17

18 At what level does ERISA apply? ERISA applies at the MEWA level only where the MEWA qualifies as a bona fide group or association of employers within the meaning of the ERISA 3(5) definition of employer. Several court cases and DOL advisory opinions have addressed this issue. As these authorities recognize, a MEWA can be an ERISA plan for Form 5500 reporting and other purposes only if the group or association of employers participating in the MEWA satisfies the DOL's commonality of interest and control tests. Both of these tests must be met before a MEWA will itself be considered to be an ERISA plan. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 18

19 At what level does ERISA apply? The commonality of interest test requires that the entity maintaining the plan, and the individuals benefiting from it, be tied by a common economic or representational interest, not simply the provision and receipt of welfare benefits. According to DOL guidance, the determination of whether an association or group of employers meets the test will depend on all of the facts and circumstances involved, including how the association solicits members who is entitled to participate and who actually participates in the association the process by which the association was formed the association's purposes the relationship of its members outside the organization the powers, rights, and privileges that a member enjoys as a result of joining the association Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 19

20 At what level does ERISA apply? The control test requires the employer-members of the association to control and direct the activities and operations of the benefit plan. The control must exist in both form and substance, although the DOL will generally not rule on whether a group or association exercises control in substance over a benefit program. The test is designed to exclude from ERISA coverage those entities that exist only for the entrepreneurial purpose of selling health coverage to employer-members. To pass this test, therefore, representative employer-members must be involved in designing and administering the plan of benefits made available to their employees. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 20

21 MEWA Reporting Requirements MEWAs are required to file Form M-1, Annual Report for Multiple Employer Welfare Arrangements and Certain Entities Claiming Exception, with DOL for the purpose of determining whether the requirements of HIPAA, the Mental Health Parity Act of 1996, the Newborns' and Mothers' Health Protection Act of 1996, and the Women's Health and Cancer Rights of 1988 are being met. The reporting requirements allow for earlier detection of unsound MEWAs to reduce the risk of financial losses for employees, employers, and health care providers if a MEWA fails to pay claims. MEWAs Form M-1 annual reporting filings are available electronically on the website of DOL's Employee Benefits Security Administration ( DOL's interim final rules also set civil penalties up to $1,527 per day for failure to file Form M-1. (DOL Reg. 29 C.F.R , c-5) Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 21

22 MEWA Reporting Requirements The rules apply to other entities that offer or provide coverage for medical care to the employees of two or more employers but claim not to be MEWAs because they are established or maintained pursuant to a collective bargaining agreement. An entity claiming exception (ECE) that has been in existence for three years or longer is excepted from the reporting requirements. An ECE is an entity that claims it is not a MEWA on the basis that the entity is established or maintained pursuant to one or more agreements that DOL finds to be collective bargaining agreements under ERISA 3(40)(A)(i) and 29 C.F.R Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 22

23 DOL MEWA Reporting Rules MEWAs are required to register with DOL before they begin operations. In addition, under these rules, MEWAs must report to DOL annually regarding ERISA compliance. MEWAs comply with both requirements by filing the Form M-1. The Form M-1 must be filed electronically. ERISA-covered plans subject to the Form M-1 reporting rules also must include proof of Form M-1 filings as part of their Form 5500 filings. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 23

24 DOL MEWA Reporting Rules In the case where a MEWA is an ERISA plan, only one Form 5500 needs to be filed for the plan, because it will be considered a single ERISA plan. Participating employers then would have no independent Form 5500 reporting obligation. Effective with the 2013 Form 5500, plans that are required to file Form M-1 are no longer eligible to take advantage of the Form 5500 filing exemption for insured or unfunded (or combination insured/unfunded) plans with fewer than 100 participants. All MEWAs that are ERISA plans must file Form 5500, regardless of size. Also, Form M-1 filing compliance information must be provided as part of Form 5500 filings. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 24

25 DOL MEWA Reporting Rules The reporting requirements apply to administrators including third party administrators of MEWAs or ECEs. In the case of a MEWA or ECE that is a group health plan and the administrator is not designated, the plan sponsors, as defined at ERISA 3(16)(B), are responsible for filing the M-1. In the case of a MEWA or ECE for which an administrator is not designated and a plan sponsor cannot be identified, jointly and severally, the person or persons actually responsible for the control, disposition, or management of the cash or property received by or contributed to the MEWA or ECE irrespective of whether they directly exercise such control, disposition, or management are responsible for filing the M-1. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 25

