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Dear Mr. Wender:
This is in reply to your request on behalf of the
Custom Rail Employer Welfare Trust Fund (“CREW” or “CREW Welfare
Trust”) for an advisory opinion regarding Title I of the Employee
Retirement Income Security Act of 1974 (ERISA). Specifically, you asked
for the view of the Department of Labor (Department) on whether CREW is an
“employee welfare benefit plan” within the meaning of section 3(1) of
ERISA, and whether it is a “multiple employer welfare arrangement” (MEWA),
within the meaning of section 3(40), that is “fully insured” within
the meaning of section 514(b)(6)(A) of ERISA.(1)
The following summary of facts and representations is
based on the materials submitted in support of your request and
information on CREW’s web site at www.crew-benefits.com. CREW is
marketed to members of the Small Railroad Business Owners Association of
America, Inc. (Association) as an employee welfare benefit plan designed
to provide medical, surgical, hospital, and disability benefits
exclusively to members’ employees and dependents. The Association’s
Articles of Incorporation provide that the Association “shall be
operated exclusively as a nonstock not-for-profit organization and
specifically for the following purposes: (i) To function as a trade
association of short line and small railroads in the United States and
Canada; . . . and (iv) To provide for insurance and other employee
benefits and welfare plans to employees of members of the Association.”(2)
The Association’s By-Laws provide that “[m]embership will be open to
all railroads and railroad related entities that employ at least one (1)
person and that otherwise are engaged in [activities]” including “the
operation of interstate freight, and intrastate scenic and tourist
railroads and who otherwise pursue the purposes of the Association. . . .”
The Association’s Articles of Incorporation and By-Laws have been
construed “so that only (a) railroad contractors who maintain the
railroad track right away [sic] and whose operations may result in them
being subject to FELA [Federal Employment Liability Act] liability, and
(b) a parent company or affiliate of a small railroad which leases track
or employs the administrative personnel who supervise the operation of one
or more small or short line railroads are eligible to participate in the
New Association [Association] and CREW.”(3)
You represent that the Association lobbies State and
Federal agencies on matters affecting small and short line railroads,
sponsors programs and distributes publications to publicize the importance
of small and short line railroads, provides a forum for the exchange of
ideas and facilitates the purchase and sale of equipment among members,
develops briefing papers for use by members, and provides email alerts to
members concerning the industry.
The Association is managed by a Board of Directors. The
Board is required to have a minimum of three Directors, with up to a
maximum of seven upon amendment of the By-laws to so provide. The
materials you provided do not indicate how many Directors currently serve
on the Board of Directors, and we did not see any amendment to the By-laws
that would increase the number of Directors from three. Each Director may
serve on the Board for a term of not more than three years. The By-Laws
provide that “Directors shall be elected by a plurality of the votes
cast provided that a quorum is present or that the requisite minimum
number of votes is cast by written ballot, as the case may be.” It is
not clear from your submission how Directors are nominated to serve on the
Board of Directors or what number constitutes a “requisite minimum
number” of votes cast by written ballot. Moreover, it is unclear from
the materials you provided whether all Association members are entitled to
vote. The Association’s Articles of Incorporation provide that the
Association shall have only one class of members, and both the Articles of
Incorporation and the By-laws provide that “each member” gets one vote
with respect to each vacancy on the Board of Directors. However, those two
documents define “voting members” differently. The Articles of
Incorporation provide that “the voting members of the Association shall
be limited to employers (persons or entities who or which employ at least
one (1) person for purposes of the provision of welfare and pension
benefits),” but the By-Laws provide that “the voting members of the
Association shall be limited to employers (persons or entities who or
which employ at least five (5) persons for purposes of the provision of
welfare and pension benefits).”
