64482 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

1The Multiple Employer Welfare Arrangement

Act of 1983 added section 514(b)(6) which provides

a limited exception to ERISA’s preemption of state

laws that allows states to exercise regulatory

authority over employee welfare benefit plans that

are NEWAs. Section 514(b) provides, in relevant

part, that:

(6)(A) Notwithstanding any other provision of

this section—(i) in the case of an employee welfare

benefit plan which is a multiple employer welfare

arrangement and is fully insured (or which is a

multiple employer welfare arrangement subject to

an exemption under subparagraph (B)), any law of

any State which regulates insurance may apply to

such arrangement to the extent that such law

provides)—

(I) standards, requiring the maintenance of

specified levels of reserves and specified levels of

contributions, which any such plan, or any trust

established under such a plan, must meet in order

to be considered under such law able to pay

benefits in full when due, and

(II) provisions to enforce such standards, and (ii)

in the case of any other employee welfare benefit

plan which is a multiple employer welfare

arrangement, in addition to this title, any law of any

State which regulates insurance may apply to the

extent not inconsistent with the preceding sections

of this title.

Thus, an employee welfare benefit plan that is a

MEWA remains subject to state regulation to the

extent provided in section 514(b)(6)(A). ERISA

preemption applies only to MEWAs which are

employee welfare benefit plans.

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

29 CFR Part 2510

RIN 1210–AA48

Plans Established or Maintained Under

or 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 a

proposed regulation under the

Employee Retirement Income Security

Act of 1974, as amended, (ERISA or the

Act), setting forth specific criteria that,

if met and if certain other factors set

forth in the proposed regulation are not

present, constitute a finding by the

Secretary of Labor (the Secretary) that a

plan is established or maintained under

or pursuant to one or more collective

bargaining agreements for purposes of

section 3(40) of ERISA. Employee

welfare benefit plans that meet the

requirements of the proposed regulation

are excluded from the definition of

‘‘multiple employer welfare

arrangements’’ under section 3(40) of

ERISA and consequently are not subject

to state regulation of multiple employer

welfare arrangements as provided for by

the Act. If adopted, the proposed

regulation would affect employee

welfare benefit plans, their sponsors,

participants, and beneficiaries, as well

as service providers to plans. Proposed

regulations are being published

simultaneously with this proposed

regulation that set forth a procedure for

obtaining 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 agreements that

are collective bargaining agreements for

purposes of section 3(40) of ERISA. The

procedure 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.

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

The Department is proposing a

regulation, based on the report of the

ERISA Section 3(40) Negotiated

Rulemaking Advisory Committee

convened by the Department for this

purpose, that would implement section

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

Section 3(40)(A) defines the term

multiple employer welfare arrangement

(MEWA) in pertinent part as follows:

The term ‘‘multiple employer welfare

arrangement’’ means an employee welfare

benefit plan, or any other arrangement (other

than an employee welfare benefit plan),

which is established or maintained for the

purpose of offering or providing any benefit

described in paragraph (1) [of section 3 of the

Act] to the employees of two or more

employers (including one or more selfemployed individuals), or to their

beneficiaries, except that such term does not

include any such plan or other arrangement

which is established or maintained—(i)

under or pursuant to one or more agreements

which the Secretary finds to be collective

bargaining agreements. * * *

This provision was added to ERISA

by the Multiple Employer Welfare

Arrangement Act of 1983, Sec. 302(b),

Pub. L. 97–473, 96 Stat. 2611, 2612 (29

U.S.C. 1002(40)), which also amended

section 514(b) of ERISA. Section 514(a)

of the Act provides that state laws

which relate to employee welfare

benefit plans are generally preempted

by ERISA. Section 514(b) sets forth

exceptions to the general rule of section

514(a) and subjects employee welfare

benefit plans that are MEWAs to various

levels of state regulation depending on

whether or not the MEWA is fully

insured. Sec. 302(b), Pub. L. 97–473, 96

Stat. 2611, 2613 (29 U.S.C. 1144(b)(6)). 1

The Multiple Employer Welfare

Arrangement Act was introduced to

counter what the Congressional drafters

termed abuse by the ‘‘operators of bogus

‘insurance’ trusts.’’ 128 Cong. Rec.

