Dear Mr. Haynes:
This is in response to your request on behalf of the
Tennessee Independent Colleges and Universities Association Benefit
Consortium, Inc. (TICUA Benefit Consortium or Consortium) for an advisory
opinion concerning the applicability of Title I of the Employee Retirement
Income Security Act of 1974 (ERISA) to the TICUA Benefit Consortium Health
Plan (Plan). Specifically, you ask whether the Plan is an “employee
welfare benefit plan” within the meaning of section 3(1) of ERISA that
is maintained by a “group or association of employers” within the
meaning of section 3(5) of ERISA.
You provided the following facts and representations
with your request. The Tennessee Independent Colleges and Universities
Association (TICUA) was formed in 1951. TICUA was founded to foster better
cooperation among institutions of higher education in Tennessee, promote
cooperative programs among member institutions, supply public policy
analysis, and provide a vehicle for collaborative efforts among members
for raising funds from corporations and businesses. TICUA has 35 members,
all of which are private, not-for-profit organizations that are either
regionally accredited colleges and universities in Tennessee that have a
traditional arts and sciences curriculum, or regionally accredited
educational institutions that specialize in such fields as medicine,
dentistry, optometry, fine arts and mortuary science.
The Consortium, a membership-based mutual benefit
corporation, was established effective May 1, 2001, at the request of a
majority of TICUA’s members. The Consortium’s Charter provides that
the “Consortium shall establish and maintain a health and welfare plan”
to provide health and other welfare benefits to the employees of
participating member employers. The Consortium’s Charter limits
membership in the Consortium to independently governed and operated
private-sector institutions of higher education in the State of Tennessee
that are members of TICUA and are approved by a majority of the then
current members of the Consortium, and that meet such other terms and
procedures as are set forth in the Consortium’s By-laws or established
by resolution of the Board of Directors. The Consortium’s By-laws
provide the operational rules for the Consortium. Article Two provides
that the members shall meet annually, and that special meetings can be
called at any time by a majority of the members, as well as by the
Chairman of the Board, the Executive Director or the Board of Directors.
Article Three provides that each member is entitled to one vote on each
matter submitted to a vote at a meeting of the members. Article Four sets
forth the powers and duties of the Board of Directors, and provides that
the property, business and affairs of the Consortium shall be controlled
and managed by the Board of Directors. Article Four also provides that
Directors shall be elected at the annual meeting of the members. The
Executive Director is required to send a notice to all members requesting
nominations for the Board, and such nominees must be presented to the
members who shall elect each Director by majority vote. In the event of a
vacancy on the Board, the Executive Director may fill the vacancy, subject
to approval of a majority of the members. Section 4.11(a) of Article Four
provides that Directors may be removed by a majority of the Board of
Directors for failure to meet qualifications stated in the Charter or
By-laws or for being in breach of any agreement. Section 4.11(b) provides
that Directors may be removed with or without cause by a majority of the
members.
The TICUA Benefit Consortium Board of Directors
established the Plan, effective May 1, 2001. The Consortium’s Charter
requires the Board of Directors to hold all assets in trust for the
exclusive benefit of the participants and beneficiaries of the Plan. The
Consortium’s By-laws require the Directors to furnish Consortium members
annually a written statement of account of the finances of the trust that
holds the Plan’s assets. You represented that the Consortium, and a
trust that it established as the funding vehicle for the Plan, are
intended to operate as a “voluntary employees’ beneficiary association”
(VEBA) within the meaning of section 501(c)(9) of the Internal Revenue
Code (Code). TICUA members that want to participate in the Plan must
execute a membership and adoption agreement whereby the employer becomes a
Consortium member and adopts the Plan. You represented that TICUA has its
own employees and, although not expressly provided for in the Consortium’s
Charter, that TICUA was permitted to become a member of the TICUA Benefit
Consortium and a participating employer in the Plan.
TICUA and sixteen of TICUA’s 35 members have elected
to become members of the Consortium and participating employers in the
Plan. Employees of Consortium employer members (and their dependents) who
meet the Plan’s eligibility requirements may be enrolled and receive
Plan benefits. There currently are approximately 2,100 present or retired
employees of Consortium member employers who are participants in the Plan.
The term “employee welfare benefit plan” is defined
in section 3(1) of ERISA to include, among others, “any plan, fund, or
program . . . established or maintained by an employer or by an employee
organization, or by both, to the extent such plan, fund, or program was
established or is maintained for the purpose of providing for its
participants or their beneficiaries, through the purchase of insurance or
otherwise . . . medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death or
unemployment . . . .” Although the Plan was 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 Plan must also, among
other criteria, be established or maintained by an employer, an employee
organization, or both. There is no indication that an employee
organization within the meaning of section 3(4) of ERISA is in any way
involved in the Plan.(1) Therefore,
this letter will focus on the issue of whether the Plan sponsored by the
TICUA Benefit Consortium is established or maintained by an “employer”
within the meaning of section 3(5) of ERISA.
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
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 single “employee welfare
benefit plan” may, nevertheless, exist where a cognizable, bona fide
group or association of employers acts in the interests of its employer
members to establish a benefit program for the members’ employees. See,
e.g., Advisory Opinion 94-07A, Advisory Opinion 2001-04A.
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). See, e.g., Advisory Opinion 96-25A. Similarly, where
membership in a group or association is open to anyone engaged in a
particular trade or profession regardless of their status as employer, and
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., id.;
Advisory Opinion 2003-13A.
In this case, you represented that the membership of
the TICUA Benefit Consortium is comprised of employers that are
private-sector educational institutions in Tennessee that are TICUA
members and TICUA itself. In this regard, the employer members of the
Consortium have a commonality of interest and genuine organizational
relationship beyond participation in the Consortium as a means to provide
welfare benefits to their employees. You also represented that
participation in the Plan is limited to employers who are members of the
Consortium and their employees. Under the Consortium By-laws, the employer
members that participate in the Plan appear to have the power to exercise
control over the Plan by reason of their authority to exercise control
over and direct the activities and operations of the Consortium. In
particular, each employer member has the power to nominate individuals for
election to the Consortium Board of Directors and can vote on Consortium
matters, including election and removal of members of the Consortium’s
Board of Directors. We assume for purposes of this letter that TICUA, as a
Consortium member, has the same rights and powers as other Consortium
members. Consequently, it appears that the Consortium’s employer members
control and direct the activities and operation of the Consortium and the
Plan.
Based on the information submitted, it is the view of
the Department that the employer members of the Consortium would, at least
in form, constitute a bona fide group or association of employers, and the
Plan would, at least in form, constitute an employee welfare benefit plan
for purposes of Title I of ERISA. Whether the employer members of the
Consortium 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.
We note that without regard to whether the Plan
constitutes an employee welfare benefit plan, the Plan would be a multiple
employer welfare arrangement (MEWA) within the meaning of ERISA section
3(40). Section 3(40) defines the term MEWA, subject to certain exceptions
not relevant here, to mean an employee welfare benefit plan, or any other
arrangement, 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.
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. This opinion relates solely to the application of the
provisions of Title I of ERISA addressed in the letter. It is not
determinative of any particular tax treatment under the Internal Revenue
Code and does not address any issues arising under any other federal or
state laws.
Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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The Department has previously stated
that whether an entity has or has not been recognized as a VEBA for
the purposes of Code section 501(c)(9) is not indicative of whether
the entity is an employee organization for the purposes of section
3(4) of ERISA. See, e.g., Advisory Opinion 96-25A.
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