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May 16, 2005
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Version
2005-12A
ERISA Sec. 3(1)
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Jacob M. Barsottini
General Manager & Chief Operating Officer
Employshare
P.O. Box 350
Beaver Falls, PA 15010
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Dear Mr. Barsottini:
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This is in reply to your request, on behalf of Wings For
Christ, Inc. (WFC), regarding the application of Title I of the Employee
Retirement Income Security Act of 1974 (ERISA). Specifically, you ask
whether a program of benefits WFC is interested in offering to its members (WFC
Program) would be an “employee welfare benefit plan” within the meaning
of section 3(1) of ERISA. You also ask whether the WFC Program would be
subject to state insurance regulation as a “multiple employer welfare
arrangement” (MEWA) within the meaning of ERISA section 3(40).
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Your correspondence and the materials supplied in support
of your inquiry contain the following facts and representations. WFC is a
Pennsylvania not-for-profit corporation that provides missionary support,
medical aid and disaster relief throughout the United States and Central
America. You represent that the mission of WFC is religiously based, but
that WFC is not a church, nor is it controlled by or associated with any
particular church, convention or association of churches.
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You state that WFC is comprised of both “employer”
and “employee” members located in a number of different states. The
employer members of WFC include Christian churches, church schools, church
hospitals, nursing homes and rehabilitation centers. As a condition of
membership in WFC, each of the employer members sign an agreement with WFC
supporting the tenets and mission of WFC. In addition, you represent that
WFC “co-employs” approximately 2,000 employees of the member employers.
Although you represent that the employee members are “volunteers” who
are compensated by their separate employers and not by WFC, you note that
the employee members sign an “employment agreement” to “participate in
the mission of WFC” so that WFC may terminate the WFC membership of any
employee member who fails to adhere to the tenets and mission of WFC.
Nothing in your submission suggests, however, that WFC has the authority to
terminate the employment relationship between the employer member and the
employee member, or that WFC would exercise any other significant employer
functions with respect to the “co-employees.”
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According to your request, WFC plans to establish a
program to provide welfare benefits, including group health care, dental,
vision and life insurance, to its employee members. Your submission did not
include information on WFC’s corporate structure, the persons or entities
that exercise control over or direct the activities of WFC or the WFC
Program, the structure of the WFC Program, or the source of contributions
for the benefits the WFC Program would provide.
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The term “employee welfare benefit plan” is defined
in section 3(1) of Title I of ERISA to include, in relevant part, “any
plan, fund, or program . . . established or maintained by an employer or by
an employee organization, or by both, to the extent that 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.” The WFC Program would appear to provide benefits described
in section 3(1). However, in order to be a plan covered by ERISA, the WFC
Program would also, among other criteria, have to be established or
maintained by an employer, employee organization, or both. There is no
indication in the information you submitted that an employee organization
within the meaning of section 3(4) of ERISA would in any way be involved in
the establishment or maintenance of the WFC Program.(1)
Therefore, this letter will examine only whether an “employer” within
the meaning of section 3(5) would establish or maintain the WFC Program.
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The term “employer” is defined in section 3(5) of
ERISA to include “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 thus recognize that a “multiple
employer” welfare plan may exist where a cognizable bona fide group or
association of employers establishes a benefit program for the employees of
member employers. A determination whether a group or association of
employers 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, preexisting relationships exist among 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. See Advisory Opinion 80-02A.
In addition, the Department takes the view that 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. See Advisory Opinion 89-13A.
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In previous opinions involving associations whose
membership was not restricted to employers in a particular trade or
occupation, the Department has taken the position that the subject
associations were not groups or associations of employers within the meaning
of section 3(5) of Title I of ERISA. See Advisory Opinion 2003-13A.
We have also noted that the mere presence of non-employer members will not,
in and of itself, vitiate the status of a group or association as an “employer”
within the meaning of ERISA section 3(5) if such other members have no
voting rights in the association and no control over it. See Advisory
Opinion 80-15A. In the case of WFC, eligibility for membership is not
limited to “employers” but is open to “co-employees.” Further, you
did not provide us with any information that would support a conclusion that
only employer members of the WFC who participate in the WFC Program exercise
control over or direct the activities of WFC or the WFC Program. Therefore,
for this reason alone, the Department would not find WFC to be a bona fide
group or association of employers within the meaning of section 3(5) of
ERISA.