The CREW Welfare Trust is organized as a trust under
the laws of the District of Columbia and is intended to operate as a “voluntary
employees’ beneficiary association” (VEBA) within the meaning of
section 501(c)(9) of the Internal Revenue Code (Code). You represent that
only “employer members” of the Association may participate in the CREW
Welfare Trust. The Board of Directors of the Association initially selects
the trustees of the CREW Welfare Trust who are responsible for the overall
supervision of the CREW Welfare Trust, including approval of insurance
policies. Thereafter, the Board presents a slate of trustee nominees to
the employer members, and employer members may add additional nominees to
the slate. According to CREW’s trust agreement, if no employer adds
nominees, the slate of trustees is “deemed elected.” The trust
agreement does not specify the process that ensues if an employer adds a
nominee to the slate, and there appear to be discrepancies in the
documents we reviewed regarding whether CREW trustees are appointed by the
Association’s Board of Directors or elected by the Association’s
members. Specifically, your March 27, 2006 letter to this office provides
that “employer members elect the trustees.” However, in the
Application for Membership in the CREW Welfare Trust, prospective member
rail employers must sign that they “understand that the elected
Directors [of the Association] appoint the Officers of the Association and
appoint the Trustees of the Custom Rail Employer Welfare Trust Fund (‘CREW’).”
CREW contracts with Medical Benefits Administrators of
MD, Inc. (MBA) to undertake CREW’s day-to-day administration, including
claims processing and adjudication services, access to and management of
provider networks, and compliance management. MBA uses an actuarial firm
to establish the health insurance rates for employee and dependent
coverage options available under the CREW Welfare Trust. Advance Benefit
Services, an affiliate of MBA, “assists association member employers in
the implementation, design, presentation, and enrollment of employees and
dependents under national association benefit programs.”(4)
You indicate that CREW has a certificate of insurance
coverage (Certificate) with a group of underwriters (Underwriters) at
Lloyd’s, London. The Certificate was obtained through R. J. Wilson &
Associates Ltd., a reinsurance brokerage firm and affiliate of MBA.(5)
The Certificate is not covered by any state guaranty association. The
Underwriters liable under the Certificate are admitted insurers in the
States of Illinois and Kentucky.(6)
The Certificate provides CREW with stop-loss coverage for individual
claims in excess of $50,000. In addition, in the event of CREW’s
insolvency, bankruptcy, financial impairment, receivership, voluntary plan
of arrangement with creditors or dissolution, or termination or
non-renewal of the CREW Welfare Trust, the Underwriters are liable for
claims incurred during the period of insurance in excess of a “terminal
fund” which CREW must maintain in accordance with the Certificate. The
terminal fund consists of current assets on hand to fund the actuarial
value of all incurred but unpaid claims (including unreported claims).
Individuals covered under the CREW Welfare Trust have the right to seek
payment of benefits directly from the Underwriters by making a request
through a designated U.S. based representative of the Underwriters after
there is a final determination that an individual’s claim is payable
under the CREW Welfare Trust, and CREW fails to pay within thirty days of
the determination. In this eventuality, CREW is required to assign its
right of recovery under the Certificate to the claimant or his or her
representative.(7)
Your request for an advisory opinion focuses on
provisions added to ERISA in 1983 that modified the scope of ERISA's
preemption of state law to permit application of certain state insurance
laws to employee welfare benefit plans that are MEWAs. Section 3(40)(A) of
ERISA defines the term “MEWA,” in pertinent part, to include: An
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 paragraph (1) [ERISA
section 3(1)] 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 finds to be collective bargaining
agreements, (ii) by a rural electric cooperative, or (iii) by a rural
telephone cooperative association.
