64498 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

conditions of employment, including

coverage under Plan A.

(2) In this example, Plan A still meets the

criteria for a regulatory finding that it is

collectively bargained under section 3(40) of

ERISA. Union A’s recruitment and

representation of a new occupational

category of workers unrelated to the

construction trade, its promotion of attractive

health benefits to achieve organizing success,

and the Plan’s resultant growth, do not take

Plan A outside the regulatory finding.

Example 10. (1) Assume the same facts as

in Example 7. The Medical Consortium, a

newly formed organization, approaches Plan

A with a proposal to make money for Plan

A and Union A by enrolling a large group of

employers, their employees, and selfemployed individuals affiliated with the

Medical Consortium. The Medical

Consortium obtains employers’ signatures on

a generic document bearing Union A’s name,

labeled ‘‘collective bargaining agreement,’’

which provides for health coverage under

Plan A and compliance with wage and hour

statutes, as well as other employment laws.

Employees of signatory employers sign

enrollment documents for Plan A and are

issued membership cards in Union A; their

membership dues are regularly checked off

along with their monthly payments for health

coverage. Self-employed individuals

similarly receive union membership cards

and make monthly payments, which are

divided between Plan A and the Union.

Aside from health coverage matters, these

new participants have little or no contact

with Union A. The new participants enrolled

through the Consortium amount to 23% of

the population of Plan A during the current

Plan Year.

(2) In this example, Plan A now fails to

meet the criteria in paragraphs (b)(2) and

(b)(3) of this section, because more than 20%

of its participants are individuals who are not

employed under agreements that are the

product of bona fide collective bargaining

relationship and who do not fall within any

of the other nexus categories set forth in

paragraph (b)(2). Moreover, even if the

number of additional participants enrolled

through the Medical Consortium, together

with any other participants that did not fall

within any of the nexus categories, did not

exceed 20% of the total participant

population under the plan, the circumstances

in this example would trigger the

disqualification of paragraph (c)(2) of this

section, because Plan A now is being

maintained under a substantial number of

agreements that are a ‘‘scheme, plan,

stratagem or artifice of evasion’’ intended

primarily to evade compliance with state

laws and regulations pertaining to insurance.

In either case, the consequence of adding the

participants through the Medical Consortium

is that Plan A is now a MEWA for purposes

of section 3(40) of ERISA and is not exempt

from state regulation by virtue of ERISA.

(f) Cross-reference. See part 2570,

subpart G of this chapter for procedural

rules relating to proceedings seeking an

Administrative Law Judge finding by

the Secretary under Section 3(40) of

ERISA.

(g) Effect of proceeding seeking

Administrative Law Judge Section 3(40)

finding.

(1) An Administrative Law Judge

finding issued pursuant to the

procedures in part 2570, subpart G of

this chapter, will constitute a finding

that the employee welfare benefit plan

at issue in that proceeding is established

or maintained under or pursuant to an

agreement that the Secretary finds to be

a collective bargaining agreement for

purposes of Section 3(40) of ERISA.

(2) Nothing in this section or in part

2570, subpart G of this chapter is

intended to have any effect on

applicable law relating to stay or delay

of a state administrative or court

proceeding or enforcement of a

subpoena.

(h) Effective date. This regulation is

effective December 26, 2000.

Signed this 16th day of October 2000.

Leslie B. Kramerich,

Acting Assistant Secretary, Pension and

Welfare Benefits Administration.

[FR Doc. 00–27044 Filed 10–26–00; 8:45 am]

BILLING CODE 4510–29–P

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

29 CFR Part 2570

RIN 1210–AA48

Procedures for Administrative

Hearings Regarding Plans Established

or Maintained Pursuant to Collective

Bargaining Agreements Under Section

3(40)(A) of ERISA

AGENCY: Pension and Welfare Benefits

Administration, Department of Labor.

ACTION: Proposed rule.

SUMMARY: This document contains

proposed rules under the Employee

Retirement Income Security Act of 1974,

as amended (ERISA), describing

procedures for administrative hearings

to obtain a determination by the

Secretary of Labor (Secretary) as to

whether a particular employee welfare

benefit plan is established or

maintained under or pursuant to one or

more collective bargaining agreements

for purposes of section 3(40) of ERISA.

The procedure for administrative

hearings would be available only in

situations where the jurisdiction or law

of a state has been asserted against a

plan or other arrangement that contends

it meets the exception for plans

established or maintained under or

pursuant to one or more collective

bargaining agreements. Under Section

3(40) of ERISA, the Secretary may make

a determination that an employee

welfare benefit plan is a collectively

bargained plan, and thereby excluded

from the definition of ‘‘multiple

employer welfare arrangements’’ under

section 3(40) of ERISA, which are

otherwise subject to state regulation of

multiple employer welfare arrangements

as provided for by ERISA. A separate

document is being published today in

the Federal Register containing

proposed rules setting forth the criteria

for determining when an employee

welfare benefit plan is established or

maintained under or pursuant to one or

more collective bargaining agreements

for purposes of section 3(40) of ERISA.

If adopted, these proposed rules would

affect employee welfare benefit plans,

their sponsors, participants, and

beneficiaries as well as service

providers to plans.

DATES: Written comments concerning

the proposed regulation must be

received by December 26, 2000.

ADDRESSES: Interested persons are

invited to submit written comments

(preferably three copies) concerning this

proposed regulation to: Pension and

Welfare Benefits Administration, Room

N–5669, U.S. Department of Labor, 200

Constitution Avenue, NW., Washington,

DC 20210, (Attention: Proposed

Regulation Under Section 3(40)). All

submissions will be open to public

inspection at the Public Documents

Room, Pension and Welfare Benefits

Administration, Room N–5638, U.S.

Department of Labor, 200 Constitution

Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT:

Elizabeth A. Goodman, Office of

Regulations and Interpretations, Pension

and Welfare Benefits Administration,

Room N–5669, U.S. Department of

Labor, 200 Constitution Avenue, NW.,

Washington, DC 20210, (202) 219–8671.

This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

This document contains proposed

rules describing procedures for

administrative hearings to obtain a

determination by the Secretary as to

whether a particular employee benefit

plan is established or maintained under

or pursuant to one or more collective

bargaining agreements for purposes of

section 3(40) of ERISA. The procedure

for administrative hearings would be

available only in situations where the

jurisdiction or law of a state has been

asserted against a plan or other

arrangement that contends it meets the

exception for plans established or

maintained under or pursuant to one or

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64499

more collective bargaining agreements.

These rules are modeled on the

procedures set forth in sections 29 CFR

2570.60 through 2570.71 regarding civil

penalties under section 502(c)(2) of

ERISA relating to reports required to be

filed under ERISA section 104(b)(4).

B. The 1995 Notice of Proposed

Rulemaking

The history of section 3(40) of ERISA

and the Department’s efforts to

implement this provision is fully

outlined in the proposed rule

establishing the regulatory criteria

under section 3(40), published

separately in this issue of the Federal

Register. On August 1, 1995, the

Department published a Notice of

Proposed Rulemaking on Plans

Established or Maintained Pursuant to

Collective Bargaining Agreements in the

Federal Register. (60 FR 39209) (1995

NPRM). The Department proposed

criteria and a process for determining

whether an employee benefit plan is

established or maintained under or

pursuant to one or more agreements that

the Secretary finds to be collective

bargaining agreements for purposes of

section 3(40) of ERISA. The approach

proposed in the 1995 NPRM did not

provide for individual findings by the

Department. The Department received

numerous comments on the NPRM.

Commenters objected to having state

regulators determine whether a

particular agreement was a collective

bargaining agreement.

C. Regulatory Negotiation

A discussion of the process the

Department followed to establish the

ERISA Section 3(40) Negotiated

Rulemaking Advisory Committee (the

Committee) to recommend a rule

implementing section 3(40) is set forth

in the proposed rule establishing the

regulatory criteria under section 3(40),

published separately in this issue of the

Federal Register.

