Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules 76235 

1The term ‘‘multiple employer welfare 

arrangement’’ is defined at ERISA § 3(40), 29 U.S.C. 

1002(40). 

§ 2520.104–44, the information 

prescribed in paragraph (c) of this 

section; and 

(2) Any statements or information 

required by the instructions to the Form 

5500 relating to multiple employer 

welfare arrangements, including 

information regarding compliance with 

the filing requirements under 

§ 2520.101–2. 

* * * * * 

4. Section 2520.104–20 is amended by 

removing the reference ‘‘and’’ in 

paragraph (b)(2)(iii), removing the 

period at the end of the sentence and 

adding the reference ‘‘and’’ to the end 

of the sentence in paragraph (b)(3)(ii), 

and adding a new paragraph (b)(4) to 

read as follows: 

§ 2520.104–20 Limited exemption for 

certain small welfare plans. 

* * * * * 

(b)(4) Which are not multiple 

employer welfare arrangements subject 

to the filing requirements under 

§ 2520.101–2. 

* * * * * 

5. In § 2520.104–41, revise paragraph 

(c) to read as follows: 

§ 2520.104–41 Simplified annual reporting 

requirements for plans with fewer than 100 

participants. 

* * * * * 

(c) Contents. The administrator of an 

employee pension or welfare benefit 

plan described in paragraph (b) of this 

section shall file, in the manner 

described in § 2520.104a–5, a completed 

Form 5500 ‘‘Annual Return/Report of 

Employee Benefit Plan’’ or, to the extent 

eligible, a completed Form 5500–SF 

‘‘Short Form Annual Return/Report of 

Small Employee Benefit Plan,’’ and any 

required schedules or statements 

prescribed by the instructions to the 

applicable form, including, if 

applicable, the information described in 

§ 2520.103–1(f)(2), and, unless waived 

by § 2520.104–44 or § 2520.104–46, a 

report of an independent qualified 

public accountant meeting the 

requirements of § 2520.103–1(b). 

Signed this 28th day of November 2011. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2011–30918 Filed 12–5–11; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Parts 2560 and 2571 

RIN 1210–AB48 

Ex Parte Cease and Desist and 

Summary Seizure Orders—Multiple 

Employer Welfare Arrangements 

AGENCY: Employee Benefits Security 

Administration, Department of Labor. 

ACTION: Proposed rules. 

SUMMARY: This document contains two 

proposed rules under the Employee 

Retirement Income Security Act of 1974 

(ERISA) to facilitate implementation of 

new enforcement authority provided to 

the Secretary of Labor by the Patient 

Protection and Affordable Care Act 

(Affordable Care Act). The Affordable 

Care Act authorizes the Secretary to 

issue a cease and desist order, ex parte 

(i.e. without prior notice or hearing), 

when it appears that the alleged conduct 

of a multiple employer welfare 

arrangement (MEWA) is fraudulent, 

creates an immediate danger to the 

public safety or welfare, or is causing or 

can be reasonably expected to cause 

significant, imminent, and irreparable 

public injury. The Secretary may also 

issue a summary seizure order when it 

appears that a MEWA is in a financially 

hazardous condition. The first proposed 

regulation establishes the procedures for 

the Secretary to issue ex parte cease and 

desist orders and summary seizure 

orders with respect to fraudulent or 

insolvent MEWAs. The second 

proposed regulation establishes the 

procedures for use by administrative 

law judges (ALJs) and the Secretary 

when a MEWA or other person 

challenges a temporary cease and desist 

order. 

DATES: Written comments on the 

proposed regulations should be 

submitted to the Department of Labor 

on or before March 5, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Stephanie Lewis, Plan Benefits Security 

Division, Office of the Solicitor, 

Department of Labor, at (202) 693–5588 

or Suzanne Bach, Employee Benefits 

Security Administration, Department of 

Labor, at (202) 693–8335. These are not 

toll-free numbers. 

ADDRESSES: Written comments may be 

submitted to the address specified 

below. All comments will be made 

available to the public. Warning: Do not 

include any personally identifiable 

information (such as name, address, or 

other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments may be posted on the Internet 

and can be retrieved by most Internet 

search engines. Comments may be 

submitted anonymously. 

Department of Labor. Comments may 

be submitted to the Department of 

Labor, identified by RIN 1210–AB48, by 

one of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: E-OHPSCA521Orders.

EBSA@dol.gov. 

• Mail or Hand Delivery: Office of 

Health Plan Standards and Compliance 

Assistance, Employee Benefits Security 

Administration, Room N–5653, U.S. 

Department of Labor, 200 Constitution 

Avenue NW., Washington, DC 20210, 

Attention: RIN 1210–AB48; Section 521 

Orders Proposed Regulations. 

Comments received by the 

Department of Labor will be posted 

without change to http://www.

regulations.gov and http://www.dol.gov/ 

ebsa, and made available for public 

inspection at the Public Disclosure 

Room, N–1513, Employee Benefits 

Security Administration, 200 

Constitution Avenue NW., Washington, 

DC 20210. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 6605 of the Patient Protection 

and Affordable Care Act (Affordable 

Care Act), Public Law No. 111–148, 124 

Stat. 119 adds section 521 to ERISA, 

which gives the Secretary of Labor new 

enforcement authority with respect to 

MEWAs.1 124 Stat. 780. This section 

authorizes the Secretary to issue ex 

parte cease and desist orders when it 

appears to the Secretary that the alleged 

conduct of a MEWA is ‘‘fraudulent, or 

creates an immediate danger to the 

public safety or welfare, or is causing or 

can be reasonably expected to cause 

significant, imminent, and irreparable 

public injury.’’ 29 U.S.C. 1151(a). A 

person that is adversely affected by the 

issuance of a cease and desist order may 

request an administrative hearing 

regarding the order. 29 U.S.C. 1151(b). 

This section also allows the Secretary to 

issue an order to seize the assets of a 

MEWA that the Secretary determines to 

be in a financially hazardous condition. 

29 U.S.C. 1151(e). 

ERISA section 521 gives the Secretary 

legal remedies to address fraudulent and 


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76236 Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules 

2See, e.g., Private Health Insurance: Employers 

and Individuals Are Vulnerable to Unauthorized or 

Bogus Entities Selling Coverage, February 2004, 

GAO–04–312. 

3 In In re Raymond Palombo, et al, 2011 WL 

1871438 (Bankr. C.D. CA 2011) (See also Solis v. 

Palombo, No. 1:08–CV–2017 (N.D. Ga 2009)), for 

example, the court found that the defendant had, 

among other things, diverted substantial plan assets 

for his own benefit. The court also noted that 

‘‘when the Fund stopped operating, it had no assets, 

thousands of unprocessed claims, and no 

meaningful administrative records. Rather, it had 

only raw claims and provider invoices stuffed in 

cardboard boxes at [its] office.’’ The court found the 

defendant liable to the Fund for nearly $3 million. 

4 Kofman, Mila, Bangit, Eliza, and Lucia, Kevin, 

MEWAs: The Threat of Plan Insolvency and Other 

Challenges (The Commonwealth Fund March 2004). 

5No regulations have been issued under this 

provision. In the absence of regulations under 

section 3(40)(B)(iii), the Department would 

generally follow ERISA section 4001(b), 29 U.S.C. 

1301(b) and therefore the Internal Revenue Code 

section 414(c) rules, in interpreting ERISA’s MEWA 

preemption provisions. DOL Information Letter to 

The Honorable Mike Kreidler, dated March 1, 2006. 

6 68 FR 17494 (04/09/2003). 

abusive MEWAs.2 Although MEWAs 

that are properly operated provide an 

option for small employers seeking 

affordable employee health coverage, 

some have been marked by fraudulent 

practices and financial instability.3

Some self-insured MEWAs, in 

particular, have been found to have 

failed to use sound underwriting 

practices and have paid excessive 

amounts to operators and service 

providers. In Chao v. Graf, 2002 WL 

1611122 (D. Nev. 2002), for instance, the 

evidence indicated that the MEWA set 

premium rates, not based on sound 

actuarial analysis, but by setting a 

premium amount that was less than the 

average of a sample of rates it selected 

from the internet. The evidence also 

indicated that the defendants made 

unreasonably large payments from plan 

assets, including for services not 

rendered at all. 

In some cases, the MEWA may have 

simply lacked sufficient resources or 

financial and administrative expertise to 

carry out their contractual and legal 

obligations. In others, a MEWA’s 

financial instability results from fraud. 

When such MEWAs become insolvent, 

they may leave consumers with millions 

of dollars in unpaid medical bills.4 The 

financial impact on employers or 

employee organizations that have paid 

premiums or made contributions to the 

MEWA can be as significant. The ex 

parte cease and desist and summary 

seizure order authority will serve as an 

additional enforcement tool to protect 

plan participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public against 

fraudulent, or financially unstable 

MEWAs. 

In addition to addressing the 

standards for the Secretary to follow in 

issuing ex parte cease and desist and 

summary seizure orders under ERISA 

section 521, these proposed regulations 

describe the procedures before the 

Office of Administrative Law Judges 

(OALJ) when a person seeks an 

administrative hearing for review of an 

ex parte cease and desist order. These 

proposed procedural regulations 

maintain the maximum degree of 

uniformity with rules of practice and 

procedure under 29 CFR part 18 that 

generally apply to matters before the 

OALJ. At the same time, they reflect the 

unique nature of orders issued under 

ERISA section 521, and are controlling 

to the extent they are inconsistent with 

29 CFR part 18. This preamble 

summarizes the specific modifications 

to the rules in 29 CFR part 18 being 

proposed for adoption in this notice. 

II. Overview of the Regulations 

A. Ex Parte Cease and Desist and 

Summary Seizure Order Regulations (29 

CFR § 2560.521) 

Purpose and definitions 

Pursuant to section 6605 of the 

Affordable Care Act, this proposed rule 

sets forth procedures for the Secretary to 

issue ex parte cease and desist orders 

and summary seizure orders and for 

administrative review of such cease and 

desist orders. The proposed rule applies 

to any cease and desist order and any 

summary seizure order issued under 

section 521 of ERISA and sets forth 

when the Secretary proposes to apply 

the orders. Paragraph (a) of section 

2560.521–1 of the proposed rule 

specifies that orders may apply to 

MEWAs and to persons having custody 

or control of assets of a MEWA, any 

authority over management of a MEWA, 

or any role in the transaction of a 

MEWA’s business. It also generally sets 

forth the criteria under which the 

Secretary may issue orders. 

Paragraph (b) of this section contains 

key definitions. The new section 521 

applies the Secretary’s cease and desist 

and seizure order authority to MEWAs 

as defined under section 3(40) of ERISA, 

29 U.S.C. 1002(40). Reflecting this 

statutory definition, paragraph (b)(1) 

provides that a ‘‘multiple employer 

welfare arrangement’’ is an employee 

welfare benefit plan or other 

arrangement, which is established or 

maintained for the purpose of offering 

or providing welfare plan benefits, 

including health benefits to the 

employees of two or more employers 

(including one or more self-employed 

individuals), or to their beneficiaries. 29 

U.S.C. 1002(40)(A). A MEWA does not, 

however, include any plan or 

arrangement established or maintained 

(1) Under or pursuant to one or more 

agreements that the Secretary of Labor 

finds to be collective bargaining 

agreements, (2) by a rural electric 

cooperative, or (3) by a rural telephone 

cooperative association. 29 U.S.C. 

1002(40)(A)(i)–(iii). 