Under the general preemption clause of ERISA section
514(a), state laws are preempted to the extent that they “relate to”
employee benefit plans subject to Title I of ERISA. There are, however, a
number of exceptions to this broad preemption provision. Section
514(b)(2)(A), referred to as the “savings clause,” provides in
pertinent part that “nothing in this title [Title I of ERISA] shall be
construed to exempt or relieve any person from any law of any State which
regulates insurance . . . .” While section 514(b)(2)(A) saves from ERISA
preemption state laws regulating insurance, section 514(b)(2)(B) of ERISA,
referred to as the “deemer clause,” provides that a state law “purporting
to regulate insurance” generally cannot deem an employee benefit plan to
be an insurance company (or in the business of insurance) for the purpose
of regulating such a plan as an insurance company. An additional piece of
analysis, however, is needed if the ERISA welfare plan is a MEWA as
defined in section 3(40) of ERISA. ERISA section 514(b)(6)(A) creates a
partial exception to the deemer clause for employee welfare benefit plans
that are also MEWAs. Specifically, if the employee benefit plan MEWA is
“fully insured,” then, under section 516(b)(6)(A)(i), any state law
that regulates insurance may apply to the MEWA to the extent the law
provides standards, or provisions to enforce those standards, requiring
the maintenance of specified levels of reserves and contributions in order
to be considered able to pay benefits. If the employee benefit plan MEWA
is not "fully insured," then, under section 514(b)(6)(A)(ii),
“any law of any State which regulates insurance” may apply to the
extent it is “not inconsistent with” the provisions of ERISA. The
limitations set forth in section 514(b)(6)(A) of ERISA on state insurance
regulation of MEWAs only apply to MEWAs that are also employee welfare
benefit plans as defined in section 3(1) of ERISA. If a MEWA is not an
ERISA-covered plan, ERISA’s preemption provisions do not limit the
ability of states to regulate the arrangement in accordance with
applicable state insurance law.
It is the view of the Department based on the
information we reviewed that CREW is a MEWA within the meaning of section
3(40) of ERISA. CREW is an arrangement that has been established and is
maintained for the purpose of offering and providing welfare benefits to
employees of two or more separate employers and does not fall within any
of the exceptions listed in section 3(40). Thus, unless the CREW Welfare
Trust is itself an ERISA-covered employee benefit plan, ERISA would impose
no limit on the application of state insurance law to the CREW benefit
arrangement and trust.
Although it appears that the CREW Welfare Trust
provides benefits described in section 3(1) of ERISA, to be an employee
welfare benefit plan, the Trust must also, among other criteria, be
established or maintained by an employer, an employee organization, or
both an employer and an employee organization. There is no indication in
your submission that the Fund was established or is maintained by an
employee organization within the meaning of section 3(4) of ERISA.
Therefore, this letter will only address whether the CREW Welfare Trust is
established or maintained by an “employer” within the meaning of
section 3(5) of ERISA. Section 3(5) of ERISA defines an employer 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 definitional provisions of ERISA recognize that a
single employee welfare benefit plan might be established or maintained by
a cognizable, bona fide group or association of employers acting in the
interests of its employer members to provide benefits for their employees.
A determination whether there 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. 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.
The Department has expressed the view that where
several unrelated employers merely execute identically worded trust
agreements or similar documents as a means to fund or provide benefits, in
the absence of any genuine organizational relationship between the
employers, no employer group or association exists for purposes of ERISA
section 3(5). Similarly, where membership in a group or association is
open to anyone engaged in a particular trade or profession regardless of
their status as employers (i.e., the group or association members include
persons who are not employers) or where control of the group or
association is not vested solely in employer members, the group or
association is not a bona fide group or association of employers for
purposes of ERISA section 3(5). See, e.g., Advisory Opinion 95-01A,
and Advisory Opinion 88-07A. In that regard, the Department has previously
concluded that sole proprietors without common-law employees are not
eligible to be treated as “employers” for purposes of participating in
a bona fide group or association of employers within the meaning of ERISA
section 3(5). See Advisory Opinion 94-07A (“[A]lthough USA represents
that its membership is composed of employers, the Articles and Bylaws
indicate that USA's membership class includes self-employed persons.
Because self-employed persons are not necessarily employers of common-law
employees, it appears that membership eligibility in USA is not limited to
‘employers.’”).
If the Association membership is limited to employers,
and if control of the CREW Welfare Trust is vested solely in its employer
members that participate in the CREW Welfare Trust, the Department would
find that the Association constitutes a bona fide employer group or
association acting as an employer in relation to the CREW Welfare Trust
within the meaning of ERISA section 3(5).