The goal of the Committee was to

develop a substantive rule to help the

states, insurers, plans, and organized

labor determine which entities are

indeed plans established or maintained

under or pursuant to one or more

collective bargaining agreements, and

therefore not subject to state regulation,

under Section 3(40) of ERISA. These

procedural rules, in addition to the

substantive rule published

simultaneously in this issue of the

Federal Register, resulted from the

Committee’s determination that the

availability of an individualized

procedure before a Department of Labor

Administrative Law Judge (ALJ), and for

appeals of an ALJ decision to the

Secretary or the Secretary’s delegate,

would be appropriate for the resolution

of a dispute regarding an entity’s legal

status in situations where the

jurisdiction or law of a state has been

asserted against a plan or other

arrangement that contends it meets the

exception for plans established or

maintained under or pursuant to one or

more collective bargaining agreements.

With the exception of sections F–L of

the preamble, the text of the proposed

rule and preamble is the Committee’s

consensus.

D. Overview of the Proposed

Regulations

This document contains proposed

regulations that establish procedures for

hearings before an ALJ with respect to

individualized determinations under

Section 3(40) of ERISA. In this regard,

the Secretary has established the

Pension and Welfare Benefits

Administration (PWBA) within the

Department for the purpose of carrying

out the Secretary’s responsibilities

under ERISA. See Secretary of Labor’s

Order 1–87, 52 FR 13139 (April 21,

1987).

The Department has also published

rules of practice and procedure for

administrative hearings before the

Office of the Administrative Law Judges

in Subpart A of 29 CFR Part 18, 48 FR

32538 (1983). As explained in 29 CFR

18.1, those provisions generally govern

administrative hearings before ALJs

assigned to the Department and are

intended to provide maximum

uniformity in the conduct of

administrative hearings. However, in

the event of an inconsistency or conflict

between the provisions of Subpart A of

29 CFR Part 18 and a rule or procedure

required by statute, executive order, or

regulation, the latter controls.

In drafting proposed regulatory

language, the Committee reviewed the

applicability of the provisions of

Subpart A of 29 CFR Part 18 to the ALJ

determination whether an employee

benefit plan is a collectively bargained

plan under section 3(40) of ERISA, and

the Department, following the

recommendations of the Committee, has

decided to adopt many, though not all,

of the provisions of Subpart A of 29 CFR

Part 18 for these proceedings. These

proposed rules relate specifically to

procedures for ALJ determinations

under section 3(40) of ERISA and are

controlling to the extent that they are

inconsistent with any portion of Subpart

A of 29 CFR Part 18. Accordingly, where

not otherwise specified in these

proposed regulations, adjudications

relating to determinations under ERISA

section 3(40) will be governed by the

following sections of Subpart A of 29

CFR Part 18:

§ 18.4 Time Computations.

§ 18.5 (c) through (e) Responsive

pleadings—Answer and Request for

Hearing.

§ 18.6 Motions and Requests.

§ 18.7 Prehearing Statements.

§ 18.8 Prehearing Conferences.

§ 18.9 Consent Order or Settlement;

Settlement Judge Procedure.

§ 18.11 Consolidation of Hearings.

§ 18.12 Amicus Curiae.

§ 18.13 Discovery Methods.

§ 18.14 Scope of Discovery.

§ 18.15 Protective Orders.

§ 18.16 Supplementation of Responses.

§ 18.17 Stipulations Regarding Discovery.

§ 18.18 Written Interrogatories to Parties.

§ 18.19 Production of Documents and

Other Evidence; Entry Upon Land for

Inspection and Other Purposes; and

Physical and Mental Examination.

§ 18.20 Admissions.

§ 18.21 Motion to Compel Discovery.

§ 18.22 Depositions.

§ 18.23 Use of Depositions at Hearings.

§ 18.24 Subpoenas.

§ 18.25 Designation of Administrative Law

Judge.

§ 18.26 Conduct of Hearings.

§ 18.27 Notice of Hearing.

§ 18.28 Continuances.

§ 18.29 Authority of Administrative Law

Judge.

§ 18.30 Unavailability of Administrative

Law Judge.

§ 18.31 Disqualification.

§ 18.32 Separation of Functions.

§ 18.33 Expedition.

§ 18.34 Representation.

§ 18.35 Legal assistance.

§ 18.36 Standards of Conduct.

§ 18.37 Hearing Room Conduct.

§ 18.38 Ex Parte Communications.

§ 18.39 Waiver of Right to Appear and

Failure to Participate or to Appear.

§ 18.40 Motion for Summary Decision.

64500 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

§ 18.43 Formal Hearings.

§ 18.44 [Reserved].

§ 18.45 Official Notice.

§ 18.46 In Camera and Protective Orders.

§ 18.47 Exhibits.

§ 18.48 Records in Other Proceedings.

§ 18.49 Designation of Parts of

Documents.

§ 18.50 Authenticity.

§ 18.51 Stipulations.

§ 18.52 Record of Hearings.

§ 18.53 Closing of Hearings.

§ 18.54 Closing the Record.

§ 18.55 Receipt of Documents After

Hearing.

§ 18.56 Restricted Access.

§ 18.58 Appeals.

§ 18.59 Certification of Official Record.

This proposed rule is designed to

maintain the maximum degree of

uniformity with the rules set forth in

Subpart A of 29 CFR Part 18, consistent

with the need for an expedited

procedure, but also recognizing the

special characteristics of proceedings

under ERISA section 3(40). For

purposes of clarity, where a particular

section of the existing procedural rules

would be affected by these proposed

rules, the entire section of the existing

procedural rules (with the appropriate

modifications) has been set out in this

document. Thus, only a portion of the

provisions of the procedural rules set

forth below contain changes from, or

additions to, the rules in Subpart A of

29 CFR Part 18. The Department seeks

suggestions on ways to facilitate and

expedite the process by electronic

means or otherwise. The specific

modifications to the rules in Subpart A

of 29 CFR Part 18, and their relationship

to the conduct of these proceedings

generally, are outlined below.

E. Discussion of the Proposed Rules

1. In General

Generally, the proposed rule in

section 2510.3–40, also being published

today, sets forth the finding by the

Secretary as to what constitutes an

employee welfare benefit plan

established or maintained under or

pursuant to one or more collective

bargaining agreements under section

3(40) of ERISA. The availability of the

procedures in these proposed rules is

limited. The applicability of these

procedural rules under section 3(40) of

ERISA is set forth in section 2570.130.

In this regard, it should be noted that

these procedural rules apply only to

adjudicatory proceedings before ALJs of

the United States Department of Labor.

Pursuant to proposed rule section

2570.131, contained in this notice, an

adjudicatory proceeding before an ALJ

may be commenced only when the

jurisdiction or law of a state has been

asserted against a plan or other

arrangement that contends it meets the

exception for plans established or

maintained under or pursuant to

collective bargaining. Only an entity

against whom the jurisdiction or law of

a state has been asserted may initiate

adjudicatory proceedings before an ALJ

under these rules.

The definitions section (2570.132) of

these rules incorporates the basic

adjudicatory principles set forth in

Subpart A of 29 CFR Part 18, but

includes terms and concepts of specific

relevance to proceedings under section

3(40) of ERISA. In this respect, it differs

from its more general counterpart at

section 18.2 of this title. In particular,

section 2570.132(f) states that the term

‘‘Secretary’’ means the Secretary of

Labor and includes various persons to

whom the Secretary may delegate

authority. This definition is not

intended to suggest any limitation on

the authority that the Secretary has

delegated to the Assistant Secretary for

Pension and Welfare Benefits. As noted

above, the Secretary of Labor has

delegated most of her authority under

ERISA to the Assistant Secretary for

Pension and Welfare Benefits. Thus, the

Department contemplates that the duties

assigned to the Secretary under these

proposed procedural regulations will in

fact be discharged by the Assistant

Secretary for Pension and Welfare

Benefits or a properly authorized

delegate.

2. Proceedings Before Administrative

Law Judges

Section 2570.133 (relating to parties

to the proceedings) and section 2570.94

(relating to filing and contents of a

petition) contemplate that adjudicatory

proceedings will be initiated with the

filing by an entity of a petition for a

determination under section 3(40) of

ERISA. The service of documents by the

parties to an adjudicatory proceeding, as

well as by the ALJ, will be governed by

section 2570.135 of these rules.