For purposes of this definition of a 

MEWA, two or more trades or 

businesses, whether or not incorporated, 

shall be deemed a single employer if 

such trades or businesses are within the 

same control group. The term ‘‘control 

group’’ means a group of trades or 

businesses under common control. The 

determination of whether a trade or 

business is under ‘‘common control’’ 

with another trade or business shall be 

determined under regulations of the 

Secretary applying principles similar to 

the principles applied in determining 

whether employees of two or more 

trades or businesses are treated as 

employed by a single employer under 

section 4001(b), except that for purposes 

of this paragraph common control shall 

not be based on an interest of less than 

25 percent. 29 U.S.C. 1002(40)(B)(i)– 

(iii).5

In general, ERISA’s provisions are 

limited to employee welfare benefit 

plans, other than governmental plans, 

church plans, and plans maintained 

solely for the purpose of complying 

with workers’ compensation laws (as 

defined in sections 4(b)(1), 4(b)(2), and 

4(b)(3) of ERISA, 29 U.S.C. 1003(b)(1), 

1003(b)(2) and 1003(b)(3)). However, 

Congress did not limit the Secretary’s 

authority to issue cease and desist and 

seizure orders under section 521 of 

ERISA to MEWAs that are employee 

welfare benefit plans (ERISA-covered 

plans). In concordance with the 2003 

final regulations 6 on reporting by 

MEWAs, the Secretary’s authority 

applies to MEWAs regardless of whether 

they are group health plans. Most 

notably, it extends to any arrangements 

that control the management or the 

assets of ERISA-covered plans 

established and maintained by others. 

Under this proposed rule, a MEWA that 

is an ERISA-covered plan or that is an 

arrangement that provides coverage to 

one or more ERISA-covered plans will 

be subject to section 521 of ERISA. 

Section 521 of ERISA applies if the 

MEWA also provides coverage to others 

unconnected to an ERISA-covered plan. 

The statute and this proposed rule are 

not, however, meant to apply to MEWAs 

that provide coverage only in 

connection with governmental plans, 

church plans, and plans maintained 


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7 In addition, criminal penalties may apply to 

such conduct under other federal provisions, 

including ERISA section 501(b), 29 U.S.C. 1131(b) 

(knowingly false statements or false representations 

of fact with regards to certain matters in connection 

with marketing a MEWA in violation of ERISA 

section 519, 29 U.S.C. 1149)), 29 U.S.C. 1131(a) 

(willful violations of ERISA reporting and 

disclosure requirements), 18 U.S.C. 1001 

(knowingly and willfully false statements to the 

U.S. government), and 18 U.S.C. 1027 (knowingly 

false statement or knowing concealment of facts in 

relation to documents required by ERISA). 

8ERISA section 514(a), 29 U.S.C. 1144(a), 

provides that state laws that relate to employee 

benefit plans are generally preempted by ERISA. 

ERISA section 514(b)(6), 29 U.S.C. 1144(b)(6), 

provides an exception to this broad preemption 

provision and allows states to regulate all MEWAs 

that are ERISA-covered plans at varying levels, 

depending on if the MEWA is a fully-insured plan. 

9E.g., Chao v. Crouse, 346 F.Supp.2d 975, 980– 

81, 987 (S.D. Ind. 2004). 

10Similarly, the new section 519 of ERISA, 29 

U.S.C. 1149, prohibits false statements and 

representations by any person, in connection with 

a MEWA’s marketing or sales, concerning the 

financial condition or solvency of the MEWA, the 

benefits provided by the MEWA, and the regulatory 

status of the MEWA. 

solely for the purpose of complying 

with workers’ compensation laws. They 

are also not meant to apply to 

arrangements that only provide coverage 

to individuals other than in connection 

with an employee welfare benefit plan 

(e.g., individual market coverage). 

In addition, a MEWA, as defined in 

this proposed regulation, does not 

include an arrangement that is licensed 

or authorized to operate as a health 

insurance issuer in every State in which 

it offers or provides coverage for 

medical care to employees. However, it 

includes an arrangement that is not 

licensed in a State in which it operates 

even if it is established or maintained by 

a health insurance issuer that is 

authorized to operate in the State. 

Proposed paragraphs (b)(2)–(4) define 

the three statutory grounds upon which 

the Secretary may issue a cease and 

desist order: (1) Fraudulent conduct; (2) 

conduct that creates an immediate 

danger to the public safety or welfare; or 

(3) conduct that causes or can be 

reasonably expected to cause 

significant, immediate, and irreparable 

injury. In order to apply these statutory 

standards, these proposed regulations 

set forth the criteria for determining if 

it appears that the MEWA or any person 

acting as an agent or employee of the 

MEWA has engaged in these forms of 

alleged conduct. 

Proposed paragraph (b)(2) of section 

2560.521–1 addresses the statutory 

standard of fraudulent conduct. Under 

the proposed rules, fraudulent conduct 

is an act or omission intended to 

deceive or to defraud plan participants, 

plan beneficiaries, employers or 

employee organizations, or other 

members of the public, the Secretary, or 

a State about certain matters described 

in the paragraphs below.7 False claims 

by some MEWAs that they are not 

subject to State insurance regulation are 

a matter of longstanding concern to the 

Secretary.8 The Secretary, for example, 

frequently finds MEWA operators 

making this claim based on the false 

assertion that the arrangement is 

established pursuant to a collective 

bargaining agreement. Collectively 

bargained arrangements are not subject 

to State insurance laws, including laws 

relating to solvency, financial reporting, 

management, and governance. Other 

matters of concern to the Department 

include MEWAs that do not have 

sufficient funding and reserves for the 

benefits they promise and fraudulent 

MEWA operators that misuse assets 

from the MEWA or the member plans. 

Misuse of assets comes in many guises. 

Instead of payment of benefit claims, 

fraudulent MEWA operators may use 

plan premiums for many inappropriate 

expenses including personal overseas 

travel, improper payments to personal 

accounts, unreasonable commissions to 

brokers, and inappropriate food, 

beverage, and alcohol purchases.9

These and similar problems have 

informed the proposed definition of 

fraudulent conduct that may give rise to 

a cease and desist order. Specifically, 

the proposed regulation focuses on 

fraudulent acts or omissions related to 

the financial condition of a MEWA 

(including its solvency and the 

management of plan assets), its 

regulatory status under Federal or State 

law, and aspects of its operation (e.g., 

claims review, marketing, etc.) that the 

Secretary determines are material.10

This standard would therefore reach, for 

example, a MEWA or any person acting 

as an employee or agent of the MEWA 

who fraudulently claims that the MEWA 

was a collectively bargained plan or 

arrangement, and thus, exempt from 

ERISA’s definition of MEWA and State 

insurance regulation. 

Proposed paragraph (b)(3) defines the 

standard in section 521 that provides 

that the Secretary may issue a cease and 

desist order if the MEWA’s conduct or 

the conduct of any person acting as an 

agent or employee of the MEWA creates 

an immediate danger to the public 

safety or welfare. Under the proposed 

rule, conduct meets this standard if it 

impairs, or threatens to impair, the 

MEWA’s ability to pay claims or 

otherwise unreasonably increases the 

risk of nonpayment of benefits to plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public. A 

threatened inability to pay claims, 

whether it is the result of a serious 

crime, management inexperience, or 

neglect poses an immediate and serious 

danger to plan enrollees, employers, and 

potentially taxpayers. 

This definition addresses MEWAs 

that fail (or are at risk of failing) to pay 

claims because of insufficient funding 

and inadequate reserves. A failure to 

hold plan assets in trust as required 

under ERISA, a systematic failure to 

properly process or pay benefit claims, 

or a failure to maintain a recordkeeping 

system that tracks the claims made, 

processed, or paid also places plan 

assets at significant risk and threatens a 

MEWA’s ability to pay claims. 

Proposed paragraph (b)(4) of section 

2560.521–1 describes how the Secretary 

will determine if a MEWA’s conduct 

causes or can be reasonably expected to 

cause significant, immediate, and 

irreparable injury, as provided in 

section 521 of ERISA. Under the 

proposed rule, conduct meets this 

statutory standard if it has, or can be 

reasonably expected to have, a 

significant and imminent negative effect 

that the Secretary reasonably believes 

cannot be fully rectified on one or more 

of the following: (a) An employee 

welfare benefit plan that is, or offers 

benefits in connection with, a MEWA, 

(b) plan participants and plan 

beneficiaries, or (c) employers or 

employee organizations. Siphoning off a 

MEWA’s resources, and thus depleting 

the funds available to pay claims and 

other reasonable plan expenses, by 

embezzling funds or paying excessive, 

unwarranted fees are examples of 

conduct that causes or may be 

reasonably expected to cause 

significant, immediate, and irreparable 

injury. 

A single act or omission within the 

categories of conduct set forth in the 

regulation may provide the basis for a 

cease and desist order. However, 

because the categories set forth in the 

statute are broad and overlapping, the 

examples provided in the proposed 

regulation may provide more than one 

basis for a cease and desist order. 

The new section 521 further expands 

the Secretary’s enforcement options 

with respect to MEWAs by authorizing 

the Secretary to issue a summary seizure 

order to remove plan assets and other 

property from the management, control, 

or administration of a MEWA. This 

authority differs from the Secretary’s 

longstanding ability to petition a United 

States district court for a temporary 

restraining order (TRO) freezing a 

MEWA’s assets or removing its 

operators. To obtain a TRO, the 

Secretary must present evidence that a 


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76238 Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules 

11The scope of the summary seizure order in this 

proposed rule is similar to that provided for in 

section 201(B) in the National Association of 

Insurance Commissioners (NAIC) Insurer 

Receivership Model Act (October 2007). 

fiduciary breach has taken place and 

that the government will likely prevail 

on the merits. In contrast, the new 

section 521 of ERISA allows the 

Secretary to issue a summary seizure 

order when it appears that the MEWA 

is in a financially hazardous condition. 

Proposed paragraph (b)(5) defines when 

a MEWA meets this standard. It 

provides that the Secretary may issue a 

summary seizure order when it has 

probable cause to believe that a MEWA 

is, or is in imminent danger of 

becoming, unable to pay benefit claims 

as they become due, or that a MEWA 

has sustained, or is in imminent danger 

of sustaining, a significant loss of assets. 

Under the definition, a MEWA may also 

be in a financially hazardous condition 

if the Secretary has issued a cease and 

desist order to a person responsible for 

the management, control, or 

administration of the MEWA or plan 

assets associated with the MEWA. In 

that circumstance, the Secretary may 

seek a court-appointed receiver to 

manage the MEWA during the pendency 

of a hearing on the order. 

Proposed paragraph (b)(6) defines a 

person, for purposes of this regulation, 

to be an individual, partnership, 

corporation, employee welfare benefit 

plan, association, or other entity or 

organization. 

Cease and Desist Order 

Proposed paragraph (c) of section 

2560.521–1 addresses the proposed 

scope of the cease and desist order. 

Proposed paragraph (c)(2)(i) notes that 

the Secretary may enjoin a MEWA or 

person from the conduct that served as 

the basis for the order and from 

activities in furtherance of that conduct 

though a cease and desist order. In 

addition, the cease and desist order may 

provide broader relief as the Secretary 

determines is necessary and appropriate 

to protect the interest of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public. Proposed 

paragraph (c)(2)(ii) provides that an 

order may prohibit a person from taking 

any specified actions with respect to, or 

exercising authority over, specified 

funds of any MEWA or of any welfare 

or pension plan. Proposed paragraph 

(c)(2)(iii) provides that an order may 

also bar a person from acting as a 

service provider to MEWAs or plans. 

This proposed provision allows the 

Secretary to issue an order preventing a 

person from, for example, performing 

any administrative, management, 

financial, or marketing services for any 

MEWA or any welfare or pension plan. 

