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John E. Mossberg, Esq.
Reinhart, Boerner, Van Deuren
Norris & Rieselbach, S.C.
1000 North Water Street
P.O. Box 514000
Milwaukee, Wisconsin 53203-3400
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2001-04A
ERISA Sec. 3(1) & 3(5)
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Dear Mr. Mossberg:
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This is in response to your request on behalf of the Wisconsin Automobile
and Truck Dealers Association, Inc. Insurance Trust for an advisory opinion.
Specifically, you ask for an advisory opinion which would confirm that the
Wisconsin Automobile and Truck Dealers Association, Inc. Insurance Trust (trust)
is a single employee welfare benefit plan maintained by a group or
association of employers within the meaning of section 3(5) of the Employee
Retirement Income Security Act of 1974 (ERISA).
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The facts and representations before the department in this matter, as
furnished with your request and with the August 19, 1999 request on behalf
of the trust, include the following. You represent that it appears that the
Wisconsin Automobile and Truck Dealers Association, Inc. (association) was
formed in 1928 for the purpose of lobbying against a Wisconsin property tax
law that applied to automobiles. The association was incorporated in
Wisconsin in 1935 for the purpose of promoting automotive trade in the State
of Wisconsin and is a trade association recognized as exempt from tax under
section 501(c)(6) of the Internal Revenue Code. The by-laws of the association
provide for two classes of members, regular members and associate members.
The regular members consist of entities whose primary business is the
operation of a motor vehicle dealership established for the purpose of
buying and holding automobiles and trucks in inventory for resale and
licensed for such activity by the State of Wisconsin. Associate members are
entities that do not qualify as regular members, but who are actively
engaged in the automotive industry or allied industries in the State of
Wisconsin or elsewhere. The by-laws provide that only regular members are
entitled to vote.
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The association is managed by the Board of Directors of the association (board of directors).
Regular members are permitted to elect the association’s 30 to 36 new
vehicle directors by plurality vote. The by-laws also provide for one new
truck director and three used vehicle directors who are elected by the
regular members of the association who are members of the new truck council
of the association and the used vehicle council of the association. The
regular members of the association, by majority vote, can remove any
director for cause. The regular members may also, by two-thirds vote, amend
the by-laws. The by-laws provide that the elected officers of the association
are elected by the board of directors from their own number and may be
removed for cause by the directors. The board of directors employs a
salaried staff head whose terms and conditions of employment are specified
by the board of directors. The salaried staff head serves as a non-elected
officer holding the position of President of the association.
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The trust was established in 1948 by the association for the purpose of
providing group life, accident and health insurance benefits to employees of
eligible members of the association who elect to participate in the trust.
The trust’s benefit program is available to regular members of the association
who are eligible to, and who apply to, participate in the trust. Such
eligible regular members of the association who participate in the trust are
called subscribers. The trust qualifies as a voluntary employees beneficiary
association (VEBA) within the meaning of Section 501(c)(9) of the Internal
Revenue Code. The trust is a multiple employer welfare arrangement (MEWA)
within the meaning of section 3(40) of ERISA. The association serves as the
plan administrator of the trust’s benefit programs and, among other
powers, duties and responsibilities enumerated in the trust agreement under
which the trust currently operates, has the power to procure insurance
policies on behalf of the trust. The trustees have the powers, duties and
responsibilities enumerated in the trust agreement, including the powers to
procure insurance policies on behalf of the trust, to construe the trust
provisions and to promulgate rules and regulations for the administration of
the trust. A majority of the subscribers may terminate the trust. The trust
may be amended by an instrument in writing signed by all of the trustees or
by an instrument in writing, delivered to the trustees, signed by subscribers
whose contributions during the preceding twelve months totaled
more than 50% of all contributions. Any trustee may be removed from office
by a majority vote of the association’s board of directors or by a
majority of the subscribers. Subscribers whose contributions during the
preceding twelve months totaled more than 50% of all contributions may
direct the trustees’ method and manner of conducting any particular action
by delivering the instruction in writing to the trustees.
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There are seven trustees of the trust (trustees), consisting of the current
President of the association and six elected trustees. Each of the six
elected trustees must be a principal in a dealership that is a Subscriber to
the trust. The six elected trustees are elected by the incumbent trustees.
You have submitted a proposed amendment to the trust agreement that you
represent will be adopted by the trustees. Under the proposed amendment, the
six elected trustees will be elected by a majority of the subscribers and an
eligible individual may be nominated as a trustee candidate by: (1) the board of directors;
(2) a majority of the trustees
(excluding elected trustees who are in the final year of their term);
(3) written petition submitted to the board of directors
signed by the lesser of ten subscribers or 10% of the total subscribers.