In general, the rules in Subpart A of

29 CFR Part 18 concerning the

computation of time, pleadings and

motions, and prehearing conferences

and statements, are adopted in these

procedures for adjudications under

section 3(40) of ERISA. The proposed

rule on the designation of parties

(2570.133) differs from its counterpart

under section 18.10 of this title in that

it specifies that the parties in these

proceedings will be limited to (i) the

entity filing a petition under section

2750.134 (the plan or other arrangement

against whom state law or jurisdiction

has been asserted); (ii) the state or states

whose law or jurisdiction has been

asserted to apply to the entity; (iii) any

individual party other than a state who

has asserted that a particular state has

jurisdiction over the entity, or whose

law applies; and (iv) the Secretary of

Labor.

Within 30 days after the service of the

petition, any other party may file a

response to the petition. Before that

date, any state not named in the petition

may intervene as of right, simply by

giving written notice to the other parties

and the ALJ. After that date,

intervention by other states is

permissive with consent of all parties or

by order of the ALJ.

Section 2570.136, relating to

expedited proceedings, permits any of

the parties to move to shorten the time

for the scheduling of a proceeding,

including the time for conducting

discovery. Paragraph (b) of section

2570.136 describes the information

which must be set forth in support of a

party’s motion to expedite proceedings.

Paragraph (c) of section 2570.136

prescribes the manner of service for

purposes of this section, while

paragraph (d) generally sets a time limit

of ten days from the date of service of

the motion for all other parties to file an

opposition in response to the motion.

Paragraph (e) permits an ALJ to advance

the schedule for pleadings, discovery,

prehearing conferences and the

adjudicatory hearing after receiving the

parties’ statements in response to the

initial motion, but requires that the ALJ

give notice of at least five business days

in advance of a hearing on the merits,

unless all parties consent otherwise to

an earlier hearing. Paragraph (f) of

section 2570.136 provides that when an

expedited hearing is held, the ALJ must

issue a decision within 20 working days

after receipt of the transcript of an oral

hearing, or within 20 working days after

the filing of all documentary evidence,

if no oral hearing is conducted.

The proposed rule on the allocation of

the burden of proof (2570.137) provides

that for purposes of a final decision

under section 2570.138 (decision of

administrative law judge) and section

2570.139 (review by the Secretary), the

petitioner has the ultimate burden of

establishing each of the elements of

subparagraph (b)(4) of section 2570.134,

relating to whether the entity qualifies

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64501

1See below for data relevant to the number of

MEWAs and collectively bargained plans and the

costs of filing petitions.

as an employee welfare benefit plan

established or maintained under or

pursuant to one or more collective

bargaining agreements. At the outset,

however, the petitioner would meet its

burden of going forward when it makes

a prima facie showing that it satisfies

the criteria of 29 CFR 2510.3–40(b).

Paragraph (a) of section 2570.138,

relating to the decision of the ALJ,

permits the ALJ to allow parties to file

proposed findings of fact, conclusions of

law and a proposed order together with

supporting briefs. Paragraph (b) of

section 2570.138 permits the ALJ to

request that the parties present oral

arguments in lieu of briefs and, in such

an instance, requires the ALJ to issue a

decision at the close of oral argument.

Paragraph (c) of section 2570.138

provides that the ALJ shall issue a

decision, containing findings of fact and

conclusions of law, and reasons

supporting the same, no later than 30

days, or as soon as possible thereafter,

after the receipt of proposed findings of

fact, conclusions of law and a proposed

order, or within 30 days of receipt of an

agreement containing consent findings

and order disposing of the whole of the

disputed issue. Paragraph (c) of section

2570.138 further provides, among other

things, that the ALJ’s order be based on

the whole record, and that it be

supported by reliable and probative

evidence.

The proposed rule concerning the

review by the Secretary of the decision

of the ALJ (2570.139) differs from its

counterpart at section 18.57 of this title

in that it states that the decision of the

ALJ in a Section 3(40) Finding

Procedure shall become the final

decision of the Secretary unless a timely

appeal is filed. The procedures for

appeals of ALJ decisions under section

3(40) of ERISA are governed solely by

the rules set forth in section 2570.139,

and without any reference to the

appellate procedures contained in

Subpart A of 29 CFR Part 18. Paragraph

(a) of section 2570.139 establishes a 20-

day time limit within which such

appeals must be filed. Paragraph (b) of

section 2570.139 requires that the issues

for appeal be stated with specificity in

a party’s request for review, and that the

request for appeal be filed on all parties

to the proceeding. Paragraph (c) of

section 2570.139 provides that review

by the Secretary shall not be de novo,

but rather on the basis of the record

before the ALJ. Paragraph (e) of section

2570.139 states that the decision of the

Secretary on such an appeal shall be a

final agency action within the meaning

of 5 U.S.C. 704. As noted above, the

authority of the Secretary with respect

to the appellate procedures has been

delegated to the Assistant Secretary for

Pension and Welfare Benefits. As

required by the Administrative

Procedure Act (5 U.S.C. 552(a)(2)(A)),

all final decisions of the Department

under section 502(c)(5) of ERISA shall

be compiled in the Public Documents

Room of the Pension and Welfare

Benefits Administration, Room N–5638,

U.S. Department of Labor, 200

Constitution Avenue NW, Washington,

DC 20210.

Economic Analysis Under Executive

Order 12866

Under Executive Order 12866, the

Department must determine whether the

regulatory action is ‘‘significant’’ and

therefore subject to the requirements of

the Executive Order and subject to

review by the Office of Management and

Budget (OMB). Under section 3(f), the

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.

Pursuant to the terms of the Executive

Order, it has been determined that this

action is ‘‘significant’’ and therefore

subject to review by the Office of

Management and Budget (OMB). OMB

has determined that this proposed

regulation is significant within the

meaning of section 3(f)(4) of the

Executive Order. Consistent with the

Executive Order, the Department has

undertaken an assessment of the costs

and benefits of this regulatory action.

The analysis is detailed below.

Summary

Pursuant to the requirements of

Executive Order 12866 the Department

undertook an analysis of the economic

impact of this proposed regulation.

Based on its analysis, the Department

has concluded that the proposed

regulation’s benefits exceed its costs

although neither has been quantified.1

The Department seeks data on benefits

and costs. The Department has

concluded that the proposed regulation

will benefit plans, states, insurers, and

organized labor by reducing the cost of

resolving some disputes over states’

jurisdiction to regulate certain multiple

employer welfare benefit arrangements,

likely facilitating the conduct of

hearings, reducing disputes over plans’

and arrangements’ status, and by

improving the efficiency and ensuring

the consistency in determinations of

such jurisdiction.

The regulation establishes procedures

for administrative hearings to obtain a

determination from the Secretary as to

whether a multiple employer welfare

benefit plan is established or

maintained under or pursuant to one or

more collective bargaining agreements.

Plans so established or maintained are

excluded from the definition of multiple

employer welfare arrangements

(MEWAs) and consequently are not

subject to state regulation. When state

jurisdiction is asserted over entities that

claim this collective bargaining

exclusion, they would have the option

of using these procedures to resolve the

dispute. In the absence of the

promulgation of specific criteria which

would form the basis of a determination

concerning whether a given plan is

established or maintained pursuant to a

collective bargaining agreement, such

disputes have generally been resolved in

courts. It is expected that giving entities

over whom state jurisdiction has been

asserted the opportunity to resolve

disputes via the procedures established

by the proposed regulation will

generally be more efficient and less

costly than resolving them in courts

when these procedures are chosen. It is

also expected that determinations made

in the single, specialized venue of the

administrative hearings provided for in

the proposed regulation may be more

consistent than determinations made in

multiple, non-specialized court venues.

Background

A multiple employer welfare

arrangement (MEWA) is a group benefit

program which is geared toward

providing welfare benefits, most

frequently to small employers and their

employees. Because they provide

health, life, disability or other welfare

benefits, all MEWAs, whether or not

they are ERISA-covered employee

benefit plans, are subject to state

insurance regulation unless they fall

64502 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

under one of the statutory exceptions to

ERISA’s MEWA definition. The

exception relevant here states that the

term MEWA does not include plans

which are established or maintained

under or pursuant to one or more

agreements which the Secretary of Labor

(the Secretary) finds to be collective

bargaining agreements. Some

unscrupulous MEWA operators have

taken advantage of the ‘‘collective

bargaining agreements’’ exception to

establish sham MEWAs which are often

underfunded and incapable of paying

employees health benefit claims. A

General Accounting Office Report,

published in March 1992, entitled,

‘‘Employee Benefits: States Need Labor’s

Help Regulating Multiple Employer

Welfare Arrangements’’ (GAO/HRD–92–

40) stated that, ‘‘Between January 1988

and June 1991, MEWAs left at least

398,000 participants and their

beneficiaries with more than $124

million in unpaid claims and many

other participants without insurance.