E2407 (1982) (Statement of

Congressman Erlenborn). In his

comments, Congressman Erlenborn

noted that certain MEWA operators had

been successful in thwarting timely

investigations and enforcement

activities of state agencies by asserting

that such entities were ERISA plans

exempt from state regulation by the

terms of section 514 of ERISA. The goal

of the bill, according to Congressman

Erlenborn, was to remove ‘‘any potential

obstacle that might exist under current

law which could hinder the ability of

the States to regulate multiple employer

welfare arrangements to assure the

financial soundness and timely payment

of benefits under such arrangements.’’

Id. This concern was also expressed by

the Committee on Education and Labor

in the Activity Report of the Pension

Task Force (94th Congress, 2d Session,

1977), cited by Congressman Erlenborn:

It has come to our attention, through the

good offices of the National

Association of State Insurance

Commissioners, that certain entrepreneurs

have undertaken to market insurance

products to employers and employees at

large, claiming these products to be ERISA

covered plans. For instance, persons whose

primary interest is in the profiting from the

provision of administrative services are

establishing insurance companies and related

enterprises. The entrepreneur will then argue

that his enterprise is an ERISA benefit plan

which is protected under ERISA’s

preemption provision from state regulation.

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64483

2 In addition, the Department has received

requests to make individual determinations

concerning the status of particular plans under

section 3(40). See. e.g., Ocean Breeze Festival Park

v. Reich, 853 F. Supp. 906, 91 (1994), summary

judgment granted sub nom. Virginia Beach

Policemen’s Benevolent Association, et al. v. Reich,

881 F. Supp 1059 (E.D. Va. 1995), aff’d, 96 F.3d

1440 (1996); Amalgamated Local Union No. 335 v.

Gallagher, No. 91 CIV 0193(RR) (E.D.N.Y. April 15,

1991).

Id. As a result of the addition of

section 514(b)(6), certain state laws

regulating insurance may apply to

employee welfare benefit plans that are

MEWAs. However, the definition of a

MEWA in section 3(40) provides that an

employee welfare benefit plan is not a

MEWA if it is established or maintained

under or pursuant to an agreement or

agreements which the Secretary finds to

be a collective bargaining agreement.

Such plans, therefore, are not subject to

state insurance regulation under section

514(b)(6).

While the Multiple Employer Welfare

Arrangement Act of 1983 significantly

enhanced the states’ ability to regulate

MEWAs, problems in this area persist.

Among other things, the exception for

collectively bargained plans contained

in section 3(40) is now being exploited

by some MEWA operators who, through

the use of sham unions and collective

bargaining agreements, market

fraudulent insurance schemes under the

guise of collectively bargained welfare

plans exempt from state insurance

regulation.2 Another problem in this

area involves the use of collectively

bargained plans as vehicles for

marketing health care coverage to

individuals and employers with no

relationship to the bargaining process or

the underlying bargaining agreement.

B. The August 1995 Notice of Proposed

Rulemaking

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). (August 1995

NPRM). The Department proposed

criteria for determining whether an

employee welfare 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 proposed

approach did not have a procedure 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

obtain data necessary to establish

compliance with the criteria proposed

by the Department. Commenters also

objected to having State regulators

determine whether a particular

agreement was a collective bargaining

agreement.

C. Regulatory Negotiation

The Department continues to believe

that regulatory guidance in this area is

necessary. Based on the comments

received in response to the August 1995

NPRM, the Department determined that

negotiated rulemaking was an

appropriate method of implementing a

revised Notice of Proposed Rulemaking.

On April 15, 1998, the Secretary

published in theFederal Register (63 FR

18345) a notice of intent to establish a

negotiated rulemaking advisory

committee under the Negotiated

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

(NRA). The NRA establishes a

framework for the conduct of negotiated

rulemaking and encourages agencies to

use negotiated rulemaking to enhance

the informal rulemaking process.