A cease and desist order containing a 

prohibition against transacting business 

with any MEWA or plan would prevent 

the MEWA or a person from avoiding 

the cease and desist order by shutting 

the MEWA down and re-establishing it 

in a new location or under a new 

identity. Such a prohibition may also be 

necessary in cases of serious harmful 

conduct. In such cases it may be 

contrary to the interests of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public for a person 

whose conduct gave rise to the order to 

gain a position with any MEWA or any 

welfare or pension plan where they 

could repeat that conduct. 

Proposed paragraph (d) of this section 

preserves the Secretary’s existing ability 

to seek additional remedies under 

ERISA. For example, when a cease and 

desist order prohibits a MEWA’s 

management from carrying on its 

responsibilities, the Secretary may 

petition the court to appoint a receiver 

under section 521(e) (relating to 

summary seizure orders) or section 

502(a)(5) of ERISA, 29 U.S.C. 1132(a)(5), 

so that the MEWA may continue paying 

claims during the proceedings related to 

the cease and desist order. In some 

circumstances, the Secretary may 

conclude that the public interest is best 

served through legal proceedings under 

ERISA sections 502(a)(2) and (a)(5), 

such as proceedings to recover monetary 

losses from breaching fiduciaries. 

Proposed paragraph (d) accordingly 

makes clear that the issuance of a 

temporary or final cease and desist 

order does not foreclose the Secretary 

from seeking other remedies in court or 

under ERISA. 

Under the new section 521(b) of 

ERISA, a person who is the subject of 

a temporary cease and desist order may 

request an administrative hearing 

regarding the order. Paragraph (e) of this 

proposed regulation sets forth the 

process for doing so. Parties subject to 

a cease and desist order have 30 days 

from receiving the order in which to 

request a hearing before an 

administrative law judge. If they fail to 

request the hearing within 30 days, the 

order becomes final. Proposed 

paragraphs (e)(3) and (e)(4) state that the 

hearing shall be held, and an opinion 

issued, expeditiously. 

If a party requests an administrative 

hearing before an administrative law 

judge, the provision also clarifies that 

the Secretary must offer evidence 

supporting the findings that gave rise to 

the issuance of a cease and desist order. 

Pursuant to ERISA section 521(c), 29 

U.S.C. 1151(c), the burden of proof is on 

the party who requested the hearing to 

show by a preponderance of the 

evidence that the statutory standards are 

not satisfied or that a modification of 

the order would provide sufficient 

protection to plan participants, plan 

beneficiaries, employers or employee 

organizations, and other members of the 

public. If a party seeks an administrative 

hearing, the order is not final until the 

conclusion of the process set forth in 29 

CFR 2571. It remains, however, in effect 

and enforceable throughout the 

administrative review process. 

Summary Seizure Order 

The new section 521(e) of ERISA and 

this proposed rule authorize the 

Secretary to issue a summary seizure 

order when it appears that a MEWA is 

in a financially hazardous condition. 

Pursuant to the Fourth Amendment of 

the U.S. Constitution, the Secretary will 

generally obtain judicial authorization 

before issuing a summary seizure order. 

(Colonnade Catering Corp. v. U.S., 397 

U.S. 72 (1970): ‘‘Where Congress has 

authorized inspection but made no rules 

governing the procedures that 

inspectors must follow, the Fourth 

Amendment and its various restrictive 

rules apply.’’) Proposed paragraph (f)(2) 

provides for such judicial authorization. 

A court’s authorization may be sought 

ex parte when the Secretary determines 

that prior notice could result in 

removal, dissipation, or concealment of 

plan assets. See e.g., Marshall v. 

Barlow’s, Inc., 436 U.S. 307, 319 n. 12 

and n. 15 (1978) (noting that the 

Occupational Safety and Health Act 

authorized the Secretary to seek 

warrants on an ex parte basis for 

inspections.) Proposed paragraph (f)(3) 

clarifies that the Secretary may act on a 

summary seizure order prior to judicial 

authorization, however, if the Secretary 

reasonably believes that delay in issuing 

the order will result in the removal, 

dissipation, or concealment of assets. 

Under these circumstances, the 

Secretary will promptly seek judicial 

authorization after service of the order. 

Proposed paragraphs (f)(4) and (f)(5) 

of this section describe the proposed 

general scope of a seizure order.11

Under paragraph (f)(4), the Secretary 

may seize books, documents, and other 

records of the MEWA. It may also seize 

the premises, other property, and 

financial accounts for the purpose of 

transferring such property to a courtappointed receiver. In addition, the 

order may prohibit the MEWA and its 

operators from transacting any business 

or disposing of any property of the 

MEWA. This proposed paragraph also 


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clarifies that the order also may be 

directed to any person holding plan 

assets that are the subject of the order, 

including banks or other financial 

institutions. 

The principal purpose of a seizure 

order is to preserve the assets of an 

employee welfare benefit plan that is a 

MEWA and any employee welfare 

benefit plans under the control of a 

MEWA that are in a hazardous financial 

condition so that such assets are 

available to pay claims and other 

legitimate expenses of the MEWA and 

its participating plans. The Secretary 

will also issue summary seizure orders 

to prevent abusive operators from 

illegally using or acquiring plan assets. 

Seized assets are not placed in the U.S. 

Treasury. Instead they are managed by 

a court-appointed receiver or 

independent fiduciary. Proposed 

paragraph (f)(5) states that following a 

seizure the Secretary must pursue 

judicial proceedings to, among other 

things, obtain court appointment of a 

receiver to perform any necessary 

functions of the MEWA, and court 

authorization for further actions in the 

best interest of plan participants, plan 

beneficiaries, employers or employee 

organizations, or other members of the 

public, including the liquidation and 

winding down of the MEWA, if 

appropriate. 

Effective Date of Orders 

Paragraph (g) of section 2560.521–1 

provides that orders issued under this 

rule are effective upon service and 

remain in effect unless and until 

modified or set aside by the Secretary or 

a reviewing court. 

Notice and Service 

Paragraph (h) of this section describes 

the manner in which the cease and 

desist and summary seizure orders will 

be served. Under paragraph (h)(1), 

service of an order may be 

accomplished by: (1) Delivering a copy 

to the person who is the subject of the 

order; (2) delivering a copy at the 

principal office, principal place of 

business, or residence of such person; or 

(3) mailing a copy to the last known 

address of such person. A person’s 

attorney may accept service on behalf of 

such person. Proposed paragraph (h)(2) 

makes clear that service is complete 

upon mailing if service is made by 

certified mail. Service is complete upon 

receipt if made by regular mail. 

Disclosure 

The Secretary has determined that it 

is in the public interest for plan 

participants, plan beneficiaries, 

employers or employee organizations, 

policymakers, and other citizens to be 

aware of the existence of any MEWA or 

person that has engaged in misconduct 

resulting in a final cease and desist or 

summary seizure order. Proposed 

section 2560.521–2(a) provides that the 

Secretary shall make issued orders 

available to the public as well as 

modifications and terminations of such 

final orders. 

In addition, other federal agencies and 

the States have been instrumental 

partners in the Secretary’s enforcement 

efforts against unscrupulous MEWAs. 

Paragraph (b) of section 2560.521–2 

provides that the Secretary may disclose 

the issuance of any order (whether 

temporary or final) and any information 

and evidence of any proceedings and 

hearings related to the order with other 

Federal, State, or foreign authorities. 

Paragraph (c) provides that the sharing 

of such documents, material, or other 

information and evidence under this 

paragraph does not constitute a waiver 

of any applicable privilege or claim of 

confidentiality. 

Effect on Other Enforcement Authority 

Section 521 is not the only 

enforcement tool available to the 

Secretary with respect to the conduct of 

MEWAs or any persons acting as agents 

or employees of MEWAs. Section 

2560.521–3 states that any other 

enforcement tool available to the 

Secretary prior to the enactment of 

section 521 remains available. This 

regulation shall not be construed as 

limiting the Secretary’s ability to 

exercise its investigatory and 

enforcement authority under any other 

provision of title I of ERISA. The 

enforcement tools in this proposed rule 

are designed to prevent or address 

imminent, serious harm to plan 

participants, beneficiaries, employers, 

employee organizations, and other 

members of the public, and will be used 

judiciously and as necessary and 

appropriate to achieve these ends. In 

addition to the use of her investigatory 

and enforcement tools, the Secretary 

remains committed to helping MEWAs 

and plan officials comply with legal 

requirements and serve plan 

participants and beneficiaries properly 

and working closely with State 

regulators to help detect and prevent 

fraud, abuse, and financial insolvency. 

Cross-Reference 

Proposed section 2560.521–4 contains 

a cross-reference for proposed rules for 

administrative hearings. 

In addition, elsewhere in this issue of 

the Federal Register is a separate 

proposed regulation to amend 29 CFR 

2520–101.2, 2520.103–1, 2520.104–20, 

and 2520.104–41 to implement section 

101(g), as amended by the Affordable 

Care Act, and to enhance the 

Department’s ability to enforce 

requirements under 29 CFR 2520–101.2. 

B. Procedures for Administrative 

Hearings on the Issuance of Cease and 

Desist Orders Regulation (29 CFR Part 

2571) 

Purpose and Definitions 

These proposed procedural rules 

apply only to adjudicatory proceedings 

before ALJs of the U.S. Department of 

Labor. Under these procedural rules, an 

adjudicatory proceeding before an ALJ 

is commenced only after a person who 

is the subject of a temporary cease and 

desist order requests a hearing and files 

an answer showing cause why the 

temporary order should be modified or 

set aside. 

The definitional section of this 

proposed rule incorporates the basic 

adjudicatory principles set forth at 29 

CFR part 18, but includes terms and 

concepts of specific relevance to 

proceedings under ERISA section 521. 

Proceedings Before the Administrative 

Law Judge 

The party that is subject to a cease 

and desist order issued under ERISA 

section 521 has the burden to initiate an 

adjudicatory proceeding before an ALJ. 

Proposed section 2571.3 governs the 

service of documents necessary to 

initiate ALJ proceedings by such a party 

on the Secretary of Labor and the OALJ. 

This proposed section would apply in 

such cases in lieu of 29 CFR 18.3. 

The proposed section 2571.4 on the 

designation of parties also differs 

somewhat from its counterpart under 29 

CFR part 18.10. This proposed rule 

specifies that the respondent in these 

proceedings will be the party who is 

challenging the temporary cease and 

desist order. 

Proposed section 2560.521–1(h), 

governs the Secretary’s service of the 

temporary cease and desist order on the 

affected parties. Under proposed section 

2560.521–1(e) a person who is subject to 

an order must request a hearing within 

30 days after service of the order. 

Section 2571.5 of the instant proposed 

rule provides that a failure by a person 

on whom the order is served to request 

a hearing and file a timely answer shall 

be deemed a waiver of the right to 

appear and contest the temporary cease 

and desist order and an admission of the 

facts alleged in the temporary order. 

Proposed section 2571.5 also makes 

clear that, in the event of a failure to 

timely request a hearing and file an 

answer the temporary cease and desist 


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order becomes final agency action 

within the meaning of 5 U.S.C. 704. 

With respect to consent orders or 

settlements, proposed section 2571.6 

provides that the ALJ’s decision shall 

include the terms and conditions of any 

consent order or settlement which has 

been agreed to by the parties. Under this 

section, the decision of the ALJ which 

incorporates the consent order shall 

become the final agency action within 

the meaning of 5 U.S.C. 704. This 

section of the proposed rule also sets 

forth the process for when there is a 

settlement that does not include all the 

parties that are subject to a cease and 

desist order. 

Section 2571.7 of this proposed rule 

states that the ALJ may order discovery 

only upon a showing of good cause by 

the party seeking discovery. In addition, 

the ALJ must expressly limit the scope 

and terms of discovery to the 

circumstances for which good cause has 

been shown. To the extent that an ALJ’s 

discovery order does not specify rules 

for the conduct of discovery, the rules 

governing the conduct of discovery from 

29 CFR part 18 are to be applied in these 

proceedings under ERISA section 521. 