More than 600 MEWAs failed to comply

with state insurance laws, and some

violated criminal statutes.’’ The

Department is proposing today, two

regulations, one defining what is a plan

established or maintained under or

pursuant to one or more collective

bargaining agreements (29 CFR 2510.3–

40), and this regulation, providing for a

procedure before a Department

Administrative Law Judicial Hearing

(ALJ) concerning the legal status of an

entity when a state’s jurisdiction has

been asserted over or against that entity.

Historically, the usual means for

determining a plan’s legal status under

state insurance laws has been a

judgment in a court of law. The 1992

GAO Report noted that although most

states were able to establish jurisdiction

without going to court, thirteen states

had found it necessary to establish

jurisdiction in a court of law. States

described these legal battles as costly in

terms of staff and time. Moreover, states

claimed that, on occasion, fraudulent

MEWAs claimed the collective

bargaining agreement exemption in

order to stall state action and continue

collecting premiums from unsuspecting

employers. States contacted by GAO

recommended that the Department

clarify ERISA’s collective bargaining

preemption provision in a regulation.

Ultimately, the Report recommended,

‘‘that the Secretary of Labor direct the

Assistant Secretary for PWBA to * * *

(2) improve procedures to quickly

answer questions about such issues as

ERISA preemption and state regulatory

authority, thus enabling states to more

aggressively deal with problem

MEWAs.’’

Recognizing that additional guidance

was needed, in 1995 the Department

proposed criteria and a process for

determining whether an employee

benefit plan was established or

maintained under or pursuant to one or

more agreements that the Secretary

finds to be a collective bargaining

agreement. The approach proposed in

the 1995 NPRM did not provide for

individual findings by the Department

but instead relied on state regulators to

make the determination as to whether a

collective bargaining agreement

existed—a procedure which drew

negative comments from the public.

Convinced that guidance was still

needed, in 1998 the Secretary

established the ERISA Section 3(40)

Negotiated Rulemaking Advisory

Committee under the Negotiated

Rulemaking Act and the Federal

Advisory Committee Act. The

Committee included representatives

from labor unions, multiemployer plans,

state governments, employers, third

party administrators, insurance carriers,

brokers and agents providing health care

products and services, and the National

Railway Labor Conference. As a result of

the Committee’s work and as an

alternative to the 1995 proposed

regulation, the Department is proposing

two regulations: this regulation, which

establishes procedures for

administrative hearings to obtain a

determination from the Secretary as to

whether a plan is established or

maintained under or pursuant to one or

more collective bargaining agreements,

and its accompanying regulation, which

sets forth standards for distinguishing

whether a plan is so established or

maintained.

In formulating the process for an

administrative hearing, the Committee

reviewed the applicability of the rules of

practice and procedure currently used

by the Office of Administrative Law

Judges (ALJs) and adopted many,

though not all, of the provisions. These

proposed rules relate specifically to

procedures for ALJ determinations

under section 3(40) of the Act and are

controlling to the extent that they are

inconsistent with any portion of the ALJ

published rules of practice and

procedure.

In order to initiate adjudicatory

proceedings, an entity will be required

to file with the ALJ a petition for a

determination under section 3(40) of the

Act. The petition shall: (1) Provide the

name and address of the entity for

which the petition is filed; (2) provide

the names and addresses of the plan

administrator and plan sponsor(s) of the

plan or other arrangement for which the

finding is sought; (3) identify the state

or states whose law or jurisdiction the

petitioner claims has been asserted over

the plan or other arrangement at issue,

and provide the addresses and names of

responsible officials; (4) include

affidavits or other written evidence

showing that (i) state jurisdiction has

been asserted over or legal process

commenced against the plan or other

arrangement pursuant to state law; (ii)

the plan is an employee welfare benefit

plan as defined at section 3(1) of ERISA

and is covered by ERISA pursuant to

section 4 of the Act; (iii) the plan is

established or maintained for the

purpose of offering or providing benefits

described in section 3(1) of ERISA to

employees of two or more employers

(including one or more self-employed

individuals) or their beneficiaries; (iv)

the plan satisfies the criteria in new

section 3–40(b); and (v) service has been

made as provided by this proposed

regulation; (5) affidavits shall set forth

such facts as would be admissible in

evidence in a proceeding under part 18

of this title and shall show affirmatively

that the affiant is competent to testify to

the matters stated therein. The affidavit

or other written evidence must set forth

specific facts showing the factors

required under subparagraph (b)(4). In

addition, copies of all documents shall

be served on all parties of record,

attorneys for the parties, and the

Secretary. If an entity chooses to request

an expedited proceeding, the motion

must be made in writing, with a

description of the circumstances

necessitating an expedited hearing, the

harm which would result if the motion

were denied, and supporting affidavits.

The section of the proposed rule on

the allocation of the burden of proof

provides that for purposes of a final

decision by the ALJ (and for purposes of

review by the Secretary) the petitioner

has the ultimate burden of establishing

each of the elements relating to whether

the entity qualifies as an employee

welfare benefit plan established or

maintained under or pursuant to one or

more collective bargaining agreements.

The decision of the ALJ is final unless

an appeal is filed with the Secretary

within twenty days. A request for

review by the Secretary must state the

issue(s) in the administrative law

judge’s final decision upon which

review is sought and shall be served on

all parties to the proceeding. The review

by the Secretary is the final agency

action.

Resolving Disputes Efficiently

An administrative hearing under the

proposed regulation will economically

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64503

benefit the small number of plans or

arrangements that dispute state-asserted

jurisdiction. The Department foresees

improved efficiencies through use of

administrative hearings that are used at

the option of entities over whom state

jurisdiction has been asserted. An

administrative hearing will allow the

various parties to obtain a decision in a

more timely and efficient manner than

is customary in federal or state court

proceedings and will provide cost

savings for the plan or arrangement, its

participating employers and employees.

For purposes of this economic

analysis, the Department considered the

cost of obtaining determinations of

plans’ or arrangements’ status and

states’ jurisdiction under the proposed

regulation relative to the cost of

obtaining such determinations in the

current environment. The current

practice for determining whether a plan

is established or maintained under or

pursuant to a collective bargaining

agreement is for a plan or state to obtain

a decision in a federal or state court.

Accordingly, this analysis relates to

determining plans’ or arrangements’

legal status through adjudication.

The Department’s analysis of costs

involved in adjudication in a federal or

state court versus an administrative

hearing assumes that entities and states

incur a baseline cost to resolve the

question of their status in federal or

state court. This baseline cost includes,

but is not limited to, expenditures for

document production, attorney fees,

filing fees, depositions, etc. Because a

determination of jurisdiction in a

federal or state court may be determined

in motions or pleadings in cases where

jurisdiction is not the primary litigated

issue, the direct cost of using the courts

as a decision-maker for jurisdictional

issues only is too variable to specify;

however, custom and practice indicate

that the cost of an administrative

hearing will be similar to or will

represent a cost savings compared with

the baseline cost of litigating in federal

or state court.

Because the procedures and

evidentiary rules of an administrative

hearing generally track the Federal

Rules of Civil Procedure and of

Evidence, document production will be

similar for both an administrative

hearing and for a federal or state court.

Documents such as by-laws,

administrative agreements, and

collective bargaining agreements, etc.,

are generally kept in the normal course

of business for welfare benefit plans and

it is unlikely that there will be any

additional cost for an administrative

hearing beyond that which would be

required in preparation for litigation in

a federal or state court. Certain

administrative hearing practices and

other new procedures initiated by this

regulation may, however, represent a

cost savings over litigation. For

example, neither party need employ an

attorney; the prehearing exchange is

short and general; either party may

move to shorten the time for the

scheduling of a proceeding, including

the time for conducting discovery; the

general formality of the hearing may

vary, particularly depending on whether

the petitioner is appearing pro se; an

expedited hearing is possible; and, the

ALJ generally has 20 working days after

receipt of the transcript of an oral

hearing or after the filing of all

documentary evidence if no oral hearing

is conducted to reach a decision.

