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2003-17A
ERISA Sec. 3(5)
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Ralph L. Hawkins
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101-1688
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Dear Mr. Hawkins:
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This responds to your request on behalf of the Hanford
Employee Welfare Trust (“HEWT” or “the Trust”) for an advisory
opinion concerning the applicability of Title I of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). Specifically, you ask
whether HEWT is a single employee welfare benefit plan maintained by a “group
or association of employers” within the meaning of section 3(5) of ERISA.
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You have provided the following facts and representations with your request.
The Hanford Site (“Site”) is located on 560 square miles in the State of
Washington. For nearly 40 years, the United States Department of Energy (“DOE”)
produced plutonium at the Site. The production ended in 1987. Since then the
Site has been the subject of an ongoing and extensive environmental cleanup
effort. The DOE is responsible for the project and has hired contractors to
conduct the operations under its oversight. Although the contractors and
their subcontractors are separate companies, they are each bound by their
DOE contracts to provide their employees similar employee benefits. They
also work in an integrated fashion. The DOE website states that “[w]hile
each contractor has specific areas of responsibility within the Hanford
clean up program they work together when necessary to ensure that programs,
projects, and activities at Hanford are coordinated and accomplished
efficiently with emphasis on safety of the workforce and the public and
protection of the environment.” The prime contractors also participate in
a “Site Services Board,” a formal association that manages and
coordinates the 54 different DOE-mandated site services. The contractors
also have a common labor force with many individuals having been employed by
more than one of the contractors at the Site. Two labor organizations
represent a substantial number, but less than 50%, of the contractors’
employees.
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Fluor Hanford, Inc. (“Fluor”) is the managing contractor for the
operations at the Hanford Site under a contract with the DOE. Among other
responsibilities, Fluor is charged in its contract with administering the
HEWT in order to provide welfare benefits to the employees and retirees (and
their dependents) of the contractors and subcontractors at the Site. Fluor
established the HEWT in 2000. Subscription to the Trust is available only to
the DOE contractors and subcontractors (“the contractors” or “the
employers”) working at the Site. A board of trustees is the named
fiduciary and administrator of the HEWT. Two trustees are appointed by Fluor,
and each of the other seven participating employers appoints one trustee.
The board of trustees makes decisions by majority vote. Each employer has
one vote for each 500 employees or fraction thereof. Based on that formula,
Fluor currently exercises nine votes and the other seven employers exercise
a total of ten votes.(1) The board
has sole authority to control and manage the operation and administration of
the Trust such as making eligibility determinations, paying claims, and
interpreting the terms of the Trust as well as authority to amend or
terminate the Trust. The trustees also choose the program of benefits
available through the HEWT within the types approved by DOE, and may select
insurance contracts and service providers. The board currently has a service
agreement with Fluor for the provision of plan administration services.
Fluor also receives compensation from the DOE for maintaining the HEWT. You
have represented that although the HEWT board of trustees has the authority
to remove Fluor as the primary provider of plan administrative services,
such a change would have to be approved by the DOE.
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Some contractors are required by their DOE contract to
provide benefits to their employees through the HEWT, others may use
alternative arrangements with DOE consent. DOE must approve the type and
cost of the benefits provided under the Trust using the guidelines in the
Federal and DOE Acquisition Regulations, and DOE reimburses the
contractors for the cost of providing the benefits to their employees.
Each employer’s participation in HEWT ends when its contract with DOE
terminates, but if there is a successor employer that undertakes the
contract, the employees have uninterrupted coverage under the HEWT. Also,
withdrawal of any employer does not terminate coverage under the HEWT for
any employee who continues in the employment of another subscribing
employer.
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The types of employee benefits that may be provided under the HEWT include
medical dental, vision, life insurance, accidental death and dismemberment,
and disability benefits. Each participating employer must subscribe to all
of the benefit programs offered by the Trust. Some of the benefits are
provided through insurance contracts, and some are self-insured. The HEWT
provides that each employer is responsible for paying its portion of any
applicable insurance premium or contribution for self-insured benefits. The
Trust also provides that no subscribing employer is responsible for the
payment of benefits to the employees of another subscribing employer.
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The term “employee welfare benefit plan” is defined in section 3(1) of
Title I of ERISA to include, among others:
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. . . 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 . . . .
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Although the HEWT provides benefits described in ERISA
section 3(1), 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. There is no indication in your submission
that the Trust 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 Trust is established or maintained by
an “employer” within the meaning of section 3(5) of ERISA.
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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 definitional
provisions of 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.
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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.
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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 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., Advisory Opinion
95-01 (February 13, 1995) and Advisory Opinion 88-07A (March 28, 1988).
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In this case, the group of employers who subscribe to the HEWT are limited
to DOE contractors at the Hanford Site and they are not eligible to continue
to participate in the HEWT beyond the term of their DOE contract. They have
a commonality of interest and genuine organizational relationship beyond the
HEWT and the provision of welfare benefits based on the fact that they are
all DOE contractors who are engaged in interconnecting operations of waste
clean up and security at the same Hanford Site with a history of organized
cooperation on workplace related matters at that worksite. Although the DOE
exercises oversight over the employers to ensure that benefit costs are
contained within the guidelines of the Federal and DOE Acquisition
Regulations, the employers, through their representation on the HEWT board
of trustees, appear to control and direct the activities and operations of
the HEWT.
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Based on the information submitted and your
representation on how the Trust will be amended, it is the view of the
Department that the subscribing employers would, at least in form,
constitute a bona fide employer group or association, and the HEWT,
therefore, would at least in form constitute a single employee welfare
benefit plan for purposes of Title I of ERISA. Whether the subscribing
employers exercise control over the benefit program in substance as well
as in form is an inherently factual issue on which the Department
generally will not rule in an advisory opinion.
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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 letter relates only to the issue that you
specifically raised in your request regarding the current status of the
HEWT benefit program under Title I of ERISA. We note in particular that
you have not asked, and we provide no opinion in this letter, concerning
whether the HEWT arrangement is being operated in compliance with the
provisions of Title I of ERISA. This letter also does not address any
issues arising under any other federal or state laws.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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You propose to amend the Trust to
provide that under no circumstances will one contractor be authorized
to cast a number of votes that equals or exceeds the votes held by
other contractors in the aggregate.
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