For example, if the discovery order 

permits interrogatories only on certain 

subjects, the rules under 29 CFR part 18 

concerning the servicing and answering 

of the interrogatories shall apply. The 

procedures under 29 CFR part 18 for the 

submission of facts to the ALJ during 

the hearing will also apply in 

proceedings under ERISA section 521. 

This proposed section 2571.7 also 

clarifies that any evidentiary privileges, 

including the attorney-client privilege 

and work product privilege, apply in 

proceedings under this rule. Further, it 

makes clear that the fiduciary exception 

to such privileges also applies. 

Consequently, communications between 

an attorney and a plan administrator or 

other fiduciary or work product that fall 

under the fiduciary exception are not 

protected from discovery. 

Proposed section 2571.8 authorizes an 

ALJ to issue a summary decision which 

may become a final order when there 

are no genuine issues of material fact in 

a case arising under ERISA section 521. 

Proposed section 2571.9 states that the 

ALJ’s decision shall become a final 

agency action unless a timely appeal is 

filed. 

Review by the Secretary 

The procedures for appeals of ALJ 

decisions under ERISA section 521 are 

governed solely by the rules set forth in 

proposed sections 2571.10 through 

2571.12 and without any reference to 

the appellate procedures contained in 

29 CFR part 18. Proposed section 

2571.10 establishes the time within 

which a party must file a notice of 

appeal, the manner in which the issues 

for appeal are determined, and the 

procedures for making the entire record 

before the ALJ available to the Secretary 

for review. Proposed section 2571.11 

provides that review by the Secretary (or 

a designee) shall be on the record before 

the ALJ without an opportunity for oral 

argument. Proposed section 2571.12 sets 

forth the procedure for establishing a 

briefing schedule for appeals and states 

that the decision of the Secretary on an 

appeal shall be the final agency action 

within the meaning of 5 U.S.C. 704. 

The authority of the Secretary with 

respect to the appellate procedures has 

been delegated to the Assistant 

Secretary for the Employee Benefits 

Security Administration pursuant to 

Secretary’s Order 3–2010. The Assistant 

Secretary has redelegated this authority 

to the Director of the Office of Policy 

and Research of the Employee Benefits 

Security Administration. As required by 

the Administrative Procedure Act (5 

U.S.C. 552(a)(2)(A)) all final decisions of 

the Department under section 521 of 

ERISA shall be compiled in the Public 

Disclosure Room of the Employee 

Benefits Security Administration, Room 

N–1513, U.S. Department of Labor, 200 

Constitution Ave. NW., Washington, DC 

20210. 

III. Economic Impact and Paperwork 

Burdens 

A. Summary 

These proposed regulations 

implement amendments made by 

section 6605 of the Affordable Care Act, 

which added ERISA section 521. As 

discussed earlier in this preamble, 

ERISA section 521 provides the 

Secretary of Labor with new 

enforcement authority over MEWAs. 

Specifically, ERISA section 521(a) 

authorizes the Secretary to issue cease 

and desist orders, without prior notice 

or a hearing, when it appears to the 

Secretary that a MEWA’s alleged 

conduct is fraudulent, creates an 

immediate danger to the public safety or 

welfare, or causes or can be reasonably 

expected to cause significant, imminent, 

and irreparable public injury. This 

section also authorizes the Secretary to 

issue a summary order to seize the 

assets of a MEWA the Secretary 

determines to be in a financially 

hazardous condition. These proposed 

regulations implement ERISA section 

521(a) by setting forth procedures the 

Secretary will follow to issue ex parte 

cease and desist and summary seizure 

orders. 

ERISA section 521(b), as added by 

Affordable Care Act section 6605, 

provides that a person that is adversely 

affected by the issuance of a cease and 

desist order may request an 

administrative hearing regarding the 

order. These proposed regulations also 

implement the requirements of ERISA 

section 521(b) by describing the 

procedures before the Office of 

Administrative Law Judges (OALJ) that 

will apply when a person seeks an 

administrative hearing for review of a 

cease and desist order. These 

regulations maintain the maximum 

degree of uniformity with rules of 

practice and procedure under 29 CFR 

part 18 that generally apply to matters 

before the OALJ. At the same time, these 

proposed regulations reflect the unique 

nature of orders issued under ERISA 

section 521, and are controlling to the 

extent they are inconsistent with 29 CFR 

part 18. 

B. Executive Order 12866 

Under Executive Order 12866, the 

Department must determine whether a 

regulatory action is ‘‘significant’’ and 

therefore subject to the requirements of 

the Executive Order and review by the 

Office of Management and Budget 

(OMB). Section 3(f) of the Executive 

Order defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule (1) Having an annual 

effect on the economy of $100 million 

or more, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or tribal governments or 

communities (also referred to as 

‘‘economically significant’’); (2) creating 

serious inconsistency or otherwise 

interfering with an action taken or 

planned by another agency; (3) 

materially altering the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or (4) 

raising novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive Order. 

The Department has determined that 

these regulatory actions are not 

economically significant within the 

meaning of section 3(f)(1) of the 

Executive Order. However, OMB has 

determined that the actions are 

significant within the meaning of 

section 3(f)(4) of the Executive Order, 

and the Department accordingly 

provides the following assessment of 

their potential benefits and costs. 


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12 GAO Report, supra note 2. 

13 Id. 

1. Need for Regulatory Action 

Properly structured and managed 

MEWAs that are licensed to operate in 

a State provide a viable option for some 

employers to purchase affordable health 

insurance coverage. However, some 

MEWAs are marketed by unlicensed 

entities attempting to avoid State 

insurance reserve, contribution, and 

consumer protection requirements. By 

avoiding these requirements, such 

entities often are able to market 

insurance coverage at lower rates than 

licensed insurers, making them 

particularly attractive to some small 

employers that find it difficult to obtain 

affordable health insurance coverage for 

their employees. Due to insufficient 

funding and inadequate reserves, and in 

some situations, fraud, some MEWAs 

have become insolvent and unable to 

pay benefit claims. Therefore, affected 

employees and their dependents have 

become financially responsible for 

paying medical claims they presumed 

were covered by insurance after paying 

health insurance premiums to 

MEWAs.12 The financial impact on 

individuals and families can be 

devastating when MEWAs become 

insolvent. 

Before the enactment of ERISA 

section 521, the Department’s primary 

enforcement tool against fraudulent and 

abusive MEWAs was court-ordered 

injunctive relief. In order to obtain this 

relief, the Department must present 

evidence to a federal court that an 

ERISA fiduciary breach occurred and 

that the Department is likely to prevail 

based on the merits of the case. 

Gathering sufficient evidence to prove a 

fiduciary breach is time-consuming and 

labor-intensive, in most cases, because 

the Department’s investigators must 

work with poor or nonexistent financial 

records and uncooperative parties. As a 

result, the Department has been unable 

to shut down fraudulent and abusive 

MEWAs quickly enough to preserve 

their assets and ensure that outstanding 

benefit claims are timely paid. States 

also encountered problems in their 

enforcement efforts against MEWAs in 

the absence of federal authority to shut 

down fraudulent and abusive MEWAs 

nationally. When one State succeeded 

in shutting down an abusive MEWA, in 

some cases, its operators continued 

operating in another State.13 ERISA 

section 521 provides the Department 

with stronger legal remedies to combat 

fraudulent and abusive MEWAs. 

ERISA section 521(f) provides the 

Secretary of Labor with the authority to 

promulgate regulations that may be 

necessary and appropriate to carry out 

the Department’s authority under ERISA 

section 521. These proposed regulations 

are necessary, because they set forth 

standards and procedures the 

Department would use to implement 

this new enforcement authority. They 

also are necessary to provide procedures 

that a person who is adversely affected 

by the issuance of a cease and desist 

order may follow to request an 

administrative hearing regarding the 

order pursuant to ERISA section 521(b). 

2. ERISA Section 521(a), Ex Parte Cease 

and Desist and Summary Seizure 

Orders—Multiple Employer Welfare 

Arrangements (29 CFR 2560.521–1) 

a. Benefits of Proposed Rule 

As discussed earlier in this preamble, 

ERISA section 521(a) authorizes the 

Secretary to issue a an ex parte cease 

and desist order if it appears to the 

Secretary that the alleged conduct of a 

MEWA is fraudulent, or creates an 

immediate danger to the public safety or 

welfare, or is causing or can reasonably 

be expected to cause, significant, 

imminent, and irreparable public injury. 

ERISA section 521(e) allows the 

Secretary to issue a summary seizure 

order if it appears that a MEWA is in a 

financially hazardous position. The 

proposed regulation implements the 

Department’s enhanced enforcement 

authority under these provisions setting 

forth the standards and procedures the 

Department would follow in issuing 

cease and desist and summary seizure 

orders. It also defines important 

statutory terms and clarifies the scope of 

the Department’s authority under ERISA 

sections 521(a) and (e). 

The Department expects that 

proposed regulations will improve 

MEWA compliance and deter abusive 

practices of fraudulent MEWAs, 

lessening the need for these provisions 

in the first place. When that fails, as a 

result of these provisions, the 

Department would be able to take 

enforcement action against fraudulent 

and abusive MEWAs much more 

quickly and efficiently than under prior 

law. This will benefit participants and 

beneficiaries by helping them avoid the 

financial hardship and potential 

delayed health care that result from 

unpaid health claims. They also will 

allow the Department to fulfill its 

critical mission of protecting the 

security of participants and 

beneficiaries by ensuring that MEWA 

assets are preserved and benefits timely 

paid. These benefits have not been 

quantified. 

b. Costs of the Proposed Rule 

As discussed earlier in this preamble, 

the proposed rules would provide 

standards and procedures the 

Department would follow to issue ex 

parte cease and desist and summary 

seizure orders with respect to MEWAs. 

The Department does not expect the 

rule to impose any significant costs, 

because it does not require any action or 

impose any requirements on MEWAs as 

defined in ERISA section 3(40). 

Therefore, the Department concludes 

that the proposed rule would provide 

benefits by enhancing the Department’s 

ability to take immediate action against 

fraudulent and abusive MEWAs without 

imposing major costs. 

3. ERISA Section 521(b), Procedures for 

Administrative Hearings on the Issues of 

Cease and Desist Orders—Multiple 

Employer Welfare Arrangements (29 

CFR 2571.1 Through 2571.12) 

a. Benefits of Proposed Rule 

The Department expects that 

administrative hearings held pursuant 

to ERISA section 521(b) and the 

procedures set forth in the proposed 

regulation would benefit the 

Department and parties requesting a 

hearing. The Department foresees 

improved efficiencies through use of 

administrative hearings, because such 

hearings should allow the parties 

involved to obtain a decision in a more 

timely and efficient manner than is 

customary in federal court proceedings, 

which would be the alternative 

adjudicative forum. The Department 

expects that this proposed rule setting 

forth the standards and procedures the 

Department would use to implement its 

cease and desist authority under ERISA 

section 521 will allow it to take action 

against fraudulent and abusive MEWAs 

much more quickly and efficiently than 

under prior law. These benefits have not 

been quantified. 

To access the benefit of improved 

efficiencies that would result from an 

administrative proceeding, the 

Department compared the cost of 

contesting a cease and desist order 

under the proposed regulation to the 

cost of contesting an action taken 

against a MEWA by the Department 

before the enactment of the Affordable 

Care Act. The Department’s primary 

enforcement tool against fraudulent and 

abusive MEWAs before Congress 

enacted ERISA section 521 was courtordered injunctive relief. In order to 

obtain this relief, the Department must 

present evidence to a court that an 

ERISA fiduciary breach occurred and 

that the Department likely would 

prevail based on the merits of the case. 