The Department cannot predict that

any or all of these conditions will exist,

nor can it predict that any of these

factors represent a cost-savings, but, it is

likely that the knowledge of state and

federal laws which the ALJ brings to the

decision-making process will facilitate

the hearing, reduce costs, and introduce

a consistent standard to what has been

a confusion of jurisdictional decisions.

ALJ case histories will educate MEWAs

and states by articulating the

characteristics of a collectively

bargained plan, which clarity will in

turn benefit participants and

beneficiaries with secure contributions

and paid-up claims. The Department

welcomes comment on the comparative

cost of a trial in federal or state court

versus an administrative hearing on the

issue of the legal status of a welfare

benefit plan as it pertains to the

existence of a plan that is established or

maintained under or pursuant to an

agreement or agreements that the

Secretary finds to be collective

bargaining agreements for purposes of

section 3(40) of ERISA.

Determining Jurisdiction Accurately and

Consistently

The proposed regulation that

accompanies this one establishes

criteria for determining whether a

welfare benefit plan is established or

maintained under or pursuant to one or

more collective bargaining agreements.

While the proposed criteria will largely

eliminate confusion in determining

whether a MEWA falls under the

collective bargaining agreement

exception, given the wide variety and

constructs of agreements, MEWA

operators and the states may still

disagree about the legal status of an

entity. For this reason, the Department

is proposing this second regulation

establishing procedures that permit, in

certain limited circumstances, an entity

to seek an administrative hearing to

obtain a finding by the Secretary that a

particular plan is established or

maintained under or pursuant to one or

more collective bargaining agreements.

Accurate and consistent

determinations under this proposed

regulation and the objective standards

provided in the substantive proposal

together are expected to reduce

uncertainty and the incidence of

disputes over plans’ and arrangements’

status. The Department has attributed

expected cost savings from reductions

in uncertainty and disputes to the

substantive regulation, because that

regulation sets forth the standards on

which determinations will be based.

Efficiently and accurately determining

the legal status of a plan or arrangement

will also benefit employers and

employees as it will provide greater

assurance that the entity is complying

with appropriate federal and state laws.

Due at least in part to the interaction of

federal and state requirements,

historical compliance with the various

requirements which apply to MEWAs

has been shown to be inconsistent.

Although the provisions of Titles I and

IV of ERISA generally supersede state

laws that relate to employee benefit

plans, certain state laws which regulate

insurance may apply to MEWAs, and

knowledge of both federal and state

requirements is necessary for

consistency in determining plans’ or

arrangements’ legal status. This is

particularly important where these

entities are doing business in more than

one state and each state’s laws may

apply independently to the MEWAs

doing business in that state. The

Department believes that the

administrative hearing process will

provide for the uniform interpretation

and application of both federal and state

regulations and will avoid confusion

resulting from a variety of jurisdictional

procedures and laws. Employers and

employees will benefit from an

administrative decision by assurances as

to which protections, be they federal or

both state and federal, apply to their

particular arrangement. The Department

has attributed the net benefit from the

reclassification of currently inaccurately

classified plans or arrangements (and

the consequent application of

appropriate state or federal protections)

to the substantive proposed regulation,

which sets for the standards that will

assure accurate classifications.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (RFA) imposes

certain requirements with respect to

Federal rules that are subject to the

64504 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

notice and comment requirements of

section 553(b) of the Administrative

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

which are likely to have a significant

economic impact on a substantial

number of small entities. Unless an

agency certifies that a proposed rule

will not have a significant economic

impact on a substantial number of small

entities, section 603 of the RFA requires

that the agency 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 and

seeking public comment on such

impact. Small entities include small

businesses, organizations and

governmental jurisdictions.

For purposes of analysis under the

RFA, PWBA proposes to continue to

consider a small entity to be an

employee benefit plan with fewer than

100 participants. The basis of this

definition is found in section 104(a)(2)

of the Employee Retirement Income

Security Act of 1974 (ERISA), which

permits the Secretary of Labor to

prescribe simplified annual reports for

pension plans which cover fewer than

100 participants. Under section

104(a)(3), the Secretary may also

provide for exemptions or simplified

annual reporting and disclosure for

welfare benefit plans. Pursuant to the

authority of section 104(a)(3), the

Department has previously issued at 29

CFR 2520.104–20, 2520.104–21,

2520.104–41, 2520.104–46 and

2520.104b–10 certain simplified

reporting provisions and limited

exemptions from reporting and

disclosure requirements for small plans,

including unfunded or insured welfare

plans covering fewer than 100

participants and which satisfy certain

other requirements.

Further, while some large employers

may have small plans, in general most

small plans are maintained by small

employers. Thus, PWBA believes that

assessing the impact of this proposed

rule on small plans is an appropriate

substitute for evaluating the effect on

small entities. The definition of small

entity considered appropriate for this

purpose differs, however, from a

definition of small business which is

based on size standards promulgated by

the Small Business Administration

(SBA) (13 CFR 121.201) pursuant to the

Small Business Act (15 U.S.C. 631 et

seq.). PWBA therefore requests

comments on the appropriateness of the

size standard used in evaluating the

impact of this proposed rule on small

entities.

On this basis, however, PWBA has

preliminarily determined that this rule

will not have a significant economic

impact on a substantial number of small

entities. In support of this

determination, and in an effort to

provide a sound basis for this

conclusion, PWBA has prepared the

following regulatory flexibility analysis.

(a) Reason for the Action. The

Department proposes this regulation in

order to establish a procedure for an

administrative hearing so that states and

entities will be able to obtain a

determination by the Secretary as to

whether a particular employee welfare

benefit plan is established or

maintained under or pursuant to one or

more collective bargaining agreements

for purposes of an exception to section

3(40) of ERISA.

(b) Objectives. The objective of the

regulation is to make available to plans

an individualized procedure for a

hearing before a Department of Labor

Administrative Law Judge, and for

appeals of an ALJ decision to the

Secretary or the Secretary’s delegate,

which would be appropriate for the

resolution of a dispute regarding an

entity’s legal status in situations where

the jurisdiction or law of a state has

been asserted against a plan or other

arrangement that contends it meets the

exception for plans established or

maintained under or pursuant to one or

more collective bargaining agreements.

(c) Estimate of Small Entities

Affected. For purposes of this

discussion, the Department has deemed

a small entity to be an employee benefit

plan with fewer than 100 participants.

The basis of this definition is found in

section 104(a)(2) of ERISA, which

permits the Secretary of Labor to

prescribe simplified annual reports for

pension plans which cover fewer than

100 participants. For this purpose, it is

assumed that arrangements with fewer

than 100 participants and which are (1)

multiemployer collectively bargained

group welfare benefit plans; (2) noncollectively bargained multiple

employer group welfare benefit plans,

or; (3) other multiple employer

arrangements which provide welfare

benefits, are small plans. PWBA

believes that assessing the impact of this

proposed rule on small plans is an

appropriate substitute for evaluating the

effect on small entities as that term is

defined in the RFA. No small

governmental jurisdictions will be

affected.

Based on Form 5500 filings and

available research, it is estimated that

there are a possible 4,180 plans which

can be classified as either collectively

bargained plans or as MEWAs; however,

PWBA estimates that a very small

number of these arrangements will have

fewer than 100 participants. By their

nature, the affected arrangements must

involve at least two employers, which

decreases the likelihood of coverage of

fewer than 100 participants. Also,

underlying goals of the formation of

these arrangements, such as gaining

purchasing and negotiating power

through economies of scale, improving

administrative efficiencies, and gaining

access to additional benefit design

features, are not readily accomplished if

the group of covered lives remains

small.

While there are no statistics to

determine the number of small plans

among the 4,180 plans, based on the

health coverage reported in the

Employee Benefits Supplement to the

1993 Current Population Survey and on

a 1993 Small Business Administration

survey of retirement and other benefit

coverages in small firms, research data

indicate that there are more than 2.5

million private group health plans with

fewer than 100 participants. Thus, the

4,180 collectively bargained plans or

MEWAs, even if all were to have fewer

than 100 participants, represent

approximately one-tenth of one percent

of all small group health plans.

