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Mr. John Anthony Claro
Rainey, Goodwin, Mee & Martin LLP
600 Union Plaza
3030 Northwest Expressway
Oklahoma City, Oklahoma 73112
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2003-03A
ERISA Sec. 3(3), 3(21), 404(a)(1), 514(a)
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Dear Mr. Claro:
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This responds to your letter, on behalf of American Heartland Health
Administrators, Inc. (AHHA), regarding the application of title I of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).(1)
Specifically, your request raises issues as to whether, and under what
circumstances, AHHA may be subject to the provisions of ERISA.
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The information provided to this Office for consideration included the
following. AHHA is in the business of designing, marketing, and
administering a pre-packaged program of medical and health benefits. The
AHHA program, marketed through a network of insurance agents and other
individuals, includes a prototype plan document, a preferred provider
organization for the provision of services or treatment, as well as
utilization review and medical care management services, and a “reinsurance”
agreement pursuant to which the “reinsurance company” agrees to accept
100% of the subscribing employer’s liability under the plan. The package
also includes an administrative service agreement, pursuant to which AHHA
agrees to provide claims paying and other services for subscribing
employers. Under the prototype plan document and administrative service
agreement, employer and participant contributions are to be paid to AHHA,
which then is responsible for forwarding “premiums” to the “reinsurance
company.”
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On the basis of the information provided, it is the view of the Department
that neither AHHA nor the “reinsurance company” constitutes an employee
benefit plan within the meaning of ERISA section 3(3). Nonetheless, AHHA,
and possibly the “reinsurance company,” may be fiduciaries of ERISA-covered
plans, established by employers subscribing to the AHHA program, by virtue
of having and exercising authority or control with respect to the assets of
such plans or exercising discretionary authority or responsibility in the
administration of such plans (see ERISA section 3(21)(A)(i) and (iii)). As a
fiduciary, AHHA would be subject to ERISA’s fiduciary standards (see ERISA
section 401 et seq.). In this regard, you have inquired about several cease
and desist orders issued by the Texas Department of Insurance that prohibit
AHHA and the selected “reinsurance company” from, among other things,
taking any actions concerning funds which have been collected, received or
derived in the course of unauthorized business of insurance in Texas. You
interpret these orders as prohibiting AHHA from forwarding premiums to the
“reinsurance company,” and ask whether compliance with the orders would
cause AHHA to violate its fiduciary duty to act in accordance with the
documents and instruments governing the plans.
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Section 404(a)(1) of ERISA requires, among other things, that fiduciaries
discharge their duties prudently and solely in the interest of plan
participants and beneficiaries. Section 404(a)(1)(D) of ERISA provides that
fiduciaries shall discharge their duties “in accordance with the documents
and instruments governing the plan insofar as such documents and instruments
are consistent with provisions of this title [title I] and title IV.”
(Emphasis supplied.) It is the view of the Department that section 404(a)(1)
forbids fiduciaries from following plan documents if doing so would be
imprudent. Under the circumstances described in your submission and related
materials, it would be imprudent in the Department’s view for a fiduciary
to use plan assets to tender premiums to an unlicensed insurer that is
subject to a cease and desist order, issued under applicable state insurance
law, which prohibits the insurer’s receipt of those premiums.
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With regard to state regulation of AHHA and the selected “reinsurance
company,” we note that section 514(b)(2)(A) of ERISA saves from preemption
under section 514(a) state laws regulating insurance. Specifically, that
section provides, in pertinent part, that “nothing in this title [title I]
shall be construed to exempt or relieve any person from any law of any State
which regulates insurance, banking, or securities.” Although section
514(b)(2)(B) provides that neither an ERISA-covered plan nor any trust
established under such plan may be deemed to be an insurance company or to
be engaged in the business of insurance for purposes of any state law
purporting to regulate insurance companies or insurance contracts, neither
AHHA nor the selected “reinsurance company” is such a plan or trust.
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In addition, section 514(b)(6)(A) of ERISA allows state insurance regulation
of employee benefit plans that are multiple employer welfare arrangements (MEWAs)
subject to the limitations set forth in subparagraphs (A)(i) and (A)(ii) of
that section. The limitations on state insurance regulation of multiple
employer welfare arrangements in section 514(b)(6) apply only to MEWAs that
are employee welfare benefit plans within the meaning of ERISA section 3(1).
These limitations do not restrict state insurance regulation of MEWAs or
other entities that are not themselves employee welfare benefit plans.
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Accordingly, section 514(a) of ERISA would not provide a basis for
preempting the application of State laws which regulate insurance to AHHA or
the selected “reinsurance company.” For your convenience, we are
enclosing a copy of Advisory Opinion 92-21A (Oct. 19, 1992) in which the
Department reached the same conclusion with respect to a program similar to
that offered by AHHA.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1 and,
accordingly, is issued 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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You made the same request with
respect to Southern Plan Administrators, Inc. (SPA), which either has
common ownership with, or is a successor in interest to, AHHA.
SPA offers essentially the same programs and services as AHHA.
Accordingly, the views expressed herein with respect to AHHA also
apply to SPA.
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