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14As stated in the Departments April 2010 Fact 

Sheet on MEWA Enforcement, the Department has 

filed 97 civil complaints against MEWAs since 

1990, which averages approximately five 

complaints per year. With the expanded 

enforcement authority provided to the Department 

under the Affordable Care Act, the number of civil 

complaints brought against MEWAs by the 

Department could increase. Therefore, for purposes 

of this Paperwork Reduction Act analysis, the 

Department assumes that twenty complaints will be 

filed as an upper bound. The Department is unable 

to estimate the number of cease and desist orders 

that will be contested; therefore, for purposes of this 

analysis it assumes that half of the MEWAs will 

contest cease and desist orders. The Department’s 

fact sheet on MEWA enforcement can be found on 

the EBSA Web site at http://www.dol.gov/ebsa/ 

newsroom/fsMEWAenforcement. 

15The Department’s estimate for the attorney’s 

hourly rate is taken from the Laffy Matrix which 

provides an estimate of legal service for court cases 

in the DC area. It can be found at http:// 

www.laffeymatrix.com/see.html. The estimate is an 

average of the 4–7 and 8–10 years of experience 

rates. 

Gathering sufficient evidence to prove a 

fiduciary breach is very time-consuming 

and labor-intensive, in most cases, 

because the Department’s investigators 

must work with poor or nonexistent 

financial records and uncooperative 

parties. 

The Department believes that an 

administrative hearing should result in 

cost savings compared with the baseline 

cost of litigating in federal court. 

Because the procedures and evidentiary 

rules of an administrative hearing 

generally track the Federal Rules of 

Civil Procedure and Evidence, 

document production will be similar for 

both an administrative hearing and a 

federal court proceeding. It is unlikely 

that any additional cost will be incurred 

for an administrative hearing than 

would be required to prepare for federal 

court litigation. Moreover, certain 

administrative hearing practices and 

other new procedures initiated by this 

regulation are expected to result in cost 

savings over court litigation. For 

example, parties may be more likely to 

appear pro se; the prehearing exchange 

is expected to be short and general; a 

motion for discovery only will be 

granted upon a showing of good cause; 

the general formality of the hearing may 

vary, particularly depending on whether 

the petitioner is appearing pro se; and 

the ALJ would be required to make its 

decision expeditiously after the 

conclusion of the ERISA section 521 

proceeding. The Department cannot 

with certainty predict that any or all of 

these conditions will exist nor that any 

of these factors represent a cost savings, 

but it is likely that an ALJ’s knowledge 

of federal law should facilitate an 

expeditious hearing, reduce costs, and 

introduce a consistent legal standard to 

the proceeding. The Department invites 

public comments on the comparative 

cost of a federal court proceeding versus 

an administrative hearing. 

b. Costs of Proposed Rule 

The Department estimates that the 

cost of the proposed regulation would 

total approximately $177,000 annually. 

The total hour burden is estimated to be 

approximately 20 hours, and the dollar 

equivalent of the hour burden is 

estimated to be approximately $540. 

The data and methodology used in 

developing these estimates are 

described more fully in the Paperwork 

Reduction Act section, below. 

C. Paperwork Reduction Act 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department of Labor 

conducts a preclearance consultation 

program to provide the general public 

and federal agencies with an 

opportunity to comment on proposed 

and continuing collections of 

information in accordance with the 

Paperwork Reduction Act of 1995 (PRA 

95) (44 U.S.C. 3506(c)(2)(A)). This helps 

to ensure that requested data can be 

provided in the desired format, 

reporting burden (time and financial 

resources) is minimized, collection 

instruments are clearly understood, and 

the impact of collection requirements on 

respondents can be properly assessed. 

This issuance of cease and desist 

order proposed regulation is not subject 

to the requirements of the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501 

et seq.), because it does not contain a 

‘‘collection of information’’ as defined 

in 44 U.S.C. 3502(3). 

Currently, the Department is soliciting 

comments concerning the proposed 

information collection request (ICR) 

included in this Proposed Rule on 

Procedures for Administrative Hearings 

Regarding the Issuance of Cease and 

Desist Orders under ERISA section 

521—Multiple Employer Welfare 

Arrangements. A copy of the ICR may be 

obtained by contacting the individual 

identified below in this notice. The 

Department has submitted a copy of the 

proposed information collection to OMB 

in accordance with 44 U.S.C. 3507(d) for 

review of its information collections. 

The Department and OMB are 

particularly interested in comments 

that: 

• Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the agency, including 

whether the information will have 

practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

Comments should be sent to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503; 

Attention: Desk Officer for the Employee 

Benefits Security Administration. 

Although comments may be submitted 

through February 6, 2012, OMB requests 

that comments be received within 30 

days of publication of the Notice of 

Proposed Rulemaking to ensure their 

consideration. Address requests for 

copies of the ICR to G. Christopher 

Cosby, Office of Policy and Research, 

U.S. Department of Labor, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Room N 

5647, Washington, DC 20210. 

Telephone (202) 219–8410; Fax: (202) 

219 4745. These are not toll free 

numbers. 

This proposed regulation establishes 

procedures for hearings and appeals 

before an Administrative Law Judge 

(ALJ) and the Secretary when a MEWA 

or other person challenges a temporary 

cease and desist order. As stated in the 

Regulatory Flexibility Act analysis 

below, the Department estimates that, 

on average, a maximum of 10 MEWAs 

would initiate an adjudicatory 

proceeding before an ALJ to revoke or 

modify a cease and desist order.14 Most 

of the factual information necessary to 

prepare the petition should be readily 

available to the MEWA and is expected 

to take approximately two hours of 

clerical time to assemble and forward to 

legal professionals resulting in an 

estimated total hour burden of 

approximately 20 hours. 

The Department believes that MEWAs 

will hire outside attorneys to prepare 

and file the appeal, which is estimated 

to require 40 hours at $442 per hour.15

The majority of the attorney’s time is 

expected to be spent drafting motions, 

petitions, pleadings, briefs, and other 

documents relating to the case. Based on 

the foregoing, the total estimated legal 

cost associated with the information 

collection would be approximately 

$18,000 per petition filed. Additional 

costs material and mailing costs are 


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16U.S. Small Business Administration, ‘‘Table of 

Small Business Size Standards Matched to North 

American Industry Classification System Codes.’’ 

http://www.sba.gov/sites/default/files/ 

Size_Standards_Table.pdf. 

17 Kaiser Family Foundation and Health Research 

Educational Trust ‘‘Employer Health Benefits, 2009 

Annual Survey.’’ The reported numbers are from 

Exhibit 1.2 and are for the category Annual, all 

Small Firms (3–199 workers). 

18With the expanded enforcement authority 

provided to the Department under the Affordable 

Care Act, the number of civil complaints brought 

against MEWAs by the Department could increase. 

Therefore, for purposes of this analysis, the 

Department assumes that twenty complaints will be 

filed as an upper bound. The Department is unable 

to estimate the number of cease and desist orders 

that will be contested; therefore, it assumes that half 

the MEWAs will contest cease and desist orders. 

estimated at approximately $50.00 per 

petition. 

Type of Review: New. 

Agency: Employee Benefits Security 

Administration. 

Title: Proposed Rule on Procedures 

for Administrative Hearings Regarding 

the Issuance of Cease and Desist Orders 

under ERISA section 521—Multiple 

Employer Welfare Arrangements. 

OMB Number: 1210–NEW. 

Affected Public: Business or other for 

profit; not for profit institutions; State 

government. 

Respondents: 10. 

Responses: 10. 

Estimated Total Burden Hours: 20 

hours. 

Estimated Total Burden Cost 

(Operating and Maintenance): $177,100. 

Comments submitted in response to 

this comment request will be 

summarized and/or included in the 

request for Office of Management and 

Budget approval of the information 

collection request; they will also 

become a matter of public record. 

D. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) applies to most 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.). 

Unless an agency certifies that such a 

rule will not have a significant 

economic impact on a substantial 

number of small entities, section 603 of 

the RFA requires the agency to present 

an initial regulatory flexibility analysis 

at the time of the publication of the 

notice of proposed rulemaking 

describing the impact of the rule on 

small entities. Small entities include 

small businesses, organizations and 

governmental jurisdictions. 

The Department does not have data 

regarding the total number of MEWAs 

that currently exist. The best 

information the Department has to 

estimate the number of MEWAs is based 

on filing of the Form M–1, which is an 

annual report that MEWAs and certain 

collectively bargained arrangements file 

with the Department. Nearly 400 

MEWAs filed the Form M–1 with the 

Department in 2009, the latest year for 

which data is available. 

The Small Business Administration 

uses a size standard of less than $7 

million in average annual receipts to 

determine whether businesses in the 

finance and insurance sector are small 

entities.16 While the Department does 

not collect revenue information on the 

Form M–1, it does collect data regarding 

the number of participants covered by 

MEWAs that file Form M–1 and can use 

average premium data to determine the 

number of MEWAs that are small 

entities because they do not exceed the 

$7 million dollar threshold. For 2009, 

the average annual premium for single 

coverage was $4,717 and the average 

annual premium for family coverage 

was $12,696.17 Combining these 

premium estimates with estimates from 

the Current Population Survey regarding 

the fraction of policies that are for single 

or family coverage at employers with 

less than 500 workers, the Department 

estimates that about 60 percent of 

MEWAs (240 MEWAs) are small 

entities. 

In order to develop an estimate of the 

number of MEWAs that could become 

subject to a cease and desist order, the 

Department examined the number of 

civil claims the Department filed against 

MEWAs since FY 1990. During this 

time, the Department filed 99 civil 

complaints against MEWAs, an average 

of approximately five complaints per 

year. For purposes of this analysis, the 

Department believes that an average of 

twenty complaints a year is a reasonable 

upper bound estimate of the number of 

MEWAs that could be subject to a cease 

and desist order 18 and that half this 

number, or an average of ten complaints 

a year, is a reasonable upper bound 

estimate of the number of MEWAs that 

could be expected to request an 

administrative hearing in a year. 

Based on the foregoing, the 

Department estimates that the greatest 

number of MEWAs likely to be subject 

to a cease and desist order represents 

(8.3 percent) and that the greatest 

number of MEWAs likely to petition for 

an administrative hearing (4.2 percent) 

represents a small fraction of the total 

number of small MEWAs. 

Accordingly, the Department hereby 

certifies that these proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities and invites public comments 

regarding this finding. 

E. Unfunded Mandates Reform Act 

For purposes of the Unfunded 

Mandates Reform Act of 1995 (2 U.S.C. 

1501 et seq.), as well as Executive Order 

12875, these proposed rules do not 

include any federal mandate that may 

result in expenditures by State, local, or 

tribal governments, or the private sector, 

which may impose an annual burden of 

$100 million. 

F. Executive Order 13132 

When an agency promulgates a 

regulation that has federalism 

implications, Executive Order 13132 (64 

FR 43255, August 10, 1999), requires the 

Agency to provide a federalism 

summary impact statement. Pursuant to 

section 6(c) of the Order, such a 

statement must include a description of 

the extent of the agency’s consultation 

with State and local officials, a 

summary of the nature of their concerns 

and the agency’s position supporting the 

need to issue the regulation, and a 

statement of the extent to which the 

concerns of the State have been met. 

This regulation has federalism 

implications, because the States and the 

Federal Government share dual 

jurisdiction over MEWAs that are 

employee benefit plans or hold plan 

assets. Generally, States are primarily 

responsible for overseeing the financial 

soundness and licensing of MEWAs 

under State insurance laws. The 

Department enforces ERISA’s fiduciary 

responsibility provisions against 

MEWAs that are ERISA plans or hold 

plan assets. 