The Department is not aware of any

source of information indicating the

number of instances in which state

jurisdiction has been asserted over these

entities, or the portion of those

instances which involved the collective

bargaining agreement exception.

However, in order to develop an

estimate of the number of plans which

might seek to clarify their legal status by

using an administrative hearing as

proposed by this regulation, the

Department examined the number of

lawsuits to which the Department had

previously been a party. While this

number is not viewed as a measure of

the incidence of the assertion of state

jurisdiction, it is considered the only

reasonable available proxy for an

estimate of a maximum number of

instances in which the applicability of

state requirements might be at issue.

The Department has been a party to 375

civil and 75 criminal cases from 1990 to

1999, or an average of 45 cases per year.

The proportion of these lawsuits that

involved a dispute over state

jurisdiction based on plans’ or

arrangements’ legal status is unknown.

On the whole, 45 is considered a

reasonable estimate of an upper bound

number of plans which could have been

a party to a lawsuit involving a

determination of the plan’s legal status.

Because this procedural regulation and

the related substantive regulation are

expected to reduce the number of

disputes, the Department assumes that

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64505

45 represents a conservatively high

estimate of the number of plans or

arrangements which would petition for

an administrative hearing. Of all small

plans, then, the greatest number of plans

likely to petition for an administrative

hearing represents a very tiny fraction of

the total number of small plans. In

addition, the Department has assumed

that an entity’s exercise of the

opportunity to petition for a finding will

generally be less costly than available

alternatives. Accordingly, the

Department has concluded that this

regulation will not have a significant

economic impact on a substantial

number of small entities, but requests

comments on the comparative costs of

establishing a small entity’s legal status

in a court of law or at ALJ hearing.

(e) Duplication. No federal rules have

been identified that duplicate, overlap,

or conflict with the proposed rule.

(f) Alternatives. The proposed

regulation represents the consensus

report of a committee established in

1998 by the Secretary to provide an

alternative to guidance proposed by the

Department in 1995. Recognizing that

guidance was needed in clarifying

collective bargaining exceptions to the

MEWA regulation, the Secretary had, in

1995, published a Notice of Proposed

Rulemaking on Plans Established or

Maintained Pursuant to Collective

Bargaining Agreements in the Federal

Register (60 FR 39209). At that time, the

Department also proposed, as part of the

NPRM, that it would be within the

authority of state insurance regulators to

identify and regulate MEWAs operating

in their jurisdictions. In other words,

the proposed approach did not establish

a method for obtaining individual

findings by the Department.

The Department received numerous

comments on the NPRM. Commenters

expressed concerns about their ability to

comply with the standards set forth in

the NPRM and to establish compliance

with the criteria proposed by the

Department. Commenters also objected

to the part of the proposal which would

have had state regulators determine

whether a particular agreement was a

collective bargaining agreement.

Commenters strongly preferred that

determination of whether a plan was

established under or pursuant to a

collective bargaining agreement lie with

a federal agency and not with individual

states.

Based on the comments received, the

Department turned to negotiated

rulemaking as an appropriate method of

developing a revised Notice of Proposed

Rulemaking. In September 1998, the

Secretary established the ERISA Section

3(40) Negotiated Rulemaking Advisory

Committee under the Negotiated

Rulemaking Act. (5 U.S.C. 561 et seq.)

(NRA). The Committee membership was

chosen from the organizations that

submitted comments on the

Department’s August 1995 NPRM and

from the petitions and nominations for

membership received in response to the

Notice of Intent. The membership

included representatives from labor

unions, multiemployer plans, state

governments, employer/management

associations, Railway Labor Act plans,

third-party administrators, independent

agents and brokers of insurance

products, insurance carriers, and the

federal government. This regulation

represents the Committee’s consensus,

in the form of a proposed rule, for

determining the legal status of a welfare

benefit plan. Based on the fact that this

Notice of Proposed Rulemaking is the

result of a Committee decision by

consensus, and the fact that the

Committee represents a cross section of

the state, federal, association, and

private sector insurance universe, the

Department believes that, as an

alternative to the 1995 NPRM, this

regulation will accomplish the stated

objectives of the Secretary and will have

a beneficial impact on MEWAs and on

state insurance commissions. No other

significant alternatives which would

minimize the economic impact on small

entities have been identified.

Participating in an administrative

hearing to determine legal status is a

voluntary undertaking on the part of a

MEWA. It would be inappropriate to

create an exemption for small MEWAs

under the proposed regulation because

small MEWAs are as in need of

clarification of their legal status as are

larger MEWAs.

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.

Currently, PWBA is soliciting

comments concerning the proposed

information collection request (ICR)

included in this Proposed Rule

Governing Procedures for

Administrative Hearings Regarding

Plans Established or Maintained

Pursuant to Collective Bargaining

Agreements under Section 3(40)(A) of

ERISA. 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 appropriated 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 Pension

and Welfare Benefits Administration.

Although comments may be submitted

through December 26, 2000. 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 Gerald B. Lindrew, Office of Policy

and Research, U.S. Department of Labor,

Pension and Welfare Benefits

Administration, 200 Constitution

Avenue, NW., Room N–5647,

Washington, DC 20210. Telephone (202)

219–4782; Fax: (202) 219–4745. These

are not toll-free numbers.

This proposed regulation establishes

procedures for hearings before an

Administrative Law Judge (ALJ) with

respect to determinations under Section

3(40) of the Employee Retirement

Income Security Act of 1974 (ERISA).

Section 3(40) excepts from the

definition of a multiple employer

welfare arrangement any plan or

64506 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

arrangement established or maintained

under or pursuant to one or more

agreements which the Secretary of Labor

(the Secretary) finds to be a collective

bargaining agreement. This proposed

regulation sets forth administrative

procedures pursuant to which an entity

may, under limited circumstances, seek

an individual determination from the

Secretary as to whether it is a plan

established or maintained under or

pursuant to one or more collective

bargaining agreements.

As stated in the Regulatory Flexibility

Act analysis, the Department estimates

that 45 entities would be the maximum

number of petitioners for an ALJ

hearing. Those entities seeking a finding

under section 3(40) must file a written

petition by delivering or mailing to the

ALJ a petition which shall: (1) Provide

the name and address of the entity for

which the petition is filed; (2) provide

the names and addresses of the plan

administrator and plan sponsor(s) of the

plan or other arrangement for which the

finding is sought; (3) identify the state

or states whose law or jurisdiction the

petitioner claims has been asserted over

the plan or other arrangement at issue,

and provide the addresses and names of

responsible officials; (4) include

affidavits or other written evidence

showing that—(i) state jurisdiction has

been asserted over or legal process

commenced against the plan or other

arrangement pursuant to state law; (ii)

the plan is an employee welfare benefit

plan as defined at section 3 (1) of ERISA

and is covered by ERISA pursuant to

section 4 of the Act; (iii) the plan is

established or maintained for the

purpose of offering or providing benefits

described in section 3(1) of ERISA to

employees of two or more employers

(including one or more self-employed

individuals) or their beneficiaries; (iv)

the plan satisfies the criteria in 29 CFR

2510.3–40(b); and (v) service has been

made as provide in subsection 2570.95;

(5) The affidavits shall set forth such

facts as would be admissible in

evidence in a proceeding under part 18

of Title 1 and shall show affirmatively

that the affiant is competent to testify to

the matters stated therein. The affidavit

or other written evidence must set forth

specific facts showing the factors

required under subparagraph (b)(4).

The Department believes that

preparing and filing the petition will

require 32 hours of an attorney’s time,

at $72 per hour, and that entities will

purchase services to complete the

petition rather than do this work

themselves. Most of the factual

information will be readily available in

the office of any business or plan and

will not require a great deal of time to

assemble, either because they are

maintained in the ordinary course of

business, or they have been assembled

at least in part in response to the

assertion of jurisdiction by the state.

The majority of the time is expected to

be associated with drafting documents

describing the facts related to whether a

plan is established or maintained under

or pursuant to a collective bargaining

agreement. The total estimated cost for

an attorney’s time is $2,300 per petition

filed. Additional costs are estimated at

$10.00 per petition for materials and

mailing costs. Additional actions

following the establishment of a

proceeding by the ALJ are excepted

from PRA under the provisions of 5

CFR1320.4(a)(2).