However, even if the Crew Welfare Trust is an employee
welfare benefit plan within the meaning of section 3(1), it would be a
plan covering multiple employers, not a single employer plan, and a MEWA
subject to state insurance regulation at least to the extent permitted
under section 514(b)(6)(A) of ERISA. Assuming for purposes of this letter
that the CREW Welfare Trust is itself an ERISA-covered plan, it is the
view of the Department based on the information we reviewed that CREW is
not fully insured within the meaning of section 514(b)(6)(D) of ERISA.
Under section 514(b)(6)(D) of ERISA, a MEWA “shall be
considered fully insured only if the terms of the arrangement provide for
benefits the amount of which the Secretary [of Labor] 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.”(8)
ERISA’s requirement that a fully insured MEWA have benefits
guaranteed under a contract, or policy of insurance does not refer merely
to a financial guaranty running to the plan, but rather requires the
insurance company or organization that issued the insurance contract to
unconditionally guarantee, upon receipt of the required premium or
consideration, to pay all benefits due under the plan, and each
participant must have a right to those guaranteed benefits which is
legally enforceable directly against the insurance company or
organization. In the Department’s view, the Certificate is not such a
contract or policy of insurance. Rather, the financial arrangement between
CREW and Lloyd’s, London represented by the Certificate’s stop-loss
coverage, the CREW Welfare Trust’s terminal fund, and the Trust’s
promise to assign rights to payment under the Certificate to participants
and beneficiaries, is fundamentally one where, until the occurrence of a
triggering event—CREW’s failure to pay a claim within thirty days of a
final determination that an individual’s claim is payable under the CREW
Welfare Trust—the insurance risk for the benefits remains primarily with
CREW and the employers and employees funding the program and the terminal
fund.(9)
We were unable to conclude that the participants would,
upon the Underwriters’ receipt of the required premium, have rights to
guaranteed benefits legally enforceable directly against the Underwriters.
For example, it is unclear whether a failure by CREW to meet its
commitments regarding the terminal fund would affect the ability of plan
participants to make a claim against the Underwriters. Further, since the
Underwriters’ liability under the Certificate does not arise until after
there is a final determination that a participant’s claim is payable
under the CREW Welfare Trust, it is unclear when a liability would arise,
if ever, for the Underwriters if CREW refused to make such a
determination. It would appear that a participant in such a case might
have to obtain an enforceable court order concluding that a particular
claim was payable under the CREW Welfare Trust before being able to make a
claim against the Underwriters.
Thus, even if the CREW Welfare Trust is an ERISA-covered
plan within the meaning of section 3(1) of ERISA, CREW as a MEWA that is
not fully insured would be subject to state insurance regulation subject
to the limitation in section 514(b)(6)(A)(ii) of ERISA that the state law
is “not inconsistent” with Title I of ERISA.
The relationship between CREW, the participants, and
the Underwriters is distinguishable from the arrangement in Advisory
Opinion 93-11A, which the Department concluded was a fully insured MEWA.
In that advisory opinion, the insurance agreement obligated the insurer to
pay participants and beneficiaries of the plan, directly or through its
agent, and in a timely manner, all of the benefits under the Plan. The
insurer’s obligation to pay benefits directly to participants and
beneficiaries was backed by the insurer’s general assets and was not
conditioned on whether the insurer received reimbursements from the plan.
Although agreements between the plan and the insurer limited the insurer‘s
actual risk of loss in various ways, such as by providing that the insurer
would be reimbursed by the plan on a daily basis for its benefit payments,
by requiring the plan to maintain a substantial balance in a trust used to
reimburse the insurer for benefit payments, and by permitting the insurer
to terminate insurance agreements unilaterally if these conditions were
not met, the insurer was unconditionally liable to the participants and
beneficiaries for payment of all claims for benefits incurred while the
insurance agreement was in effect. Further, the insurer’s obligation to
pay benefits survived termination of those agreements with respect to all
claims for benefits incurred prior to their termination. See also
Advisory Opinion 2005-20A.
This letter constitutes an advisory opinion under ERISA
Procedure 76-1. Accordingly, it is issued subject to the provisions of
that procedure, including section 10 thereof relating to the effect of
advisory opinions.
