ERISA defines a multiple employer welfare arrangement as an employee welfare plan or any other arrangement which is established or maintained for the purpose of providing welfare benefits to the employees of two or more "unrelated" entities. Thus, if a welfare plan is maintained by an employer for the exclusive purpose of providing benefits to that employer's employees, former employees (e.g., retirees) or beneficiaries (e.g., spouses, former spouses, dependents) of such employees, the plan will be considered a "single employer" plan and not a MEWA.
Certain groups of employers that have a common ownership interest are treated as a single employer. Two or more trades or businesses, whether or not incorporated, are deemed a single employer if such trades or businesses are within the same controlled group.
Whether or not a trade or business is under common control is determined under regulations issued by the Secretary of Labor. Common control shall be based on an interest of more than 25%. Accordingly, trades or business with less than a 25% common ownership interest are not considered under common control and are therefore not treated as a single employer.
Historically, MEWAs were marketed to businesses to obtain greater buying power. Such arrangements generally took the form of self-insured health plans, whereby many small businesses joined together to create a multiple-employer health plan to obtain better health coverage at lower costs. Unfortunately, many MEWAs did not satisfy reserve thresholds and consumer protection requirements under state law.
It was also common for promoters to provide collective bargaining agreements for use with employees. This action permitted small businesses to participate in a single health plan without creating a MEWA under a collective bargaining exception to the MEWA rules. Plans that are exempt under the collective bargaining exception are referred to as "Entities Claiming Exceptions."
Revised rules
Due to the potential abuses of small businesses joining together to create MEWAs without financial stability, the Patient Protection and Affordable Care Act made several changes to ERISA to address ongoing concerns. The Department of Labor received new enforcement authority, revised the MEWA reporting requirements and established new criminal penalties for violations.
In December, 2011, the DOL published a Notice of Proposed Rulemaking and revisions to the Form M- 1 to implement several of the PPACA changes. These rules include the following:
* An employer who participates in a health plan structured as a MEWA is required to file a Form M-1 with the DOL by March 1 of the year following the MEWA tax year. All MEWAs, including ECEs exempt under the collective bargaining exception, are required to file a Form M-1 within 90 days of being established. The proposed rules would require MEWAs to file a Form M-1 30 days prior to registration, and 30 days prior to origination for ECEs, in addition to the annual Form M-1.
* The new rules will require all employers to file a Form 5500 regardless of size if they provide health benefits through a MEWA.
* The proposed rules establish civil and criminal penalties for failing to file, or fraudulently filing, a Form M-1.
* DOL issued proposed changes to Form M-1 to incorporate the new reporting requirements. These requirements include providing contact information for all persons associated with a MEWA, including promoters and third-party administrators, actuaries and any person or entity with control of MEWA assets.
All changes are intended to help the DOL police fraudulent MEWAs. However, the new rules can also capture bona fide MEWAs covering employees of joint ventures where the 25% threshold is not achieved. Thus, employers extending benefits to valid business affiliates and joint venture entities are encouraged to review the new enforcement rules to avoid unintentional noncompliance.
Luckily, the proposed new M-1 filing requirements preserve the rule that a MEWA used to bridge welfare benefit plans in connection with a change in control of a business, such as in a traditional purchase or sale of a business, are still not required to file a Form M-1.
Contributing Editor Frank Palmieri, CPA, JD, LL.M (Taxation) is a partner with the law firm of Palmieri & Eisenberg, with offices in Princeton, N.J., and Alexandria, Va. He is a national speaker and writer on benefits issues and is a fellow in the American College of Employee Benefits Counsel.