In September 1998, the Secretary

established the ERISA Section 3(40)

Negotiated Rulemaking Advisory

Committee under the NRA and the

Federal Advisory Committee Act (the

FACA)(5 U.S.C. App. 2) (Notice of

Establishment). (63 FR 5052). The

Committee included a Department

representative and its work has been

assisted by a neutral facilitator. 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

Notice of Establishment outlined the

rationale behind the final composition

of the Committee. The members of the

ERISA Section 3(40) Negotiated

Rulemaking Advisory Committee are as

follows:

Labor Unions: Kathy Krieger,

American Federation of Labor and

Congress of Industrial Organizations;

Multiemployer Plans: Gerald Feder

(James Ray—alternate), National

Coordinating Committee for

Multiemployer Plans; Judith Mazo,

Entertainment Industry Multiemployer

Health Plans;

State Governments: Fred Nepple,

National Association of Insurance

Commissioners;

Employers/Management: James

Kernan, The Associated General

Contractors of America;

Railway Labor Act Plans: Benjamin

W. Boley, National Railway Labor

Conference;

Third-Party Administrators: David

Livingston, TIC International

Corporation;

Independent agents, brokers and

advisors providing health care products

and services to plans and individuals:

Nancy Trenti, National Association of

Health Underwriters;

Insurance carriers and managed care

companies that finance and deliver

health care: R. Lucia Riddle, Health

Insurance Association of America;

Federal Government: Elizabeth A.

Goodman, Pension and Welfare Benefits

Administration.

The goal of the Committee was to

reach consensus on pertinent issues and

draft regulatory text for the purposes of

developing a substantive rule to help

the regulated community determine

which plans are indeed 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. The Committee conducted eight

public sessions held on October 26–27,

1998, December 16–17, 1998, February

9–10, 1999, April 20–21, 1999, July 7–

8, 1999, August 25–26, 1999, October

13–14, 1999, and November 16–17,

1999. All meetings were held in

Washington, D.C. and allocated time

during the meetings for public

participation and comment. In

accordance with the FACA’s

requirements, minutes of all public

Committee meetings have been kept in

the public rulemaking record, together

with the materials distributed among

Committee members during such

meetings and correspondence received

by the Committee regarding the

rulemaking. During the course of the

Committee’s deliberations, it received

two written comments from the public.

The Committee considered the

comments in drafting its report and the

proposed regulatory text.

Under the rules governing the

negotiated rulemaking process, and in

accordance with the organizational

protocols adopted by the Committee, the

Committee agreed to recommend to the

Secretary consensus language in the

form of a proposed rule developed by

the Committee. Committee members

agreed not to file adverse public

comments on provisions of the

proposed rule on which the Committee

had reached consensus.

In the event that the Committee did

not reach a full consensus on a

proposed rule, the Committee members

agreed to prepare a report to the

Secretary outlining any consensus

agreement reached, and summarizing

the reasons for the failure to reach

consensus on the complete rule. The

64484 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

Department was prepared to develop a

proposed rule on its own, if the

Committee could not reach consensus.

With the exception of sections E–K of

the preamble, the text of the proposed

rule and preamble is the Committee’s

consensus.

D. Description of Proposed Regulation

1. Structure of the Proposed Regulation

The proposed regulation establishes

specific criteria that the Secretary finds

must be present in order for one or more

agreements to be collective bargaining

agreements for purposes of section 3(40)

of ERISA and also establishes certain

criteria for determining when an

employee welfare benefit plan is

established or maintained under or

pursuant to such an agreement or

agreements for purposes of section

3(40). In drafting proposed regulatory

language, the Committee took into

account that section 3(40) not only

requires the existence of one or more

bona fide collective bargaining

agreements, but also requires that the

plan be ‘‘established or maintained’’

under or pursuant to such an agreement

or agreements. The proposed regulation

interprets the exception under section

3(40)(A)(i) as being limited to plans

providing coverage primarily to those

individuals with a nexus to the

collective bargaining agreement or

agreements under or pursuant to which

the plan is established or maintained.

Accordingly, the criteria in the

proposed regulation relating to whether

a plan qualifies as ‘‘established or

maintained’’ are intended to ensure that

the statutory exception is only available

to plans whose participants are

predominately the bargaining unit

employees on whose behalf such

benefits were negotiated and other

individuals with a close nexus to the

bargaining unit or to the employer(s) of

the bargaining unit employees.