Over the years, the Department and 

State insurance departments have 

worked closely and coordinated their 

investigations and other actions against 

fraudulent and abusive MEWAs. For 

example, EBSA regional offices have 

met with State officials in their regions 

and provided information necessary for 

States to obtain cease and desist orders 

to stop abusive and insolvent MEWAs. 

The Department also has relied on 

States to obtain cease and desist orders 

against MEWAs in individual States 

while it pursued investigations to gather 

sufficient evidence to obtain injunctive 

relief in the federal courts to shut down 

MEWAs nationally. By providing 

procedures and standards the 

Department would follow to issue ex 

parte cease and desist and summary 

seizure orders and providing procedures 

for use by ALJs and the Secretary of 

Labor when a MEWA or other person 

challenges a temporary cease and desist 

order, these proposed rules would 

enhance the State and Federal 


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Government’s joint mission to take 

immediate action against fraudulent and 

abusive MEWAs and limit the losses 

suffered by American workers and their 

families when abusive MEWAs become 

insolvent and fail to reimburse medical 

claims. 

List of Subjects 

29 CFR Part 2560 

Administrative practice and 

procedure, Employee welfare benefit 

plans, Employee Retirement Income 

Security Act, Law enforcement, 

Pensions, Multiple employer welfare 

arrangements, Cease and desist, Seizure. 

29 CFR Part 2571 

Administrative practice and 

procedure, Employee benefit plans, 

Employee Retirement Income Security 

Act, Multiple employer welfare 

arrangements, Law enforcement, Cease 

and desist. 

For the reasons set out in the 

preamble, 29 CFR Chapter XXV, 

Subchapter G is amended as follows: 

PART 2560—RULES AND 

REGULATIONS FOR ADMINISTRATION 

AND ENFORCEMENT 

1. The authority citation for part 2560 

is revised to read as follows: 

Authority: 29 U.S.C. §§ 1002(40), 1132, 

1133, 1134, 1135, and 1151; and Secretary of 

Labor’s Order 3–2010, 75 FR 55354 

(September 10, 2010). 

2. Add § 2560.521–1 to read as 

follows: 

§ 2560.521–1 Cease and desist and seizure 

orders under section 521. 

(a) Purpose. Section 521(a) of the 

Employee Retirement Income Security 

Act of 1974 (ERISA), 29 U.S.C. 1151(a), 

authorizes the Secretary of Labor to 

issue an ex parte cease and desist order 

if it appears to the Secretary that the 

alleged conduct of a multiple employer 

welfare arrangement (MEWA) under 

section 3(40) of ERISA is fraudulent, or 

creates an immediate danger to the 

public safety or welfare, or is causing or 

can be reasonably expected to cause 

significant, imminent, and irreparable 

public injury. Section 521(e) of ERISA 

authorizes the Secretary to issue a 

summary seizure order if it appears that 

a MEWA is in a financially hazardous 

condition. An order may apply to a 

MEWA or to persons having custody or 

control of assets of the subject MEWA, 

any authority over management of the 

subject MEWA, or any role in the 

transaction of the subject MEWA’s 

business. This section sets forth 

standards and procedures for the 

Secretary to issue ex parte cease and 

desist and summary seizure orders and 

for administrative review of the 

issuance of such cease and desist orders. 

(b) Definitions. When used in this 

section, the following terms shall have 

the meanings ascribed in this paragraph 

(b). 

(1) Multiple employer welfare 

arrangement (MEWA) is an arrangement 

as defined in section 3(40) of ERISA that 

either: 

(i) Is an employee welfare benefit plan 

subject to Title I of ERISA or 

(ii) Offers benefits in connection with 

one or more employee welfare benefit 

plans subject to Title I of ERISA. For 

purposes of section 521 of ERISA, a 

MEWA does not include an arrangement 

that is licensed or authorized to operate 

as a health insurance issuer in every 

State in which it offers or provides 

coverage for medical care to employees. 

(2)(i) The conduct of a MEWA is 

fraudulent when the MEWA or any 

person acting as an agent or employee 

of the MEWA commits an act or 

omission knowingly and with an intent 

to deceive or defraud plan participants, 

plan beneficiaries, employers or 

employee organizations, or other 

members of the public, the Secretary, or 

a State regarding: 

(A) The financial condition of the 

MEWA (including the MEWA’s 

solvency and the management of plan 

assets); 

(B) The benefits provided by or in 

connection with the MEWA; 

(C) The management, control, or 

administration of the MEWA; 

(D) The existing or lawful regulatory 

status of the MEWA under Federal or 

State law; or, 

(E) Any other material fact, as 

determined by the Secretary, relating to 

the MEWA or its operation. 

(ii) Fraudulent conduct includes: 

(A) Any false statement regarding any 

of paragraphs (b)(2)(i) (A) through (E) 

that is made with knowledge of its 

falsity or that is made with reckless 

indifference to the statement’s truth or 

falsity, and 

(B) The knowing concealment of 

material information regarding any of 

paragraphs (b)(2)(i) (A) through (E). 

Examples of fraudulent conduct 

include, but are not limited to, 

misrepresenting the terms of the 

benefits offered by or in connection 

with the MEWA or the financial 

condition of the MEWA or engaging in 

deceptive acts or omissions in 

connection with marketing or sales or 

fees charged to employers or employee 

organizations. 

(3) The conduct of a MEWA creates an 

immediate danger to the public safety or 

welfare if the conduct of a MEWA or 

any person acting as an agent or 

employee of the MEWA impairs, or 

threatens to impair, a MEWA’s ability to 

pay claims or otherwise unreasonably 

increases the risk of nonpayment of 

benefits to an employee welfare benefit 

plan that is, or offers benefits in 

connection with, a MEWA, plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public. Intent to 

create an immediate danger is not 

required for this criterion. Examples of 

such conduct include, but are not 

limited to, a systematic failure to 

properly process or pay benefit claims, 

including failure to establish and 

maintain a claims procedure that 

complies with the Secretary’s claims 

procedure regulations (29 CFR 

2560.503–1 and 29 CFR 2590.715– 

2719), failure to establish or maintain a 

recordkeeping system that tracks the 

claims made, paid, or processed or the 

MEWA’s financial condition, a 

substantial failure to meet applicable 

disclosure, reporting, and other filing 

requirements, including the annual 

reporting and registration requirements 

under sections 101(g) and 104 of ERISA, 

failure to establish and implement a 

policy or method to determine that the 

MEWA is actuarially sound with 

appropriate reserves and adequate 

underwriting, failure to comply with a 

cease and desist order issued by a 

government agency or court, and failure 

to hold plan assets in trust. 

(4)(i) The conduct of a MEWA is 

causing or can be reasonably expected 

to cause significant, imminent, and 

irreparable public injury: (A) If the 

conduct of a MEWA, or of a person 

acting as an agent or employee of the 

MEWA, is having, or is reasonably 

expected to have, a significant and 

imminent negative effect on one or more 

of the following: 

(i) An employee welfare benefit plan 

that is, or offers benefits in connection 

with, a MEWA; 

(2) The sponsor of such plan or the 

employer or employee organization that 

makes payments for benefits provided 

by or in connection with a MEWA; or 

(3) Plan participants and plan 

beneficiaries; and 

(B) If it is not reasonable to expect 

that such effect may be fully repaired or 

rectified. 

(ii) Intent to cause injury is not 

required for this criterion. Examples of 

such conduct include, but are not 

limited to, conversion or concealment of 

property of the MEWA; improper 

disposal, transfer, or removal of funds or 

other property of the MEWA, including 

unreasonable compensation or 

payments to MEWA operators and 


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service providers (e.g. brokers, 

marketers, and third party 

administrators); employment by the 

MEWA of a person prohibited such 

employment pursuant to section 411 of 

ERISA, and embezzlement from the 

MEWA. For purposes of section 521 of 

ERISA, compensation that would be 

excessive under 26 CFR 1.162–7 will be 

considered unreasonable compensation 

or payments for purposes of this 

regulation. Depending upon the facts 

and circumstances, compensation may 

be unreasonable under this regulation 

even it is not excessive under 26 CFR 

1.162–7. 

(5) A MEWA is in a financially 

hazardous condition if: (i) the Secretary 

has probable cause to believe that a 

MEWA: 

(A) Is, or is in imminent danger of 

becoming, unable to pay benefit claims 

as they come due, or 

(B) Has sustained, or is in imminent 

danger of sustaining, a significant loss of 

assets; or 

(ii) A person responsible for 

management, control, or administration 

of the MEWA’s assets is the subject of 

a cease and desist order issued by the 

Secretary. 

(6) A person, for purposes of this 

regulation, is an individual, partnership, 

corporation, employee welfare benefit 

plan, association, or other entity or 

organization. 

(c) Temporary Cease and Desist 

Order. (1) The Secretary may issue a 

temporary cease and desist order when 

the Secretary finds there is reasonable 

cause to believe that the conduct of a 

MEWA, or any person acting as an agent 

or employee of the MEWA, is— 

(i) Fraudulent; 

(ii) Creates an immediate danger to 

the public safety or welfare; or 

(iii) Is causing or can be reasonably 

expected to cause significant, imminent, 

and irreparable public injury. 

(iv) A single act or omission may be 

the basis for a temporary cease and 

desist order. 

(2) A temporary cease and desist order 

may as the Secretary determines is 

necessary and appropriate to stop the 

conduct on which the order is based, 

and to protect the interests of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public— 

(i) Prohibit specific conduct or 

prohibit the transaction of any business 

of the MEWA; 

(ii) Prohibit any person from taking 

specified actions, or exercising authority 

or control, concerning funds or property 

of a MEWA or of any employee benefit 

plan, regardless of whether such funds 

or property have been commingled with 

other funds or property; and, 

(iii) Bar any person either directly or 

indirectly, from providing management, 

administrative, or other services to any 

MEWA or to an employee benefit plan 

or trust, 

(d) Effect of Order on Other Remedies. 

The issuance of a temporary or final 

cease and desist order shall not 

foreclose the Secretary from seeking 

additional remedies under ERISA. 

(e) Administrative hearing. (1) A 

temporary cease and desist order shall 

become a final order as to any MEWA 

or other person named in the order 30 

days after such person receives notice of 

the order unless, within this period, 

such person requests a hearing in 

accordance with the requirements of 

this paragraph (e). 

(2) A person requesting a hearing 

must file a written request and an 

answer to the order showing cause why 

the order should be modified or set 

aside. The request and the answer must 

be filed in accordance with 29 CFR 2571 

and section 18.4 of this title. 

(3) A hearing shall be held 

expeditiously following the receipt of 

the request for a hearing by the Office 

of the Administrative Law Judges, 

unless the parties mutually consent, in 

writing, to a later date. 

(4) The decision of the administrative 

law judge shall be issued expeditiously 

after the conclusion of the hearing. 

(5) The Secretary must offer evidence 

supporting the findings made in issuing 

the order. 

(6) If the administrative law judge 

determines that the Secretary’s evidence 

supports the findings on which the 

Secretary’s order is based, the person 

requesting the hearing has the burden to 

show cause why the order should be 

modified or set aside. To meet this 

burden, such person must show by a 

preponderance of the evidence that the 

order as issued is not necessary to 

protect the interests of plan participants, 

plan beneficiaries, employers or 

employee organizations, or other 

members of the public. 

(7) Any temporary cease and desist 

order for which a hearing has been 

requested shall remain in effect and 

enforceable, pending completion of the 

administrative proceedings, unless 

stayed by the Secretary or by a court. 

(8) The Secretary may require that the 

hearing and all evidence be treated as 

confidential. 

(f) Summary seizure order. (1) Subject 

to paragraphs (f)(2) and (3) of this 

section, the Secretary may issue a 

summary seizure order when the 

Secretary finds there is probable cause 

to believe that a MEWA is in a 

financially hazardous condition. 