Type of Review: New.

Agency: Pension and Welfare Benefits

Administration.

Title: Petition for Finding under

Section 3(40) of ERISA.

OMB Number: 1210–NEW.

Affected Public: Business or other forprofit; not-for-profit institutions; state

government.

Respondents: 45.

Responses: 45.

Average Time per Response: 32 hours.

Estimated Total Burden Hours: 1.

Estimated Total Burden Cost

(Operating and Maintenance): $104,100.

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.

Small Business Regulatory Enforcement

Fairness Act

The rule being issued here is subject

to the provisions of the Small Business

Regulatory Enforcement Fairness Act of

1996 (5 U.S.C. 801 et seq.) and, if

finalized, will be transmitted to

Congress and the Comptroller General

for review. The rule is not a ‘‘major

rule’’ as that term is defined in 5 U.S.C.

804, because it is not likely to result in

(1) an annual effect on the economy of

$100 million or more; (2) a major

increase in costs or prices for

consumers, individual industries, or

federal, state, or local government

agencies, or geographic regions; or (3)

significant adverse effects on

competition, employment, investment,

productivity, innovation, or on the

ability of United States-based

enterprises to compete with foreignbased enterprises in domestic or export

markets.

Unfunded Mandates Reform Act

For purposes of the Unfunded

Mandates Reform Act of 1995 (Pub. L.

104–4), as well as Executive Order

12875, this proposed rule does 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.

Executive Order 13132

When an agency promulgates a

regulation that has federalism

implications, Executive Order 13132 (64

FR 43255, August 10, 1999) requires

that the Agency 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 proposed regulation has

Federalism implications because it sets

forth standards and procedures for an

ALJ hearing for determining whether

certain entities may be regulated under

certain state laws or whether such state

laws are preempted with respect to such

entities. The state laws at issue are those

that regulate the business of insurance.

A representative from the National

Association of Insurance Commissioners

(NAIC), which represents the interest of

state governments in the regulation of

insurance, participated in this

rulemaking from the inception of the

Negotiated Rulemaking Committee.

In the course of this rulemaking, the

NAIC raised a concern that the proposed

process by which the Department issues

ALJ determinations regarding the

collectively bargained status of entities,

move forward as quickly as possible and

not result in a stay of state enforcement

proceedings against MEWAs. The

regulation specifically states that the

proceedings shall be conducted as

expeditiously as possible, the parties

shall make every effort to avoid delay at

each stage of the proceeding, and the

companion regulation that establishes

criteria provides that proceedings under

this regulation are not intended to

change existing law regarding stay and

abstention.

Statutory Authority

These regulations are proposed

pursuant to section 3(40) of ERISA (Pub.

L. 97–473, 96 Stat. 2611, 2612, 29 U.S.C.

1002(40)) and section 505 (Pub. L. 93–

406, 88 Stat. 892, 894, 29 U.S.C. 1135)

of ERISA and under Secretary of Labor’s

Order No. 1–87, 52 FR 13139, April 21,

1987.

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64507

List of Subjects in 29 CFR Part 2570

Administrative practice and

procedure, Collective Bargaining,

Employee benefit plans, Government

employees, Penalties, Pensions,

Reporting and recordkeeping

requirements, Retirement.

Proposed Regulations

For the reasons set out in the

preamble, the Department proposes to

amend Part 2570 of Chapter XXV of

Title 29 of the Code of Federal

Regulations as follows:

PART 2570—[AMENDED]

1. The authority for Part 2570 is

revised to read as follows:

Authority: 5 U.S.C. 8477(c)(3); Section

3(40), 502(c)(2), 502(c)(5), 502(i), 505 and 734

of ERISA, 29 U.S.C. 1002(40) 1132(c)(2),

1132(c)(5), 1132(i), 1135, 1191(c);

Reorganization Plan No. 4 of 1978; 5 U.S.C.

8477(c)(3); Secretary of Labor Order No. 1–

87, 52 FR 13139 (April 21, 1987).

Subpart A is also issued under 29 U.S.C.

1132(c)(1).

Subpart G is also issued under sec. 4, Pub.

L. 101–410, 104 Stat. 890 (28 U.S.C. 2461

note), as amended by sec. 31001(s)(1), Publ.

L. 104–134, 110 Stat. 1321–373.

2. Subpart G is added in Part 2570 to

read as follows:

Subpart G—Procedures for Issuance

of Findings Under ERISA § 3(40)

Sec.

2570.130 Scope of rules.

2570.131 In general.

2570.132 Definitions.

2570.133 Parties.

2570.134 Filing and contents of petition.

2570.135 Service.

2570.136 Expedited proceedings.

2570.137 Allocation of burden of proof.

2570.138 Decision of the Administrative

Law Judge.

2570.139 Review by the Secretary.

§ 2570.130 Scope of rules.

The rules of practice set forth in this

Subpart G apply to ‘‘Section 3(40)

Finding Proceedings’’ (as defined in

§ 2570.132(g)), under section 3(40) of

the Employee Retirement Income

Security Act of 1974 (ERISA or the Act).

Refer to 29 CFR 2510.3–40 for the

definition of relevant terms of section

3(40) of ERISA, 29 U.S.C. 1002(40). To

the extent that the regulations in this

subpart differ from the regulations in

subpart A of part 18 of this title, the

regulations in this subpart apply to

matters arising under section 3(40) of

ERISA rather than the rules of

procedure for administrative hearings

published by the Department’s Office of

Administrative Law Judges in subpart A

of part 18 of this title. These

proceedings shall be conducted as

expeditiously as possible, and the

parties shall make every effort to avoid

delay at each stage of the proceedings.

§ 2570.131 In general.

If there is an attempt to assert state

jurisdiction or the application of state

law, either by the issuance of a state

administrative or court subpoena to, or

the initiation of administrative or

judicial proceedings against, a plan or

other arrangement that alleges it is

covered title I of ERISA, 29 U.S.C. 1003,

the plan or other arrangement may

petition the Secretary to make a finding

under section 3(40) of ERISA that the

plan is established or maintained under

or pursuant to an agreement or

agreements that the Secretary finds to be

collective bargaining agreements for

purposes of section 3(40) of ERISA.

§ 2570.132 Definitions.

For section 3(40) Finding

Proceedings, this section shall apply

instead of the definitions in 29 CFR

18.2.

(a) ERISA means the Employee

Retirement Income Security Act of 1974,

et seq., 29 U.S.C. 1001, et seq., as

amended.

(b) Order means the whole or part of

a final procedural or substantive

disposition by the administrative law

judge of a matter under section 3(40) of

ERISA. No order will be appealable to

the Secretary except as provided in this

subpart.

(c) Petition means a written request

under the procedures in this subpart for

a finding by the Secretary under section

3(40) of ERISA that a plan or

arrangement is established or

maintained under or pursuant to one or

more collective bargaining agreements.

(d) Petitioner means the plan or

arrangement filing a petition.

(e) Respondent means:

(1) A state government

instrumentality charged with enforcing

the law which is alleged to apply or

which has been identified as asserting

jurisdiction over a plan or other

arrangement, including any agency,

commission, board, or committee

charged with investigating and

enforcing state insurance laws,

including parties joined under

§ 2570.136;

(2) The person or entity asserting that

state law or state jurisdiction applies to

the petitioner;

(3) The Secretary of Labor; and

(4) A state not named in the petition

who has intervened under

§ 2570.133(b).

(f) Secretary means the Secretary of

Labor, and includes, pursuant to any

delegation or sub-delegation of

authority, the Assistant Secretary for

Pension and Welfare Benefits or other

employee of the Pension and Welfare

Benefits Administration.

(g) Section 3(40) Finding Proceeding

means a proceeding before the Office of

Administrative Law Judges relating to

whether the Secretary finds a plan to be

established or maintained under or

pursuant to one or more collective

bargaining agreements within the

meaning of section 3(40) of ERISA.

§ 2570.133 Parties.

For section 3(40) Finding

Proceedings, this section shall apply

instead of 29 CFR 18.10.

