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CCH® PENSION AND BENEFITS — 9/19/07

Partially insured MEWA is subject to state regulation to the extent that regulation is not inconsistent with ERISA

In an opinion letter, the Employee Benefits Security Administration (EBSA) has advised that a partially insured multiple employer welfare arrangement (MEWA) is subject to state regulation to the extent that state regulation is not inconsistent with ERISA.

A welfare trust fund was marketed to member employers of a short-line railroad association and was designed to provide health benefits to members’ employees and dependents. EBSA first determined that the welfare trust, which was intended to operate as a “voluntary employees’ beneficiary association” (VEBA), was a trust. A third-party administrator managed the trust’s day-to-day affairs and a board of directors, voted in by employer members, supervised the trust.

Underwriters provided a certificate of coverage for stop-loss coverage for individual claims in excess of $50,000. The trust was required to pay claims that it determined to be payable within 30 days of that determination. The trust was required to maintain a “terminal fund” consisting of current assets on hand to fund the actuarial value of all incurred but unpaid claims, including unreported claims. If claims determined to be payable by the trust were not paid within 30 days, individuals had a right to seek payment from the underwriters directly.

Secondly, EBSA determined that the welfare trust was a MEWA within the meaning of ERISA §3(40) because it was established and maintained to provide welfare benefits to employees of two or more separate employers and did not fall within an exception to ERISA §3(40).

Next, EBSA determined that the welfare trust was established or maintained by an “employer” under ERISA §3(5) and was, therefore, a bona fide employer group or association acting as an employer in relation to the welfare trust.

Finally, EBSA found that the MEWA was not fully insured as, as such, would be subject to state insurance regulation only to the extent that state law was not “consistent with” Title I of ERISA.

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

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