The proposed regulation also sets

forth certain instances where, even if

the specific criteria apparently are met,

an entity will be deemed not to be

established or maintained under or

pursuant to one or more collective

bargaining agreements. The proposed

regulation also sets forth certain factors

to be considered by a fact finder as to

whether there is a bona fide collective

bargaining relationship.

The proposed regulation would, upon

adoption, constitute the Secretary’s

finding for purposes of determining

whether a plan is established or

maintained under or pursuant to one or

more collective bargaining agreements

pursuant to section 3(40) of ERISA. The

criteria contained in the proposed

regulation are designed to enable

entities and state insurance regulatory

agencies to determine in the first

instance whether the requirements of

the Act are met. Unlike the August 1995

NPRM, under certain limited

circumstances an entity may elect to

petition the Secretary for an individual

finding. However, the Secretary will not

make individual findings or

determinations as to whether an entity

meets the criteria of the proposed

regulation unless a state’s law or

jurisdiction is asserted in an

administrative or judicial proceeding

against that particular entity. For the

procedure for petitioning for an

individual finding and a description of

the ALJ individual finding procedure,

see Notice of Proposed Rulemaking 29

CFR 2570 Subpart G (published

simultaneously).

The principles and criteria in this

proposed rule were developed solely for

the purpose of determining whether or

not a multiple employer welfare plan is

a MEWA under section 3(40). In

considering and drafting this proposed

regulation, the Committee was not

charged with interpreting or enforcing

any other federal laws that relate to

collective bargaining and employee

benefits, such as the National Labor

Relations Act, the Internal Revenue

Code of 1986 or the Railway Labor Act.

Therefore, nothing in this proposed

regulation, or in any ALJ finding issued

pursuant to it under the proposed rules

at 29 CFR 2570 Subpart G, is intended

to determine the rights and

responsibilities of any party under such

other laws. In drafting the proposed

regulatory language, the Committee

recognized that a finding by the

Secretary that a plan is maintained

pursuant to a collective bargaining

agreement as defined for section 3(40) of

ERISA may be considered by parties

applying other laws, but did not believe

that such a finding here would, given

the narrow focus of the proposed

regulation, conclude the analysis under

such other law.

2. Specific Provisions of the Proposed

Regulation

Section 2510.3–40(a)—Scope and

Purpose

Section (a), Scope and Purpose, states

that the purpose of the proposed

regulation is to set forth a finding by the

Secretary that an employee welfare

benefit plan is established or

maintained under or pursuant to one or

more collective bargaining agreements if

it meets the criteria in the proposed

regulation and does not come within

one of the exclusions.

Section 2510.3–40(b)—Who Is Covered

by the Plan

Section (b), Criteria, is divided into

four parts: subparagraph (1) requires

that the entity in question be an

employee welfare benefit plan within

the meaning of ERISA section 3(1);

subparagraph (2) looks at whether the

preponderance of those participants

covered by the plan have a nexus to the

bargaining relationships under which

the plan is established or maintained;

subparagraph (3) describes the

characteristics of agreements that will

qualify them, for purposes of section

3(40) of ERISA only, as collective

bargaining agreements; and

subparagraph (4) sets forth factors to be

considered, again for purposes of

section 3(40) only, in determining

whether there is a bona fide collective

bargaining relationship underlying the

agreements pursuant to which the plan

is established or maintained. If an

employee welfare benefit plan meets the

general criteria and is not excluded

under subsection (c), then the Secretary

finds that such plan is ‘‘established or

maintained under or pursuant to one or

more agreements which the Secretary

finds to be collective bargaining

agreements’’ for any plan year in which

it meets the criteria.

Section 2510.3–40(b)(1)—Entity Must Be

a Plan

Subsection (b)(1) requires that an

entity be an employee welfare benefit

plan within the meaning of section 3(1)

of ERISA in order to be deemed to be

a plan established or maintained under

or pursuant to collective bargaining.