(2) Except as provided in paragraph 

(f)(3) of this section, the Secretary, 

before issuing a summary seizure order 

to remove assets and records from the 

control and management of the MEWA 

or any persons having custody or 

control of such assets or records, shall 

obtain judicial authorization in the form 

of a warrant or other appropriate form 

of authorization from a federal court. 

(3) If the Secretary reasonably believes 

that any delay in issuing the order is 

likely to result in the removal, 

dissipation, or concealment of plan 

assets or records, the Secretary may 

issue and serve a summary seizure order 

before seeking court authorization. 

Promptly following service of the order, 

the Secretary shall seek authorization 

from a federal court. 

(4) A summary seizure order may 

authorize the Secretary to take 

possession or control of all or part of the 

books, records, accounts, and property 

of the MEWA (including the premises in 

which the MEWA transacts its business) 

to protect the benefits of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public, and to 

safeguard the assets of employee welfare 

benefit plans. The order may also direct 

any person having control and custody 

of the assets that are the subject of the 

order not to allow any transfer or 

disposition of such assets except upon 

the written direction of the Secretary, or 

of a receiver or independent fiduciary 

appointed by a court. 

(5) Following execution of a summary 

seizure order, the Secretary shall initiate 

a civil action under section 502(a) of 

ERISA, 29 U.S.C. 1132, to— 

(i) Secure appointment of a receiver or 

independent fiduciary to perform any 

necessary functions of the MEWA; 

(ii) Obtain court authorization for the 

Secretary, the receiver or independent 

fiduciary to take any other action to 

seize, secure, maintain, or preserve the 

availability of the MEWA’s assets; and 

(iii) Obtain such other appropriate 

relief available under ERISA to protect 

the interest of employee welfare benefit 

plan participants, plan beneficiaries, 

employers or employee organizations or 

other members of the public. Other 

appropriate equitable relief may include 

the liquidation and winding up of the 

MEWA’s affairs and, where applicable, 

the affairs of any person sponsoring the 

MEWA. 

(g) Effective Date of Orders. Cease and 

desist and summary seizure orders are 

effective immediately upon issuance by 

the Secretary and shall remain effective, 

except to the extent and until any 


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provision is modified or the order is set 

aside by the Secretary or a court. 

(h) Service of orders. (1) As soon as 

practicable after the issuance of a 

temporary or final cease and desist 

order and no later than five business 

days after issuance of a summary 

seizure order, the Secretary shall serve 

the order either: 

(i) By delivering a copy to the person 

who is the subject of the order. If the 

person is a partnership, service may be 

made to any partner. If the person is a 

corporation, association, or other entity 

or organization, service may be made to 

any officer of such entity. If the person 

is an employee welfare benefit plan, 

service may be made to a trustee or 

administrator. A person’s attorney may 

accept service on behalf of such person; 

(ii) By leaving a copy at the principal 

office, place of business, or residence of 

such person or attorney; or 

(iii) By mailing a copy to the last 

known address of such person or 

attorney. 

(2) If service is accomplished by 

certified mail, service is complete upon 

mailing. If service is done by regular 

mail, service is complete upon receipt 

by the addressee. 

(3) Service of a temporary or final 

cease and desist order and of a summary 

seizure order shall include a statement 

of the Secretary’s findings giving rise to 

the order, and, where applicable, a copy 

of any warrant or other authorization by 

a court. 

3. Add § 2560.521–2 to read as 

follows: 

§ 2560.521–2 Disclosure of order and 

proceedings. 

(a) Notwithstanding § 2560.521– 

1(e)(8), the Secretary shall make 

available to the public final cease and 

desist and summary seizure orders or 

modifications and terminations of such 

final orders. 

(b) Except as prohibited by applicable 

law, and at his or her discretion, the 

Secretary may disclose the issuance of 

a temporary cease and desist order or 

summary seizure order and information 

and evidence of any proceedings and 

hearings related to an order, to any 

Federal, State, or foreign authorities 

responsible for enforcing laws that 

apply to MEWAs and parties associated 

with, or providing services to, MEWAs. 

(c) The sharing of such documents, 

material, or other information and 

evidence under this section does not 

constitute a waiver of any applicable 

privilege or claim of confidentiality. 

4. Add § 2560.521–3 to read as 

follows: 

§ 2560.521–3 Effect on other enforcement 

authority. 

The Secretary’s authority under 

section 521 shall not be construed to 

limit the Secretary’s ability to exercise 

his or her enforcement or investigatory 

authority under any other provision of 

title I of ERISA. 29 U.S.C. 1001 et seq. 

The Secretary may, in his or her sole 

discretion, initiate court proceedings 

without using the procedures in this 

section. 

5. Add § 2560.521–4 to read as 

follows: 

§ 2560.521–4 Cross-reference. 

Cross-reference. See 29 CFR 2571.1 

through 2571.13 of this chapter for 

procedural rules relating to 

administrative hearings under section 

521 of ERISA. 

6. Add Part 2571 to read as follows: 

PART 2571—PROCEDURAL 

REGULATIONS FOR ADMINISTRATION 

AND ENFORCEMENT UNDER THE 

EMPLOYEE RETIREMENT INCOME 

SECURITY ACT 

Subpart A—Procedures for Administrative 

Hearings on the Issuance of Cease and 

Desist Orders Under ERISA Section 521— 

Multiple Employer Welfare Arrangements 

Sec. 

2571.1 Scope of rules. 

2571.2 Definitions. 

2571.3 Service: copies of documents and 

pleadings. 

2571.4 Parties. 

2571.5 Consequences of default. 

2571.6 Consent order or settlement. 

2571.7 Scope of discovery. 

2571.8 Summary decision. 

2571.9 Decision of the administrative law 

judge. 

2571.10 Review by the Secretary. 

2571.11 Scope of review by the Secretary. 

2571.12 Procedures for review by the 

Secretary. 

Authority: 29 U.S.C. 1002(40), 1132, 1135; 

and 1151, Secretary of Labor’s Order 3–2010, 

75 FR 55354 (September 10, 2010). 

Subpart A—Procedures for 

Administrative Hearings on the 

Issuance of Cease and Desist Orders 

Under ERISA Section 521—Multiple 

Employer Welfare Arrangements 

§ 2571.1 Scope of rules. 

The rules of practice set forth in this 

part apply to ex parte cease and desist 

order proceedings under section 521 of 

the Employee Retirement Income 

Security Act of 1974, as amended 

(ERISA). The rules of procedure for 

administrative hearings published by 

the Department’s Office of 

Administrative Law Judges at part 18 of 

this Title will apply to matters arising 

under ERISA section 521 except as 

modified by this section. These 

proceedings shall be conducted as 

expeditiously as possible, and the 

parties and the Office of the 

Administrative Law Judges shall make 

every effort to avoid delay at each stage 

of the proceedings. 

§ 2571.2 Definitions. 

For section 521 proceedings, this 

section shall apply in lieu of the 

definitions in § 18.2 of this title: 

(a) Adjudicatory proceeding means a 

judicial-type proceeding before an 

administrative law judge leading to an 

order; 

(b) Administrative law judge means an 

administrative law judge appointed 

pursuant to the provisions of 5 U.S.C. 

3105; 

(c) Answer means a written statement 

that is supported by reference to specific 

circumstances or facts surrounding the 

temporary order issued pursuant to 29 

CFR 2560.521–1(c); 

(d) Commencement of proceeding is 

the filing of an answer by the 

respondent; 

(e) Consent agreement means a 

proposed written agreement and order 

containing a specified proposed remedy 

or other relief acceptable to the 

Secretary and consenting parties; 

(f) Final order means a cease and 

desist order that is a final order of the 

Secretary of Labor under ERISA section 

521. Such final order may result from a 

decision of an administrative law judge 

or of the Secretary on review of a 

decision of an administrative law judge, 

or from the failure of a party to invoke 

the procedures for a hearing under 29 

CFR 2560.521–1 within the prescribed 

time limit. A final order shall constitute 

a final agency action within the 

meaning of 5 U.S.C. 704; 

(g) Hearing means that part of a 

section 521 proceeding which involves 

the submission of evidence, either by 

oral presentation or written submission, 

to the administrative law judge; 

(h) Order means the whole or any part 

of a final procedural or substantive 

disposition of a section 521 proceeding; 

(i) Party includes a person or agency 

named or admitted as a party to a 

section 521 proceeding; 

(j) Person includes an individual, 

partnership, corporation, employee 

welfare benefit plan, association, or 

other entity or organization; 

(k) Petition means a written request, 

made by a person or party, for some 

affirmative action; 

(l) Respondent means the party 

against whom the Secretary is seeking to 

impose a cease and desist order under 

ERISA section 521; 

(m) Secretary means the Secretary of 

Labor or his or her delegate; 


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(n) Section 521 proceeding means an 

adjudicatory proceeding relating to the 

issuance of a temporary order under 29 

CFR 2560.521–1 and section 521 of 

ERISA; 

(o) Solicitor means the Solicitor of 

Labor or his or her delegate; and 

(p) Temporary order means the 

temporary cease and desist order issued 

by the Secretary under 29 CFR 

§ 2560.521–1(c) and section 521 of 

ERISA. 

§ 2571.3 Service: copies of documents and 

pleadings. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.3 of 

this title: 

(a) In General. Copies of all 

documents shall be served on all parties 

of record. All documents should clearly 

designate the docket number, if any, and 

short title of all matters. All documents 

to be filed shall be delivered or mailed 

to the Chief Docket Clerk, Office of 

Administrative Law Judges, 800 K Street 

NW., Suite 400, Washington, DC 20001– 

8002, or to the OALJ Regional Office to 

which the section 521 proceeding may 

have been transferred for hearing. Each 

document filed shall be clear and 

legible. 

(b) By Parties. All motions, petitions, 

pleadings, briefs, or other documents 

shall be filed with the Office of 

Administrative Law Judges with a copy, 

including any attachments, to all other 

parties of record. When a party is 

represented by an attorney, service shall 

be made upon the attorney. Service of 

any document upon any party may be 

made by personal delivery or by mailing 

a copy to the last known address. The 

Secretary shall be served by delivery to 

the Associate Solicitor, Plan Benefits 

Security Division, ERISA Section 521 

Proceeding, P.O. Box 1914, Washington, 

DC 20013 and any attorney named for 

service of process as set forth in the 

temporary order. The person serving the 

document shall certify to the manner of 

date and service. 

(c) By the Office of Administrative 

Law Judges. Service of orders, decisions, 

and all other documents shall be made 

in such manner as the Office of 

Administrative Law Judges determines 

to the last known address. 

(d) Form of pleadings. (1) Every 

pleading or other paper filed in a 

section 521 proceeding shall designate 

the Employee Benefits Security 

Administration (EBSA) as the agency 

under which the proceeding is 

instituted, the title of the proceeding, 

the docket number (if any) assigned by 

the Office of Administrative Law Judges 

and a designation of the type of 

pleading or paper (e.g., notice, motion to 

dismiss, etc.). The pleading or paper 

shall be signed and shall contain the 

address and telephone number of the 

party or person representing the party. 

Although there are no formal 

specifications for documents, they 

should be typewritten when possible on 

standard size 81⁄2 × 11 inch paper. 

(2) Illegible documents, whether 

handwritten, typewritten, photocopies, 

or otherwise, will not be accepted. 

Papers may be reproduced by any 

duplicating process provided all copies 

are clear and legible. 

§ 2571.4 Parties 

For section 521 proceedings, this 

section shall apply in lieu of § 18.10 of 

this title: 

(a) The term ‘‘party’’ wherever used in 

these rules shall include any person that 

is a subject of the temporary order and 

is challenging the temporary order 

under these section 521 proceedings, 

and the Secretary. A party challenging 

a temporary order shall be designated as 

the ‘‘respondent.’’ The Secretary shall 

be designated as the ‘‘complainant.’’ 

