Dairy consortium members with genuine organizational relationship can have MEWA, says DOL

A health plan that is to be established by a consortium of dairy farm employers in order to provide benefits for their employees would be an employee welfare benefit plan as defined by ERISA, according to an advisory opinion letter recently issued by the Labor Department’s Employee Benefits Security Administration (EBSA). The EBSA explained that the plan fits ERISA’s requirement that it be maintained by a group or association of employers, because the consortium’s structure appears to match the necessary definition. The EBSA added that the plan would be a multiple employer welfare arrangement (MEWA).

Formation of consortium.

A group of Minnesota dairy farm employers wants to form a consortium, so that the employers can establish a health plan for their employees. All of the employers are in the First District Association (FDA) dairy cooperative, and the consortium would be a sub-group of that. The co-op members intend to establish a trust to fund the plan, and participation in the consortium would be limited to FDA employers with at least one employee.
The consortium’s employer members would elect a board of trustees that would act as plan fiduciary and administrator. Trustees would have to be owners or common law employees of consortium employer member participants, and employees of consortium employer member participants could be enrolled in and covered under the health plan.
The EBSA states that, although the plan would provide health benefits in accordance with the requirements of ERISA Sec. 3(1), it would also have to be established or maintained by an employer and/or employee organization. Since no employee organization is in evidence, the EBSA says that the question becomes whether or not the consortium could act as a bona fide employer group or association for the purpose of establishing a plan within the meaning of ERISA Sec. 3(5).

Employer group requirements.

The EBSA advises that it had previously concluded that, where several unrelated employers merely execute identically worded documents as a means to fund or provide benefits, no employer group or association exists for purposes of ERISA Sec. 3(5) in the absence of any genuine organizational relationship between the employers. The result is the same for membership in an association open to anyone engaged in a particular trade regardless of their status as employer.
The EBSA advises that a sub-group of employers who are members of a trade or industry association could be a bona fide group of employers that could sponsor a multiple employer plan, but if the participating employers cannot control the association (through something like voting rights), the association itself could not be the sponsoring “employer.”
The EBSA points out that a trade or industry association membership in something like the FDA could satisfy the requirement that the sub-group of employers has a genuine organizational relationship unrelated to the provision of benefits. Then, the plan documents can be drafted so that the sub-group of employers (each of whom must have at least one employee in order to participate) in the consortium would control the program. The FDA association could be responsible for day-to-day plan operations as a named fiduciary or designated plan administrator, but the sub-group of participating employers in the consortium would be the “employer” establishing and maintaining the plan, in accordance with ERISA Sec. 3(5).
Because the consortium is composed only of dairy farm employers in the FDA, the EBSA says that it would view them as engaged in the same industry, and as having a genuine organizational relationship separate from the health plan. Also, according to the consortium by-laws, FDA members that opt to join the consortium and participate in the plan would have the power to control both the consortium and the plan via their authority to nominate, elect, and remove the consortium’s board of trustees. Therefore, it would appear, says the EBSA, that the consortium’s participating employer members would be a bona fide group or association under ERISA Sec. 3(5), so that the health plan would constitute an employee welfare benefit plan that is also a multiple employer plan for purposes of Title I of ERISA.
The EBSA cautions that, to the degree the participating employer members of the consortium do or do not exercise actual control over the consortium, the plan, and the plan’s trust, is a factual issue on which it will not rule in the advisory opinion. The EBSA concludes by saying that, without regard as to whether or not the plan would be an employee welfare benefit plan, it would be a MEWA, defined by ERISA Sec. 3(40) generally as an arrangement established or maintained for the purpose of offering or providing benefits (as described in ERISA Sec. 3(1) to the employees of two or more employers.

SOURCE: EBSA advisory opinion letter, May 16, 2017.
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