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Mr. Sherwin Kaplan
Thelen Reid & Priest LLP
Attorneys At Law
Market Square, Suite 800
701 Pennsylvania Avenue, NW
Washington, DC 20004-2608
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Dear Mr. Kaplan:
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This is in response to your letter, dated September 17, 2002, to our Los
Angeles Regional Office (LARO) regarding the application of Title I of the
Employee Retirement Income Security Act of 1974, as amended (ERISA), to the
International Union for the Natural Health, Complementary & Alternative
Medicine Professions (Natural Health Union) Health and Welfare Fund (Fund).
Specifically, you asked the Department of Labor (Department) to make a
finding that the Fund is established or maintained under or pursuant to one
or more collective bargaining agreements for purposes of section 3(40)(A)(i)
of ERISA. Your request is premised, at least in part, on your interest in
asserting ERISA preemption as a defense in a proceeding initiated by the
Washington State Insurance Commissioner seeking to apply Washington
insurance law to the Fund.
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Based on the information you submitted to LARO, it appears that the Natural
Health Union established the Fund in May of 2000 to provide health, medical
and other welfare benefits to its members and their beneficiaries. It also
appears that the Natural Health Union purports to be an employee
organization within the meaning of section 3(4) of ERISA. The Natural Health
Union and various employers (including self-employed individuals), either
directly or through certain purported employer associations, apparently
entered into agreements that govern contributions to the Fund. Contributions
from participating employers and other assets are held in trust by the Fund.
The Fund’s third-party administrator, Advanced Administration, Inc., makes
benefits payments from Fund assets. The Fund provides benefits to the
employees of two or more employers. As of the date of your request, benefits
were being provided to approximately 3,000 individuals.
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Section 514(a) of Title I of ERISA generally preempts state laws purporting
to regulate an employee benefit plan covered under that title. There are,
however, exceptions to this general preemption provision. The relevant
exception for purposes of your inquiry is in section 514(b)(6)(A), which
allows state insurance regulation of MEWAs and MEWA trusts without regard to
whether they are employee benefit plans covered by Title I of ERISA. Section
3(40)(A) of ERISA defines the term MEWA, in relevant part, to mean: “[A]n
employee welfare benefit plan, or any other arrangement (other than an
employee welfare benefit plan), which is established or maintained for the
purpose of offering or providing any benefit described in [section 3(1) of
ERISA] to the employees of two or more employers (including one or more
self-employed individuals), or to their beneficiaries, except that such term
does not include any such plan or other arrangement which is established or
maintained - (i) under or pursuant to one or more agreements which the
Secretary [of Labor] finds to be collective bargaining agreements, (ii) by a
rural electric cooperative, or (iii) by a rural telephone cooperative
association.”
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As you know, the Department, as a matter of policy, has refrained from
making findings under section 3(40)(A)(i) regarding specific collective
bargaining agreements. Rather than making case-specific determinations, the
Department proposed a regulation with standards and procedures to facilitate
determinations as to whether a plan or other arrangement would be treated as
established or maintained under or pursuant to one or more collective
bargaining agreements for purposes of the exception under ERISA section
3(40)(A)(i). See 65 Fed. Reg. 64482 (Oct. 27, 2000). The preamble of the
proposed regulation describes some of the relevant history regarding this
issue. The Department currently is in the process of promulgating a final
rule. Accordingly, in accordance with longstanding policy, the Department
has determined not to make a finding under section 3(40)(A)(i) of ERISA in
this case.
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It has been the Department’s position that, in the absence of such a
finding, a plan or other arrangement that provides welfare benefits to the
employees of two or more employers, and not otherwise excepted from the MEWA
definition, is a MEWA. Nothing in the material we received suggested that
the Fund is established or maintained by a rural electric cooperative or
rural telephone cooperative association as defined in section 3(40) of ERISA.
Accordingly, based on the information we have reviewed, the Fund would be a
MEWA within the meaning of ERISA section 3(40)(A). We do not need to make,
and are not making, any determinations in this letter regarding whether the
Fund is itself a plan within the meaning of section 3(1) of ERISA because,
as explained below, even if the Fund is an ERISA covered plan, it would be
subject to the provisions of ERISA governing employee welfare benefit plans,
and would also be subject to a broad range of state insurance laws.
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Section 514(b)(6)(A)(i) of ERISA provides that, in the case of a MEWA that
is itself a plan and is fully insured, states may apply to and enforce
against the MEWA any state insurance law requiring the maintenance of
specific reserves or contributions designed to ensure that the MEWA will be
able to satisfy its benefit obligations in a timely fashion. In the
Department’s view, section 514(b)(6)(A)(i) enables states to subject such
MEWAs to licensing, registration, certification, financial reporting,
examination, audit and any other requirement of state insurance law
necessary to ensure compliance with state insurance reserve, contribution
and funding requirements. Section 514(b)(6)(D) provides that a MEWA is “fully
insured” for this purpose, “only if the terms of the arrangement provide
for benefits the amount of all of which the Secretary determines are
guaranteed under a contract, or policy of insurance, issued by an insurance
company, insurance service, or insurance organization, qualified to conduct
business in a State.”
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In the case of a MEWA that is itself a plan but is not fully insured,
section 514(b)(6)(A)(ii) of ERISA allows any state insurance laws to be
applied to the MEWA subject only to the limitation that the law is “not
inconsistent” with Title I of ERISA. The Department has expressed the view
that a state insurance law would not be inconsistent with Title I if it
requires a MEWA to meet more stringent standards of conduct, or to provide
greater protection to plan participants and beneficiaries than required by
ERISA. The Department has also expressed the view that a state law
regulating insurance would not, in and of itself, be inconsistent with the
provisions of Title I if it requires a license or certificate of authority
as a condition to transacting business, requires maintenance of specific
reserves or contributions designed to ensure that the MEWA will be able to
satisfy its benefit obligations in a timely fashion, requires financial
reporting, examination or audit, or subjects persons who fail to comply with
such requirements to taxation, fines, civil penalties, and injunctive
relief.
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If a MEWA is not itself an ERISA covered plan, which is often the case,
ERISA’s preemption provisions do not prohibit States from regulating the
MEWA in accordance with applicable state insurance law. In such cases, the
Department would view each employer member using the MEWA to provide welfare
benefits to its employees as having established a separate welfare benefit
plan subject to ERISA. The Department has concurrent jurisdiction with the
States to regulate persons who operate such MEWAs to the extent those
persons have responsibility for, or control over, the assets of ERISA plans
that participate in the MEWA. When the sponsor of an ERISA-covered plan uses
a MEWA to provide health care coverage for its employees, the assets of the
MEWA generally are considered to include the assets of the plan, unless the
MEWA is a state licensed insurance company. In exercising discretionary
authority or control over plan assets, such as paying administrative
expenses and making benefit claim determinations, the person or persons
operating the MEWA would be performing fiduciary acts governed by ERISA’s
fiduciary provisions.
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We hope this is of assistance to you. Should you have any questions
concerning this letter, please feel free to contact me at 202.693.8523.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
cc: Honorable Mike Kreidler, Washington State Insurance Commissioner
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