In the event that an elected trustee leaves in mid-term, the remaining trustees
and the board of directors may nominate a replacement trustee who is then
elected by the board of directors.
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Only regular members of the association, with at least two full-time
employees who are eligible for personal coverage under the benefit program
may participate in the trust as subscribers, provided that the employer
agrees to maintain coverage on at least 75% of its eligible employees at all
times and that a minimum of two employees must be covered at all times.
Currently, approximately 3,200 employees (working for approximately 225
automobile and truck dealerships in Wisconsin) and 4,800 dependents are
covered.
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The term employee welfare benefit plan is defined in section 3(1) of ERISA
to include any plan, fund, or program established or maintained by an
employer, an employee organization, or both an employer and an employee
organization that provides benefits in the event of sickness, accident,
disability, death, or unemployment. Although the trust is established for
the purpose of providing benefits among those described in section 3(1) of
ERISA, in order to be an employee welfare benefit plan, the trust must,
among other criteria, be established or maintained by an employer, an
employee organization, or both. Since there is no indication that an
employee organization within the meaning of section 3(4) of ERISA is in any
way involved in the trust, this letter will address only the issue of
whether the trust is established or maintained by an employer.
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The term employer is defined in section 3(5) of ERISA as any person acting
directly as an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan; and includes a group or association of
employers acting for an employer in such capacity. The department has taken
the view, on the basis of the definitional provisions of ERISA as well as
the overall statutory scheme, that, in the absence of the involvement of an
employee organization, a multiple employer plan (i.e., a plan to which more
than one employer contributes) may, nevertheless, exist where a cognizable,
bona fide group or association of employers establishes a benefit program
for the employees of member employers and exercises control of the amendment
process, plan termination, and other similar functions on behalf of these
members with respect to a trust established under the program. On the other
hand, where several unrelated employers merely execute participation
agreements or similar documents as a means to fund benefits, in the absence
of any genuine organizational relationship between the employers, no
employer association can be recognized.
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A determination of whether a group or association of employers is a bona
fide employer group or association must be made on the basis of all the
facts and circumstances involved. Among the factors considered are the
following: how members are solicited; who is entitled to participate and who
actually participates in the association; the process by which the
association was formed, the purposes for which it was formed, and what, if
any, were the preexisting relationships of its members; the powers, rights,
and privileges of employer members that exist by reason of their status as
employers, and who actually controls and directs the activities and
operations of the benefit program. In addition, the employers that
participate in a benefit program must, either directly or indirectly,
exercise control over the program, both in form and in substance, in order
to act as a bona fide employer group or association with respect to the
program.
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According to your representations, the regular members of the association
are all entities involved in the motor vehicle dealer industry in Wisconsin
and the voting membership of the association consists of the regular members
of the association. Participation in the trust is limited to employers who
are regular members of the association with at least two full-time employees
who are eligible for personal coverage under the benefit program, provided
that the employer agrees to maintain coverage on at least 75% of its
eligible employees at all times and that a minimum of two employees must be
covered at all times. Moreover, under the association by-laws and trust
Agreement, including the above-described amendment to the trust agreement
relating to the election and nomination of trustees, the subscribers will
have the authority to exercise control and direct the activities and
operations of the benefit program.
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Based on the information submitted, and assuming adoption of the
aforementioned amendment to the trust agreement, it is the view of the department
that the association would, at least in form, constitute a bona fide
employer group or association and the trust, therefore, would, at least in
form, constitute a single employee welfare benefit plan for purposes of
Title I of ERISA. Whether the subscribers exercise control in substance over
the benefit program is an inherently factual issue on which the department
generally will not rule in an advisory opinion.
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You have also raised a number of issues in a separate submission concerning
the application of the fiduciary responsibility provisions of Part 4 of
Title I of ERISA. For your information, prohibited transaction issues
similar to those you raise are addressed in, and we would refer you to,
Advisory Opinion 97-23A (September 26, 1997), a copy of which is enclosed.
We note that the general standards of fiduciary conduct contained in ERISA
sections 403 and 404 would apply to those fiduciary issues with respect to
prudence, acting solely in the interests of participants and beneficiaries,
and diversification. Accordingly, the respective fiduciaries of the plan
must act prudently and solely in the interests of the participants and
beneficiaries of the plan and must carry out their ongoing fiduciary
responsibilities under ERISA to monitor plan investments. Whether the
actions of the plan fiduciaries satisfy these requirements is an inherently
factual question, and the department generally will not issue advisory
opinions on such questions. The appropriate plan fiduciaries must make such
determinations based on all the facts and circumstances of the individual
situation.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1.
Accordingly, it is subject to the provisions of that procedure, including
section 10 thereof relating to the effect of advisory opinions.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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Enclosure
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