26 DOL MEWA Reporting Rules In addition to the annual filing, a special Form M-1 must be filed 30 days prior to operating in a new state and within 30 days after triggering events including: operating in any new state not previously identified a merger with another MEWA the number of employees receiving coverage under the MEWA increases by 50% or more a material change Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 26

27 MEWA Compliance with Health Care Laws Under 29 C.F.R , MEWA administrators must file a form with DOL for the purpose of determining whether the requirements of certain health care laws are being met. The rules also set penalties for failure to file the form and procedures for hearings and appeals concerning the penalties. The principal purpose of the rule is to determine the extent of compliance by MEWAs with ERISA 703, which was enacted as part of the Health Insurance Portability and Accountability Act. ( 29 C.F.R adds a definition of excepted benefits and defines the term by reference to ERISA 733(c) and 29 C.F.R (b). The definition was added because of a clarification that MEWAs or entity claiming exceptions that provide coverage consisting solely of excepted benefits are not required to report under this section. ECEs are entity that are not MEWAs due to the exception in ERISA 3(40)(A)(i). Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 27

28 MEWA Compliance with Health Care Laws Section 29 C.F.R provides the following requirements: The rule requires filing by the administrator of a MEWA that provides benefits consisting of medical care on whether the MEWA is a group health plan The final rules also requires filing by the administrator of an ECE that offers or provides coverage consisting of medical care during the first three years after the ECE is originated A MEWA or ECE is not subject to filing a Form M-1 if it provides coverage that consist solely of excepted benefits, such as a governmental plan, church plan, or plan maintained solely for the purpose of complying with worker's compensation laws However, if a MEWA provides coverage both to such excepted plans as above and to any group health plan that is subject to ERISA, the MEWA is required to file the Form M-1 due to the exception in ERISA 3(40)(A)(i) Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 28

29 MEWA Compliance with Health Care Laws The rule also clarifies that reporting is not required if an entity would not constitute a MEWA or ECE but for any of the three following circumstances: Common Control Interest of at Least 25 Percent: A filing is not required on behalf of certain plans or other arrangements that provide coverage to the employees of two or more employers that share a common control interest. If an entity would not constitute a MEWA or ECE but for the fact that it provides coverage to the employees of two or more trades or businesses that share a common control interest of at least 25 percent at any time during the plan year, a Form M-1 filing is not required. However, while use of a 25 percent test may result in a determination of common control for purposes of the Form M-1 filing requirement, common control generally means, under tax code 414(b) and (c), an 80 percent interest in the case of a parent-subsidiary group of trades or businesses a more than 50 percent interest in the case of a brother-sister relationship among organizations controlled by five or fewer persons that are the same persons with respect to each organization. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 29

30 MEWA Compliance with Health Care Laws The rule also clarifies that reporting is not required if an entity would not constitute a MEWA or ECE but for any of the three following circumstances: Temporary MEWAs Created by a Change in Control: A temporary arrangement providing medical benefits to the employees of more than one employer created by a change in control will not subject the plan to the Form M-1 filing requirement. Temporary in this case means the arrangement does not extend beyond the end of the plan year following the plan year in which the change in control occurs. The change in control must occur for a purpose other than avoiding Form M-1 filing. ERISA 3(40)(A)(i) Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 30

31 MEWA Compliance with Health Care Laws The rule also clarifies that reporting is not required if an entity would not constitute a MEWA or ECE but for any of the three following circumstances: Very Small Number of Persons Who Are Not Employees or Former Employees: Entities that would not be a MEWA or ECE but for the fact that they cover a very small number of persons (excluding spouses and dependents) who are not employees or former employees of the plan sponsor, are exempt from the filing requirements. For example, an arrangement may cover nonemployee members of the board of directors of the plan sponsor or individuals classified as independent contractors. The number of employees or former employees covered by the arrangement, determined as of the last day of the year to be reported (or, in the case of a 90-day origination report, determined as of the 60th day following the origination date) can not exceed 1 percent of the total number of employees. due to the exception in ERISA 3(40)(A)(i) Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 31