(a) The term ‘‘party’’ with respect to

a Section 3(40) Finding Proceeding

means the petitioner and the

respondents.

(b) States not named in the petition

may participate as parties in a Section

3(40) Finding Proceeding by notifying

the OALJ and the other parties in

writing prior to the date for filing a

response to the petition. After the date

for service of responses to the petition,

a state not named in the petition may

intervene as a party only with the

consent of all parties or as otherwise

ordered by the ALJ.

(c) The Secretary of Labor shall be

named as a ‘‘respondent’’ to all actions.

(d) The failure of any party to comply

with any order of the ALJ may, at the

discretion of the ALJ, result in the

denial of the opportunity to present

evidence in the proceeding.

§ 2570.134 Filing and contents of petition.

(a) A person seeking a finding under

section 3(40) of ERISA must file a

written petition by delivering or mailing

it to the Chief Docket Clerk, Office of

Administrative Law Judges (OALJ), 800

K Street, NW, Suite 400, Washington,

DC 20001–8002.

(b) The petition shall—

(1) Provide the name and address of

the entity for which the petition is filed;

(2) Provide the names and addresses

of the plan administrator and plan

sponsor(s) of the plan or other

arrangement for which the finding is

sought;

(3) Identify the state or states whose

law or jurisdiction the petitioner claims

has been asserted over the plan or other

arrangement at issue, and provide the

addresses and names of responsible

officials;

(4) Include affidavits or other written

evidence showing that—

(i) State jurisdiction has been asserted

over or legal process commenced

against the plan or other arrangement

pursuant to state law;

64508 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

(ii) The plan is an employee welfare

benefit plan as defined at section 3(1) of

ERISA (29 U.S.C. 1002(1)) and 29 CFR

2510.3–1 and is covered by title I of

ERISA (see 29 U.S.C. 1003);

(iii) The plan is established or

maintained for the purpose of offering

or providing benefits described in

section 3(1) of ERISA (29 U.S.C.

1002(1)) to employees of two or more

employers (including one or more selfemployed individuals) or their

beneficiaries;

(iv) The plan satisfies the criteria in

29 CFR 2510.3–40(b); and

(v) Service has been made as provided

in § 2570.135.

(5) The affidavits shall set forth such

facts as would be admissible in

evidence in a proceeding under part 18

of this title and shall show affirmatively

that the affiant is competent to testify to

the matters stated therein. The affidavit

or other written evidence must set forth

specific facts showing the factors

required under paragraph (b)(4) of this

section.

§ 2570.13 Service.

For section 3(40) proceedings, this

section shall apply instead of 29 CFR

18.3. (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 (OALJ), 800

K Street, N.W., Suite 400, Washington,

DC 20001–8002, or to the OALJ Regional

Office to which the 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

by first class, prepaid U.S. mail, a copy

to the last known address. The Secretary

shall be served by delivery to the

Associate Solicitor, Plan Benefits

Security Division, ERISA Section 3(40)

Proceeding, P.O. Box 1914, Washington,

DC 20013. The person serving the

document shall certify to the manner

and date of service.

(c) By the Office of Administrative

Law Judges. Service of orders, decisions

and all other documents shall be made

to all parties of record by regular mail

to their last known address.

(d) Form of pleadings—(1) Every

pleading shall contain information

indicating the name of the Pension and

Welfare Benefits Administration

(PWBA) 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 8 1⁄2 x 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.

§ 2570.136 Expedited proceedings

For Section 3(40) Finding

Proceedings, this section shall apply

instead of 29 CFR 18.42.

(a) At any time after commencement

of a proceeding, any party may move to

advance the scheduling of a proceeding,

including the time for conducting

discovery.

(b) Except when such proceedings are

directed by the Chief Administrative

Law Judge or the administrative law

judge assigned, any party filing a motion

under this section shall:

(1) Make the motion in writing;

(2) Describe the circumstances

justifying advancement;

(3) Describe the irreparable harm that

would result if the motion is not

granted; and

(4) Incorporate in the motion

affidavits to support any representations

of fact.

(c) Service of a motion under this

section shall be accomplished by

personal delivery, or by facsimile,

followed by first class, prepaid, U.S.

mail. Service is complete upon personal

delivery or mailing.

(d) Except when such proceedings are

required, or unless otherwise directed

by the Chief Administrative Law Judge

or the administrative law judge

assigned, all parties to the proceeding in

which the motion is filed shall have ten

(10) days from the date of service of the

motion to file an opposition in response

to the motion.

(e) Following the timely receipt by the

administrative law judge of statements

in response to the motion, the

administrative law judge may advance

pleading schedules, discovery

schedules, prehearing conferences, and

the hearing, as deemed appropriate;

provided, however, that a hearing on the

merits shall not be scheduled with less

than five (5) working days notice to the

parties, unless all parties consent to an

earlier hearing.

(f) When an expedited hearing is held,

the decision of the administrative law

judge shall be issued within twenty (20)

days after receipt of the transcript of any

oral hearing or within twenty (20) days

after the filing of all documentary

evidence if no oral hearing is

conducted.

§ 2570.137 Allocation of burden of proof.

For purposes of a final decision under

§ 2570.138 (Decision of the

Administrative Law Judge) or

§ 2570.139 (Review by the Secretary),

the petitioner shall have the burden of

proof as to whether it meets 29 CFR

2510.3–40.

§ 2570.138 Decision of the Administrative

Law Judge.

For section 3(40) finding proceedings,

this section shall apply instead of 29

CFR 18.57.

(a) Proposed findings of fact,

conclusions of law, and order. Within

twenty (20) days of filing 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 under 29 CFR 18.55,

proposed findings of fact, conclusions of

law, and order together with the

supporting brief expressing the reasons

for such proposals. Such proposals and

brief 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 based on oral argument

in lieu of briefs. In any case in which

the administrative law judge believes

that written briefs or proposed findings

of fact and conclusions of law may not

be necessary, the administrative law

judge shall notify the parties at the

opening of the hearing or as soon

thereafter as is practicable that he or she

may wish to hear oral argument in lieu

of briefs. The administrative law judge

shall issue his or her decision at the

close of oral argument, or within 30

days thereafter.

(c) Decision of the administrative law

judge. Within 30 days, or as soon as

possible thereafter, after the time

allowed for the filing of the proposed

findings of fact, conclusions of law, and

order, or within thirty (30) days after

receipt of an agreement containing

consent findings and order disposing of

the disputed matter in whole, the

administrative law judge shall make his

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64509

or her decision. The decision of the

administrative law judge shall include

findings of fact and conclusions of law,

with reasons therefor, upon each

material issue of fact or law presented

on the record. The decision of the

administrative law judge shall be based

upon the whole record. It shall be

supported by reliable and probative

evidence. Such decision shall be in

accordance with the regulations found

at 29 CFR 2510.3–40 and shall be

limited to whether the petitioner, based

on the facts presented at the time of the

proceeding, is a plan established or

maintained under or pursuant to

collective bargaining for the purposes of

section 3(40) of ERISA.

§ 2570.139 Review by the Secretary.

(a) A request for review by the

Secretary of an appealable decision of

the administrative law judge may be

made by any party. Such a request must

be filed within 20 days of the issuance

of the final decision or the final decision

of the administrative law judge will

become the final agency order for

purposes of 5 U.S.C. 701 et seq.

(b) A request for review by the

Secretary shall state with specificity the

issue(s) in the administrative law

judge’s final decision upon which

review is sought. The request shall be

served on all parties to the proceeding.

(c) The review by the Secretary shall

not be a de novo proceeding but rather

a review of the record established by the

administrative law judge.

(d) The Secretary may, in his or her

discretion, allow the submission of

supplemental briefs by the parties to the

proceeding.

(e) The Secretary shall issue a

decision as promptly as possible,

affirming, modifying, or setting aside, in

whole or in part, the decision under

review, and shall set forth a brief

statement of reasons therefor. Such

decision by the Secretary shall be the

final agency action within the meaning

of 5 U.S.C. 704.

Signed this 16th day of October 2000.

Leslie B. Kramerich,

Acting Assistant Secretary, Pension and

Welfare Benefits Administration.

[FR Doc. 00–27045 Filed 10–26–00; 8:45 am]

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