This responds to your request for an advisory opinion
concerning the applicability of Title I of the Employee Retirement Income
Security Act of 1974 (ERISA) to the Dunkin’ Donuts Franchisee &
Distribution Center Health Plan (Plan), a welfare benefits program to be
sponsored by the Dunkin’ Donuts Northeast Distribution Center, Inc.
(Distribution Center) and Dunkin’ Donuts franchisees. Specifically, you
request an advisory opinion addressing whether the Plan is a “multiple
employer welfare arrangement” (MEWA) as defined in section 3(40) of
ERISA, and whether the Plan is “fully insured” within the meaning of
ERISA section 514(b)(6)(D).
You provided the following facts and representations in
support of your request. Dunkin' Donuts is an international coffee and
baked goods chain. Dunkin’ Brands, Inc. (Dunkin’ Brands, formerly
known as Allied Domecq Quick Service Restaurants) owns the Dunkin’
Donuts, Baskin’ Robins and Togo’s brands, the products and services of
which are sold through independent franchisees (Franchisees). In order to
become a Franchisee, applicants must enter into a franchise agreement with
Dunkin’ Brands. The franchise agreements require the Franchisees to
operate their franchises in accordance with certain prescribed standards
and specifications and to purchase products, equipment and services from
approved Dunkin’ Brands suppliers.
In order to facilitate compliance with the franchise
agreements, Dunkin’ Brands established the Distribution Center. The
Distribution Center is a Delaware non-stock corporation that currently
services Franchisees located in New England and New York. The Distribution
Center provides its members with access to raw materials (e.g., coffee,
milk, sugar, flour, etc.), supplies (e.g., cups, napkins, utensils, and
equipment), and related services (billing and collections, inventory
tracking, information technology infrastructure, etc.) the Franchisees
need to operate their Dunkin' Donuts franchises. The Franchisees may
choose to become members of the Distribution Center. To become members of
the Distribution Center, each Franchisee must enter into a purchase
commitment agreement and pay a one-time membership fee. Franchisees that
join the Distribution Center must also comply with the Distribution
Center's by-laws, policies, procedures, and approved programs. The
Distribution Center's sole purpose is providing Dunkin’ Brands franchise
related products, equipment and services to its members. Each Franchisee
member of the Distribution Center also owns a fractional interest in it.
Together, the Franchisees wholly own the Distribution Center.
The Distribution Center proposes to establish the Plan
to provide medical, surgical, or hospital benefits, or benefits in the
event of sickness or accident to employees of Franchisees and of the
Distribution Center and their dependents. Only the Distribution Center and
its member Franchisees are eligible to adopt the Plan. The Distribution
Center and Franchisees who adopt the Plan become members (Members) of the
Plan. The Plan will provide benefits only to employees of Members and
their dependents. The Plan will be funded by contributions from the
Members and their employees held in the Plan's trust. The trust will be
domiciled in the State of Vermont and organized as a voluntary employees’
beneficiary association within the meaning of Internal Revenue Code
section 501(c)(9). Neither the Franchisees nor the Distribution Center can
become, or continue as, a Member unless they have common law employees.
Under the Plan governing documents, employees of Franchisees engaged in
operating a Dunkin' Brands franchise (Dunkin’ Donuts, Togos, and Baskin
Robbins) and employees of the Distribution Center will be eligible to be
covered under the Plan. You, however, have indicated that the Plan will,
in operation, cover only employees of Dunkin’ Donuts franchisees
operating Dunkin’ Donuts franchises and employees of the Distribution
Center. Accordingly, as used below, the terms Franchisee and Member refer
only to Franchisees operating Dunkin’ Donuts franchises.
The Members will appoint an administrative committee
(Plan Administrative Committee) who will be trustees of the Plan trust.
The Plan Administrative Committee will be comprised of seven individuals.
Four of the individuals appointed to the Plan Administrative Committee
will serve as the Plan's officers (President, Vice President, Secretary
and Treasurer). The Plan Administrative Committee will make decisions by
majority vote. The Plan Administrative Committee will have sole authority
to control and manage the operation and administration of the Plan such as
establishing contribution requirements, making eligibility determinations,
paying claims, and interpreting the terms of the Plan. The Plan
Administrative Committee also will choose the program of benefits
available through the Plan within the types approved by the Members, and
may select insurance contracts and service providers. The Members will
elect the officers and the other three Plan Administrative Committee
representatives annually (except the Committee President who will be
elected biannually). Each Member will be able to nominate individuals to
be officers or representatives on the Plan Administrative Committee. Each
Member will have one vote and committee representatives must be elected by
a majority vote of the Members. The Members may remove any officer or
representative on the Plan Administrative Committee by majority vote of
the Members with or without cause. Any vacancy on the Plan Administrative
Committee will be filled by majority vote of the Members. In addition, the
Members may terminate the Plan and its trust or amend the by-laws
governing the Plan by majority vote.