Section 2510.3–40(b)(2)—‘‘The Nexus

Group’’

Subsection (b)(2) requires that for any

plan year 80% of the participants (as

defined in section 3(7) of ERISA) in the

plan have a nexus to the collective

bargaining relationship (‘‘the nexus

group’’). It also describes the categories

of people who are considered to have

that nexus. The numerical tests in the

proposed regulation subsection (b)(2)

look at individuals whose coverage is

based on their employment, that is, the

participants. The proposed regulation

focuses on participants in order to

reduce potential administrative

difficulties for plans in having to

account for beneficiaries (e.g., spouses,

dependent children, etc.) who are

covered solely by virtue of their

relationship to a participant.

Beneficiaries are not counted to

determine whether the 80% test has

been met.

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64485

The nexus group includes a broad

group of participants—those commonly

found in traditional multiemployer

welfare benefit plans, due to their

connection to the plan or the collective

bargaining process—among those

covered in the 80% test. This is a

change from the August 1995 NPRM,

which focused the numerical test on

those individuals covered by the

collective bargaining agreement.

In drafting proposed regulatory text,

the Committee took into account that

there are other categories of individuals,

not specifically identified in subsection

(b)(2), who traditionally may be covered

by multiemployer plans because of their

relationship to the plan or the

sponsoring unions or employers, such

as employees of an industry credit

union or an administrative entity set up

to collect and reconcile employer

contributions and related payments.

Based on the information available to

the Committee, the number of such

participants in any given situation is

likely to be so small compared to the

plan’s total participant population that

they would fit well within the 20%

allowance for coverage of non-nexus

people. Because plans are not likely to

run the risk of being deemed to be a

MEWA by virtue of covering these

incidental categories, it did not appear

necessary to attempt to promulgate an

exhaustive list of such individuals for

inclusion in the nexus group. However,

the Department invites public comment

identifying any other categories of

participants who similarly have

historically been covered under one or

more multiemployer plans because of

their traditional and close connection to

the bargaining relationship, the

bargaining unit or the employers that

contribute to the plan, and whose

participation is material enough to

warrant specific inclusion in the nexus

group.

The Committee recommended a 20%

margin for coverage of non-nexus

people, even though it understood that

the percentage of participants in

collectively bargained plans who are not

within one of the nexus categories is

rarely likely to be that high. The

Committee believed that this percentage

gives plans enough leeway so that they

will not need to worry about detailed

head counts, while offering coverage to,

for instance, a limited number of union

members who have not been covered by

collective bargaining agreements

because the union has not yet been

recognized as their bargaining

representative, or to parties providing

services to the plan for whom health

coverage under the plan is part of their

compensation, such as the plan’s legal

counsel, administrator, or persons

providing computer maintenance or

other contract services.

Whether a plan or other arrangement

meets the criteria for the finding that it

is established or maintained under or

pursuant to a collective bargaining

agreement within the meaning of

section 3(40) is to be determined based

on its characteristics ‘for a plan year.’ A

plan’s status ‘for a plan year’ is to be

determined as of a point or points

during the plan year that is reasonably

representative with respect to that plan.

Unlike the 1995 NPRM, the proposed

regulation does not prescribe the

specific measurement dates. Among

other things, the Committee believed

that formal procedures governing the

calculation of the level of non-nexus

participation are not needed under this

proposal. That is because the Committee

expected that few multiemployer plans

would even cover people who do not fit

any of the nexus categories and that

plans should not find it difficult to

identify and keep track of the small

number of non-nexus participants.

Moreover, the Committee recognized

that, given the wide variety of

employment patterns in the industries

covered by multiemployer plans and the

potential that unforeseen events could

distort the coverage picture temporarily,

no single set of fixed determination

dates was likely to capture a fair picture

for the universe of affected plans.

In the Committee’s judgment,

attempting to prescribe specific times

and procedures for making the 80%

coverage determination could place

undue emphasis on the mechanics of

the head count, and would make the

regulation more complex and costly to

administer, since the rule should have

to include a wide range of variations

and alternatives. At the same time,

mechanical rules broad enough to take

care of the spectrum of plans that are

undeniably maintained pursuant to

collective bargaining would lend

themselves to relatively easy evasion.

MEWA operators could manipulate

participants’ coverage dates to make it

appear that the test for collective

bargaining status was met on the official

measuring date.