Sincerely,
Lisa M. Alexander
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
Enclosure
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The National Association of
Insurance Commissioners (NAIC) submitted a letter urging the
Department to conclude that the CREW Welfare Trust is subject to state
insurance regulation, including state insurance laws that would
require CREW to become licensed in the states where it operates as a
MEWA and obtain insurance from a carrier or carriers licensed in each
State in which CREW operates. The NAIC described itself as an
organization that represents the chief insurance regulators from the
50 states, the District of Columbia, and four U.S. territories. We
also received your supplemental submission responding to the NAIC’s
arguments and legal analyses.
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Included in the materials you
submitted is a copy of a Certificate of Incorporation issued by the
Government of the District of Columbia, Department of Consumer and
Regulatory Affairs. The Certificate of Incorporation, dated October
11, 2001, certified that "all applicable provisions of the District
of Columbia NonProfit Corporation Act have been complied with and
accordingly, this Certificate of Incorporation is hereby issued to:
Small Railroad Business Owners Association of America, Inc.” The web
site of the District of Columbia Department of Consumer and Regulatory
Affairs (www.mblr.dc.gov/corp/lookup/status.asp?id=26854), however,
indicates that the Association’s registration has been revoked.
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See Affidavit of Ronald J.
Wilson, at 3 (August 7, 2006).
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See CREW’s web site (www.crew-benefits.com/faq/faq_list.asp).
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The general organizational structure
used in the CREW arrangement appears to be a prototype-like employee
benefit structure that is being established and marketed under various
designations. See, for example, the web sites for The Evangelical
Benefit Trust (www.ebt-benefits.com/overview.html) the ATA Archery
& Bowhunting Industry Benefit Trust (www.archerybenefits.com), and
the IGA Group Employee Benefits Trust (www.iga-benefits.com).
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Lloyd's web site (www.lloyds.com)
states that Lloyd's is an insurance market, not a single insurance
company, consisting of a number of separate businesses (syndicates)
that underwrite risks. Lloyd's underwriters are licensed in Kentucky,
Illinois and the US Virgin Islands, and are eligible surplus lines
insurers in all US jurisdictions except Kentucky and the US Virgin
Islands. Lloyd's underwriters are also accredited reinsurers in all US
states. Insurance policies issued by Lloyd’s underwriters are not
protected by state insurance guaranty associations or insolvency
funds, except in states where licensed.
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Decisions regarding the method
through which benefits are to be paid under an employee welfare
benefit plan, including the selection of an insurer and the
negotiation of the terms of any contractual arrangement obligating the
plan, are matters that generally are subject to the fiduciary
responsibility provisions of Title I of ERISA. This letter does not
express any view on whether the CREW arrangements satisfy those
fiduciary requirements.
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In the Department’s view, section
514(b)(6)(D) requires the insurer to be qualified to do business in
"a State,” not in every State where the plan offers or provides
benefits. A central purpose of the “qualified to do business”
requirement, however, is to ensure that the policy insuring the plan
benefits is subject to insurance regulation by a State that authorized
the insurer to sell its residents the type of insurance purchased by
the plan. Nonetheless, a consequence of the insurance savings clause
in ERISA section 514(b)(2)(A), under which the application of State
insurance laws to insurance companies is saved from preemption, is
that even in the case of a fully insured MEWA, ERISA would not limit
any State in which the MEWA’s insurance risk is resident or located
or to be performed from enforcing state insurance law requirements
directly against the insurance company, insurance service or insurance
organization insuring the MEWA.
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See generally John Hancock Mutual
Life Insurance Co. v. Harris Trust & Savings Bank, 510 US 86
(1993) (in interpreting the definition of “guaranteed benefit policy”
in ERISA section 401, the Court concluded that a contract “provides
for benefits the amount of which is guaranteed by the insurer” in
the context of insured pension benefits “only if it allocates
investment risk to the insurer.” The Court explained that “[s]uch
an allocation is present when the insurer provides a genuine guarantee
of an aggregate amount of benefits payable to retirement plan
participants and their beneficiaries.”).
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