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In the alternative, you maintain that WFC is an “employer”
as contemplated by ERISA section 3(5) because it is the “co-employer” of
the employee members covered under the Program. You provided a letter from
your legal counsel concluding that “persons who become associated with WFC”
would be considered “employees” of WFC for purposes of the “church
plan” definition in section 414 of the Internal Revenue Code and section
3(33) of ERISA. We note that you do not contend that the WFC Program is a
“church plan” under ERISA section 3(33), and further that you
represented as part of your request for guidance that WFC is not a church,
nor is it controlled by or associated with any particular church or
convention or association of churches.(2)
Without expressing any view on the church plan definition in section
3(33) of ERISA, the Department does not view becoming “associated with”
an organization as the controlling standard for determining whether there is
an employer-employee relationship within the meaning of section 3(6) of
ERISA. Rather, whether an individual is an “employee” for purposes
section 3(6) of Title I of ERISA generally must be determined by applying
common law principles. See Nationwide Mutual Insurance Company v. Darden,
503 U.S. 318 (1992); Yates v. Hendon, 541 U.S 1 (2004).(3)
A contract purporting to create an employer-employee relationship will
not control where common law factors (as applied to the particular facts and
circumstances of a situation) establish that the relationship does not
exist.
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Accordingly, because we cannot conclude that WFC is an
employer as defined in ERISA section 3(5), we are unable to conclude that
the WFC Program is an employee welfare benefit plan within the meaning of
section 3(1) of ERISA. However, if an employer adopts for its employees a
program of benefits sponsored by a group or association that does not itself
constitute an “employer” within the meaning of ERISA section 3(5), such
an employer may have established a separate employee benefit plan covered by
Title I of ERISA. See Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.
1982). Thus, while the WFC Program is not an employee welfare benefit plan,
WFC’s employer members may be establishing their own employee welfare
benefit plans subject to ERISA if they were to participate in the WFC
Program to provide welfare benefits for their employees.
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Even if the WFC Program were an employee welfare benefit
plan within the meaning of section 3(1) of ERISA, based on your
representations, it would be a multiple employer welfare arrangement (MEWA)
within the meaning of section 3(40) of ERISA. Section 3(40)(A) defines the
term “MEWA,” in relevant part, to include:
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[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.
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On the basis of your representations and the information
submitted, the WFC Program would not be limited to persons who have a
common-law employer-employee relationship with WFC and would include persons
who have such a relationship with one or more unrelated employers. The
Department would view the WFC Program as providing health and other welfare
benefits described in section 3(1) of ERISA to the employees of two or more
employers within the meaning of section 3(40) of ERISA. Nothing in the
materials submitted suggested that the WFC Program would meet any of the
exceptions set out in the MEWA definition. Although section 514(a) of Title
I of ERISA generally preempts any state law which relates to an employee
benefit plan covered by Title I of ERISA, section 514(b)(6) provides an
exception which permits certain state insurance regulation of employee
welfare benefit plans which are MEWAs. Accordingly, even if the WFC Program
were an employee benefit plan within the meaning of section 3(1) of ERISA,
the preemption provisions of ERISA would not preclude state insurance
regulation of the WFC Program, at least to the extent provided in ERISA
section 514(b)(6)(A).
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This letter constitutes an advisory opinion under ERISA
Procedure 76-1. Accordingly, this letter 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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The term “employee organization”
is defined in section 3(4) to include either organizations such as a
labor union in which employees participate and that deals with an
employer regarding the conditions of employment or an employees'
beneficiary association that is organized, in whole or in part, for the
purpose of establishing a plan. Based on the information you submitted,
the Department would not view the WFC as dealing with employers on
behalf of employees. Further, the Department has previously indicated
the criteria it uses to identify employees' beneficiary associations for
purposes of Title I of ERISA. See Advisory Opinion 92-19A;
Advisory Opinion 80-68A. WFC does not meet the criteria of an employees'
beneficiary association.
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Church plans as defined in section
3(33) of ERISA are exempted from Title I coverage by section 4(b)(2) of
ERISA, and, therefore, the preemption provisions of section 514 of ERISA
do not preclude state regulation of such arrangements. See also
Clarification of Church Welfare Plan Status Under State Insurance Law
Act, 29 U.S.C. § 1144a.
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While common law of agency factors
typically have been applied in determining whether a person is an
employee or independent contractor, common law principles are equally
applicable to determine by whom an individual is employed. See
Professional & Executive Leasing Inc. v. Commissioner, 89 TC No.
19 (1987).
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