(b) Other persons shall be permitted 

to participate as parties only if the 

administrative law judge finds that the 

final decision could directly and 

adversely affect them or the class they 

represent, that they may contribute 

materially to the disposition of the 

section 521 proceeding and their 

interest is not adequately represented by 

the existing parties, and that in the 

discretion of the administrative law 

judge the participation of such persons 

would be appropriate. 

(c) A person not named in a 

temporary order, but wishing to 

participate as a respondent under this 

section shall submit a petition to the 

administrative law judge within fifteen 

(15) days after the person has 

knowledge of, or should have known 

about, the section 521 proceeding. The 

petition shall be filed with the 

administrative law judge and served on 

each person who has been made a party 

at the time of filing. Such petition shall 

concisely state: 

(1) Petitioner’s interest in the section 

521 proceeding (including how the 

section 521 proceedings will directly 

and adversely affect them or the class 

they represent and why their interest is 

not adequately represented by the 

existing parties); 

(2) How his or her participation as a 

party will contribute materially to the 

disposition of the section 521 

proceeding; 

(3) Who will appear for the petitioner; 

(4) The issues on which petitioner 

wishes to participate; and 

(5) Whether petitioner intends to 

present witnesses. 

(d) Objections to the petition may be 

filed by a party within fifteen (15) days 

of the filing of the petition. If objections 

to the petition are filed, the 

administrative law judge shall then 

determine whether petitioners have the 

requisite interest to be a party in the 

section 521 proceeding, as defined in 

paragraph (b) of this section, and shall 

permit or deny participation 

accordingly. Where persons with 

common interest file petitions to 

participate as parties in a section 521 

proceeding, the administrative law 

judge may request all such petitioners to 

designate a single representative, or the 

administrative law judge may designate 

one or more of the petitioners to 

represent the others. The administrative 

law judge shall give each such 

petitioner, as well as the parties, written 

notice of the decision on his or her 

petition. For each petition granted, the 

administrative law judge shall provide a 

brief statement of the basis of the 

decision. If the petition is denied, he or 

she shall briefly state the grounds for 

denial and shall then treat the petition 

as a request for participation as amicus 

curiae. 

§ 2571.5 Consequences of default. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.5(b) of 

this title: Failure of the respondent to 

file an answer to the temporary order 

within the 30-day period provided by 29 

CFR 2560.521–1(e) shall constitute a 

waiver of the respondent’s right to 

appear and contest the temporary order. 

Such failure shall also be deemed to be 

an admission of the facts as alleged in 

the temporary order for purposes of any 

proceeding involving the order issued 

under section 521 of ERISA. The 

temporary order shall then become the 

final order of the Secretary, within the 

meaning of 29 CFR 2571.2(f), 30 days 

from the date of the service of the 

temporary order. 

§ 2571.6 Consent order or settlement. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.9 of 

this title: 

(a) In general. At any time after the 

commencement of a section 521 

proceeding, the parties jointly may 

move to defer the hearing for a 

reasonable time in order to negotiate a 

settlement or an agreement containing 

findings and a consent order disposing 

of the whole or any part of the section 

521 proceeding. The administrative law 

judge shall have discretion to allow or 

deny such a postponement and to 

determine its duration. In exercising 


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this discretion, the administrative law 

judge shall consider the nature of the 

section 521 proceeding, the 

requirements of the public interest, the 

representations of the parties and the 

probability of reaching an agreement 

that will result in a just disposition of 

the issues involved. 

(b) Content. Any agreement 

containing consent findings and an 

order disposing of the section 521 

proceeding or any part thereof shall also 

provide: 

(1) That the consent order shall have 

the same force and effect as an order 

made after full hearing; 

(2) That the entire record on which 

the consent order is based shall consist 

solely of the notice and the agreement; 

(3) A waiver of any further procedural 

steps before the administrative law 

judge; 

(4) A waiver of any right to challenge 

or contest the validity of the consent 

order and decision entered into in 

accordance with the agreement; and 

(5) That the consent order and 

decision of the administrative law judge 

shall be final agency action within the 

meaning of 5 U.S.C. 704. 

(c) Submission. On or before the 

expiration of the time granted for 

negotiations, the parties or their 

authorized representatives or their 

counsel may: 

(1) Submit the proposed agreement 

containing consent findings and an 

order to the administrative law judge; 

(2) Notify the administrative law 

judge that the parties have reached a full 

settlement and have agreed to dismissal 

of the action subject to compliance with 

the terms of the settlement; or 

(3) Inform the administrative law 

judge that agreement cannot be reached. 

(d) Disposition. If a settlement 

agreement containing consent findings 

and an order, agreed to by all the parties 

to a section 521 proceeding, is 

submitted within the time allowed 

therefor, the administrative law judge 

shall incorporate all of the findings, 

terms, and conditions of the settlement 

agreement and consent order of the 

parties. Such decision shall become a 

final agency action within the meaning 

of 5 U.S.C. 704. 

(e) Settlement without consent of all 

respondents. In cases in which some, 

but not all, of the respondents to a 

section 521 proceeding submit an 

agreement and consent order to the 

administrative law judge, the following 

procedure shall apply: 

(1) If all of the respondents have not 

consented to the proposed settlement 

submitted to the administrative law 

judge, then such non-consenting parties 

must receive notice and a copy of the 

proposed settlement at the time it is 

submitted to the administrative law 

judge; 

(2) Any non-consenting respondent 

shall have fifteen (15) days to file any 

objections to the proposed settlement 

with the administrative law judge and 

all other parties; 

(3) If any respondent submits an 

objection to the proposed settlement, 

the administrative law judge shall 

decide within thirty (30) days after 

receipt of such objections whether to 

sign or reject the proposed settlement. 

Where the record lacks substantial 

evidence upon which to base a decision 

or there is a genuine issue of material 

fact, then the administrative law judge 

may establish procedures for the 

purpose of receiving additional 

evidence upon which a decision on the 

contested issue may be reasonably 

based; 

(4) If there are no objections to the 

proposed settlement, or if the 

administrative law judge decides to sign 

the proposed settlement after reviewing 

any such objections, the administrative 

law judge shall incorporate the consent 

agreement into a decision meeting the 

requirements of paragraph (d) of this 

section; and 

(5) If the consent agreement is 

incorporated into a decision meeting the 

requirements of paragraph (d) of this 

section, the administrative law judge 

shall continue the section 521 

proceeding with respect to any nonconsenting respondents. 

§ 2571.7 Scope of discovery. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.14 of 

this title: 

(a) A party may file a motion to 

conduct discovery with the 

administrative law judge. The 

administrative law judge may grant a 

motion for discovery only upon a 

showing of good cause. In order to 

establish ‘‘good cause’’ for the purposes 

of this section, the moving party must 

show that the requested discovery 

relates to a genuine issue as to a fact that 

is material to the section 521 

proceeding. The order of the 

administrative law judge shall expressly 

limit the scope and terms of the 

discovery to that for which ‘‘good 

cause’’ has been shown, as provided in 

this paragraph. 

(b) Any evidentiary privileges apply 

as they would apply in a civil 

proceeding in federal district court. For 

example, legal advice provided by an 

attorney to a client is generally 

protected from disclosure. Mental 

impressions, conclusions, opinions, or 

legal theories of a party’s attorney or 

other representative developed in 

anticipation of litigation are also 

generally protected from disclosure. An 

exception to these privileges, however, 

exists when an attorney advises a plan 

fiduciary on matters involving the 

performance of his or her fiduciary 

duties (called the ‘‘fiduciary 

exception’’). Consequently, the 

administrative law judge may not 

protect from discovery communications 

between an attorney and a plan 

administrator or other fiduciary or work 

product that fall under the fiduciary 

exception to the attorney-client or work 

product privileges. 

§ 2571.8 Summary decision. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.41 of 

this title: 

(a) No genuine issue of material fact. 

Where the administrative law judge 

finds that no issue of a material fact has 

been raised, he or she may issue a 

decision which, in the absence of an 

appeal, pursuant to 29 CFR 2571.10 

through 2571.12, shall become a final 

agency action within the meaning of 

5 U.S.C. 704. 

(b) A decision made under this 

paragraph, shall include a statement of: 

(1) Findings of fact and conclusions of 

law, and the reasons thereof, on all 

issues presented; and 

(2) Any terms and conditions of the 

ruling. 

(c) A copy of any decision under this 

paragraph shall be served on each party. 

§ 2571.9 Decision of the administrative law 

judge. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.57 of 

this title: 

(a) Proposed findings of fact, 

conclusions, and order. Within twenty 

(20) days of the filing of the transcript 

of the testimony, or such additional 

time as the administrative law judge 

may allow, each party may file with the 

administrative law judge, subject to the 

judge’s discretion, proposed findings of 

fact, conclusions of law, and order 

together with a supporting brief 

expressing the reasons for such 

proposals. Such proposals and briefs 

shall be served on all parties, and shall 

refer to all portions of the record and to 

all authorities relied upon in support of 

each proposal. 

(b) Decision of the administrative law 

judge. The administrative law judge 

shall make his or her decision 

expeditiously after the conclusion of the 

section 521 proceeding. The decision of 

the administrative law judge shall 

include findings of fact and conclusions 

of law with reasons therefore upon each 


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material issue of fact or law presented 

on the record. The decision of the 

administrative law judge shall be based 

upon the whole record and shall be 

supported by reliable and probative 

evidence. The decision of the 

administrative law judge shall become 

final agency action within the meaning 

of 5 U.S.C. 704 unless an appeal is made 

pursuant to the procedures set forth in 

29 CFR 2571.10 through 2571.12. 

§ 2571.10 Review by the Secretary. 

(a) The Secretary may review the 

decision of an administrative law judge. 

Such review may occur only when a 

party files a notice of appeal from a 

decision of an administrative law judge 

within twenty (20) days of the issuance 

of such a decision. In all other cases, the 

decision of the administrative law judge 

shall become the final agency action 

within the meaning of 5 U.S.C. 704. 

(b) A notice of appeal to the Secretary 

shall state with specificity the issue(s) 

in the decision of the administrative law 

judge on which the party is seeking 

review. Such notice of appeal must be 

served on all parties of record. 

(c) Upon receipt of an appeal, the 

Secretary shall request the Chief 

Administrative Law Judge to submit to 

the Secretary a copy of the entire record 

before the administrative law judge. 

§ 2571.11 Scope of review by the 

Secretary. 

The review of the Secretary shall be 

based on the record established before 

the administrative law judge. There 

shall be no opportunity for oral 

argument. 

§ 2571.12 Procedures for review by the 

Secretary. 

(a) Upon receipt of a notice of appeal, 

the Secretary shall establish a briefing 

schedule which shall be served on all 

parties of record. Upon motion of one or 

more of the parties, the Secretary may, 

in her discretion, permit the submission 

of reply briefs. 

(b) The Secretary shall issue a 

decision as promptly as possible after 

receipt of the briefs of the parties. The 

Secretary may affirm, modify, or set 

aside, in whole or in part, the decision 

on appeal and shall issue a statement of 

reasons and bases for the action(s) 

taken. Such decision by the Secretary 

shall be the final agency action with the 

meaning of 5 U.S.C. 704. 

§ 2571.13 Effective date. 

This regulation is effective with 

respect to all cease and desist orders 

issued by the Secretary under section 

521 of ERISA at any time after [30 DAYS 

AFTER DATE OF PUBLICATION OF 

THE FINAL RULE]. 

Signed at Washington, DC, this 28th day of 

November 2011. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2011–30921 Filed 12–5–11; 8:45 am] 

BILLING CODE 4510–29–P 


jlentini on DSK4TPTVN1PROD with PROPOSALS2