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CCH® PENSION AND BENEFITS — 7/26/06

Leased employees' benefit plan is MEWA

A medical benefit plan offered by a company that leases employees to various clients is a multiple employer welfare arrangement (MEWA), according to guidance recently issued by the Employee Benefits Security Administration (EBSA). The company in question provides payroll services for the employees, as well as benefits and worker's compensation. The company's clients control the training, hiring, and firing of the employees. ERISA §514(b)(6)(A) permits state insurance regulation of a MEWA, without regard to whether or not it is a qualified employee benefit plan.

The company was informed by the Nevada Department of Business and Industry that it could not offer unlicensed insurance through the plan, because the plan was a MEWA. The company responded that the plan was not a MEWA, but was, instead, a single employer benefit plan. Therefore, any state insurance regulation applicable to the plan would be preempted by ERISA, according to the company.

EBSA looks to common law principles to determine employee status

EBSA has explained that the determination of whether or not leased individuals are employees under ERISA depends upon the application of common law principles, such as whether or not a purported employer has the right to direct the means by which the individuals perform various services and whether or not it has the right to discharge the individuals performing the services. Payment of wages, taxes, and the provision of medical or retirement benefits are not strictly determinative of whether or not an employer-employee relationship exists, EBSA explained. Accordingly, because of the responsibilities shared by the company and its clients, EBSA determined that the medical benefit plan is a plan of two or more employers, and is a MEWA.

The company had also pointed out that employee leasing companies are considered, under Nevada state law, to be employers of their leased employees with regard to the sponsorship and maintenance of benefit plans. EBSA initially noted that whether or not a particular plan is a MEWA is to be determined by federal, not state law. However, because, under the common law principles applied for purposes of ERISA, both the company and its clients were determined to be employers, the plan is a MEWA, EBSA concluded, even if the company's clients are not employers according to Nevada state law.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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