Public comments, plus specific

suggestions, are invited on whether the

regulation should be more precise as to

the ‘for a plan year’ determination.

Section 2510.3–40(b)(2)(i)—Participants

Covered by the Collective Bargaining

Agreement

The primary component of the nexus

group is individuals employed under

one or more of the collective bargaining

agreements pursuant to which

contributions are made or coverage is

provided under the plan. Determining

who is an employed individual relies on

general common law principles.

Section 2510.3–40(b)(2)(ii)—Retirees

The nexus group includes retired

participants who either (a) participated

in the welfare benefit plan at least five

of the last 10 years preceding their

retirement, or (b) are receiving benefits

under a multiemployer pension plan

maintained under the same agreement

as the welfare benefit plan and had at

least five years of service (or the

equivalent for plans that determine

pension eligibility or entitlement in a

different manner) under that employee

pension benefit plan.

Section 2510.3–40(b)(2)(iii)—Statutory

Extended Coverage

The nexus group includes

participants who were active

participants and are on extended

coverage under the plan under legally

required coverage extensions. This

includes people whose coverage is

based on the continuation coverage

requirements of the Consolidated

Omnibus Budget Reconciliation Act of

1985 (COBRA), the Family and Medical

Leave Act and the Uniformed Services

Employment and Reemployment Rights

Act. It also includes coverage required

to be provided by a court, arbitration or

administrative decision and coverage

that remains in place, pursuant to the

National Labor Relations Act, or other

applicable law, after expiration of a

collective bargaining agreement.

Section 2510.3–40(b)(2)(iv)—Extended

Coverage Under the Terms of the Plan

Participants with extended coverage

under the terms of the plan (even where

the extended coverage opportunity is

not required by statute) are also in the

nexus group. This includes common

types of coverage extensions following a

period of eligibility based on active

participation, such as self-payment,

hour bank, long- or short-term

disability, furlough, or temporary

unemployment, as long as the

participant is not required to pay more

than the applicable COBRA premium

for the coverage in question.

Section 2510.3–40(b)(2)(v)—Reciprocity

Agreements

The nexus group includes

participants who are covered under the

plan pursuant to a reciprocal agreement

with one or more other multiemployer

welfare plans. Reciprocal agreements

are most common in construction and

other industries where unionrepresented workers tend to travel from

64486 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

area to area, following the availability of

jobs. They enable workers to establish or

maintain coverage under the plan in

their home jurisdiction based on work

in another plan’s jurisdiction, under a

collective bargaining agreement that

requires contributions to that other plan.

However, subparagraph (b)(2)(v), does

not permit a plan to circumvent the

percentage test by arranging reciprocal

agreements with other plans to shield

each plan’s non-nexus individuals.

Participants covered under reciprocal

agreements are considered part of the

nexus group for the ‘‘receiving’’ plan

only if they are part of the nexus group

under the ‘‘sending’’ plan. The

percentage limitations of the rule may

not be avoided by purporting to cover

individuals under ‘‘reciprocal’’

agreements who do not have a nexus (as

defined under 2510.3–40(b)(2)) to the

‘‘sending’’ plan.

Section 2510.3–40(b)(2)(vi)—Union,

Plan and Fund Employees

Employees of the sponsoring labor

organization, the welfare benefit plan or

trust itself and related employee benefit

plans, are in the nexus group as well.

Section 2510.3–40(b)(2)(vii)—

‘‘Bargaining Unit Alumni’’

Also in the nexus group are so-called

‘‘bargaining unit alumni,’’ that is,

participants who once were covered

under the plan due to their employment

under a collective bargaining agreement,

but who (1) are no longer working in a

bargaining-unit capacity; (2) work for

one or more employers that are parties

to the agreement; and (3) are covered

under the plan on terms that are

generally no more favorable than those

that apply to the bargaining-unit

employees. This includes former unionrepresented workers who are now in a

management capacity.