The benefits under the Plan will be funded through an
insurance contract. The trust under the Plan will wholly own an insurer
licensed to do business in the State of Vermont as an association captive
insurance company (Insurer). The Insurer will issue an insurance contract
to the Plan. The Plan will pay insurance premiums to the Insurer from
contributions from Members and covered employees in the trust. The
contract will obligate 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 obligations will be backed by
its general assets and will not be conditioned on whether the Insurer
receives reimbursements for benefit payments from the Plan or the Members.
The Insurer will be unconditionally liable to the participants and
beneficiaries for payment of all claims for benefits incurred while the
contract is in effect. The participants and beneficiaries will have direct
contractual rights against the Insurer with respect to any benefit claims.
The question of whether the Distribution Center would
be sponsoring or operating a MEWA within the meaning of section 3(40) of
ERISA depends on whether the Plan is an arrangement that “offers or
provides” welfare benefits to the employees of two or more employers.
Specifically, section 3(40)(A) of ERISA defines the term “MEWA,” in
pertinent part, to include:
[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 paragraph (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.
Based on the information we reviewed, it is the view of
the Department that the Distribution Center and its Members would be
sponsoring or operating a MEWA within the meaning of section 3(40) of
ERISA. The Plan would be an arrangement that has been established and is
maintained for the purpose of providing welfare benefits to employees of
two or more separate, independent employers and does not fall within any
of the exceptions listed in section 3(40).
The issue of whether a MEWA is “fully insured”
arises for purposes of ERISA preemption provisions only if the arrangement
constitutes an “employee welfare benefit plan” within the meaning of
ERISA section 3(1) covered by Title I because, under section 514(b)(6)(A)
of ERISA, the extent to which state insurance laws may be applied to an
ERISA-covered employee benefit plan that is a MEWA is dependent on whether
or not the plan is fully insured.(1)
Although it appears that the Plan is intended to
provide benefits described in section 3(1), to be an employee welfare
benefit plan, the Plan must also, among other criteria, be established or
maintained by an employer, an employee organization, or both an employer
and an employee organization. You advise that the Plan will not be
established or maintained by an employee organization within the meaning
of section 3(4) of ERISA. Therefore, this letter will only address whether
the Plan would be established or maintained by an “employer” within
the meaning of ERISA section 3(5).
Section 3(5) of ERISA defines 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 definitions under ERISA thus 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.
Whether there is a bona fide employer group or
association with respect to a benefit program depends on all of 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 group; the process by which the group 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 substance, in order to act as a bona fide
employer group with respect to the program.
The definition of an “employee welfare benefit plan”
in ERISA is grounded on the premise that the person or group that
maintains the plan is tied to the employers and employees that participate
in the plan by some common economic or representation interest or genuine
organizational relationship unrelated to the provision of benefits. See,
e.g., Advisory Opinion 94-07A; Advisory Opinion 2001-04A.
In this case, the Franchisees and Distribution Center
will establish and maintain the Plan, and appear, based on your
representations, to be a group consisting solely of employers of common
law employees who will be covered by the Plan. The Franchisees and the
Distribution Center have a commonality of economic interests and a genuine
organizational relationship unrelated to the provision of benefits under
the Plan. Each Franchisee owns a fractional interest in the Distribution
Center. The Distribution Center facilitates access to the raw materials,
supplies and services that facilitate Dunkin’ Donuts franchise business
operations. In addition, the employees of Franchisees, and of the
Distribution Center, covered by the Plan will be engaged in activities
that support Franchisee operation of Dunkin’ Donuts franchises. Further,
the Franchisees and the Distribution Center, and, therefore only employers
of common law employees covered by the Plan, will have the power to
control the Plan, for example, by reason of their authority to appoint and
remove the Administrative Plan Committee constituting the Plan’s
governing body.
Thus, based on the information submitted, it is the
view of the Department that the Members of the Plan (the Franchisees and
Distribution Center) would, at least in form, constitute a bona fide
employer group or association in relation to the Plan, and the Plan would,
at least in form, constitute an employee welfare benefit plan for purposes
of Title I of ERISA. Whether the Members 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.
With respect to an ERISA-covered plan, section
514(b)(6)(D) provides that, for purposes of section 514(b)(6)(A) of ERISA:
a multiple employer welfare arrangement shall be
considered fully insured only if the terms of the arrangement provide
for benefits the amount of all 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.
In order to consider whether a particular MEWA is “fully
insured” within the meaning of ERISA section 514(b)(6)(D), the contract
between the insurance company and the insured must be examined. See
Advisory Opinion 94-07A. In light of the prospective nature of the benefit
program, you do not have an insurance contract in place. Accordingly, the
Department is unable to conclude that the Plan would be fully insured
within the meaning of section 514(b)(6)(D). There is nothing in your
submission, however, that would lead us to conclude that the Plan would
not be fully insured if an insurance policy consistent with your
representations were secured to guarantee all the benefits under the plan.
See Advisory Opinion 93-11A.
You raised a number of issues in your 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, 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 in connection with the Plan, including
monitoring of 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.
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,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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