32 MEWA Compliance with Health Care Laws If ERISA does not apply at the MEWA level, each employer providing benefits to its employees through the MEWA will be considered to maintain a separate ERISA health plan subject to COBRA. For example, if unrelated employers provide medical benefits through a MEWA that is not an ERISA employee benefit plan, each of these employers will be deemed to maintain its own ERISA health plan. These plans exist separately for COBRA purposes, and each employer would therefore be responsible for COBRA due to the exception in ERISA 3(40)(A)(i). Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 32

33 COBRA If ERISA does not apply at the MEWA level (and this is often the case, as discussed previously), each employer providing benefits to its employees through the MEWA will be considered to maintain a separate ERISA health plan subject to COBRA. For example, if unrelated employers provide medical benefits through a MEWA that is not an ERISA employee benefit plan, each of these employers will be deemed to maintain its own ERISA health plan. These plans exist separately for COBRA purposes, and each employer would therefore be responsible for COBRA compliance. In the unlikely event that a MEWA is itself an ERISA plan, it appears that instead of the participating employers, the designated plan administrator of the MEWA would be responsible for COBRA compliance. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 33

34 HIPAA Each private-sector employer participating in a MEWA governed by ERISA generally is considered to have established a separate group health plan for the benefit of its employees. In that case, each separate plan is required to comply with HIPAA s portability requirements. In addition, the MEWA itself will be responsible for compliance with HIPAA s portability requirements. First, those MEWAs that are themselves considered group health plans under ERISA would be subject to the HIPAA portability provisions set forth in ERISA since those MEWAs would fit the definition of a group health plan for HIPAA portability purposes. Second, all MEWAs covering private-sector employers, regardless of whether they satisfy the ERISA test for separate group health plan status, appear to be subject to the HIPAA provisions set forth in the Code. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 34

35 Enforcement DOL the power to issue cease-and-desist orders against abusive MEWAs and individuals associated with them, and to seize the assets of a financially unstable MEWA if necessary to protect participants, employers or other members of the public. Health insurance issuers that are licensed and approved by each state in which they offer health insurance coverage are excepted from coverage under the rules. The DOL may issue a cease-and-desist order, without prior notice or hearing, when it determines it has reasonable cause to believe that the MEWA or any individual acting on behalf of the MEWA (including a third-party administrator) has engaged in conduct that: Is fraudulent Creates an immediate danger to the public safety or welfare (in that it unreasonably increases the risk of nonpayment of benefits) Is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 35

36 Enforcement The DOL also has the authority under ERISA and the final rules to summarily seize a MEWA s assets if it appears that the MEWA is in financial jeopardy. In the normal course, the rules require the DOL to obtain court authorization prior to seizing assets. DOL may issue a summary seizure order without prior court authorization if it reasonably believes that a delay in issuing the order will result in the dissipation of plan assets or the destruction of plan records. Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 36

37 About benefitexpress

38 Company Background - Services Eligibility Enrollment Integration Self Service Communications EE Call Center Decision Support Retiree H&W Admin. COBRA Direct Billing Total Rewards Reimbursements (HSA / FSA) Commuter Benefits Dependent Verifications ACA & Other Compliance Svc. benefit wise. relationship driven. We help participants understand and use their benefits wisely so that they can be accountable for their healthcare. We enable you, as the plan sponsor, to enable and deliver your benefits strategy.

39 Company Background Book of Business 250 employees serving our clients from two services center; Schaumburg, IL and Rancho Cordova, CA. Clients & Services Supported Mid/Large Administration clients 226 Average client size - participants 4,100 Technology Clients 3,952 Reimbursement / COBRA clients 187 Administration Participants 1,500,000+ ACA 1095 Forms Generated 250,000 Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 39

40 Some of Our Partners Copyright 2016 Not to be reproduced without express permission of Benefit Express Services, LLC 40

41 Questions?

42 Contact Information Larry Grudzien Attorney at Law (708) Copyright 2017 Not to be reproduced without express permission of Benefit Express Services, LLC 42