Section 2510.3–40(b)(2)(viii)—‘‘SpecialClass Participants’’

The nexus group includes so-called

‘‘special-class participants,’’ that is,

individuals who are neither unionrepresented nor bargaining-unit alumni,

but who are employed by employers

that contribute to the plan for their

union-represented employees pursuant

to the collective bargaining agreement,

and who are covered under the plan on

terms that are generally no more

favorable than those that apply to the

bargaining-unit personnel. Some

multiemployer plans traditionally have

allowed contributing employers to cover

their office staff, along with their unionrepresented workforce. Special-class

participants totaling no more than 10%

of the total plan participant population

are counted in the nexus group. A plan

will not be deemed to be a MEWA

merely because it covers additional

special-class participants above that

10% level, so long as the additional

special-class participants, together with

any other participants who are not in

the nexus group, constitute no more

than 20% of the total plan participant

population.

The Committee believed that specialclass participants ordinarily would

constitute no more than 10% of the

plan’s total participant population, and

so included only a 10% allowance for

them in the nexus group. However, the

Committee also recognized that the 10%

allowance might not be adequate in

some situations, because, for example,

the ratio of signatory employers’

supervisors and office workers to their

union-represented counterparts is

subject to fluctuation, particularly in

certain industries. Part of the reason that

the proposed regulation allows plans a

20% margin for coverage of people who

are neither covered by a collective

bargaining agreement nor included in

one of the other nexus categories was

the potential for special class

participants in excess of the 10% nexus

number.

Section 2510.3–40(b)(2)(ix)—Individuals

Covered by the Railway Labor Act

The nexus group includes

participants who are, or were for a

period of at least three years, employed

under one or more agreements under the

Railway Labor Act between or among

one or more ‘‘carriers’’ (including

‘‘carriers by air’’) and one or more

‘‘representatives’’ of employees for

collective bargaining purposes and as

defined by the Railway Labor Act, 29

U.S.C. 151 et seq., providing for such

individuals’ current or subsequent

participation in the plan, or providing

for contributions to be made to the plan

by such carriers.

Section 2510.3–40(b)(2)(x)—Licensed

Marine Pilots

Individuals who are licensed marine

pilots operating in United States ports

as a state-regulated enterprise are

included as part of the nexus group with

respect to a qualified merchant marine

plan, as defined in section 415(b)(2)(F)

of the Internal Revenue Code of 1986.

Section 2510.3–40(b)(3)—Nature of the

Collective Bargaining Agreement

Subsection (b)(3) requires that the

plan be incorporated or referenced in at

least one written agreement between at

least one employee organization and

two or more employers. The written

agreement must satisfy five listed

criteria. The Committee recognized that

the substance of the agreement among

the parties to collective bargaining often

is embodied in more than one

document, and not every aspect of their

agreement necessarily is reduced to

writing. The Committee also recognized

that a multiemployer plan often is

incorporated or referenced in more than

one collective bargaining agreement

among different employers and

employee organizations, including but

not limited to project labor agreements,

labor harmony agreements, ‘‘me-too’’ or

‘‘one-line’’ agreements. For these

reasons, the term ‘‘agreement’’

necessarily includes the constellation of

documents and understandings that

make up the parties’ contract, and it

automatically includes multiple

agreements, where applicable.

Section 2510.3–40(b)(3)(i)

The first criterion for an agreement

under subsection (b)(3) is that the

agreement is the product of a bona fide

collective bargaining relationship.

Subsection (b)(4), as described infra,

sets forth a nonexhaustive list of factors

relevant for determining whether such a

relationship in fact exists.

Section 2510.3–40(b)(3)(ii)

The second criterion under subsection

(b)(3) is that the agreement in question

identifies employers and employee

organization(s) that are parties to and

bound by the agreement. The Committee

took into consideration that, in many

industries, employers bargain

collectively through multiemployer

associations, and the resulting

agreement may identify the association,

as agent for the many employers for

which the association bargained. Also,

many employers routinely adopt the

master agreement by reference in their

collective bargaining agreements to

what are often referred to as ‘‘short-form

agreements’’ or ‘‘binders.’’ Additionally,

a written collective bargaining

agreement may bind employers who are

neither signatory to that agreement nor

identified in any document, but who are

nonetheless legally bound. Therefore,

the criterion that the agreement identify

the parties may be satisfied even if not

every one of the employers who are

bound by the agreement to contribute to

the plan is named specifically.

Section 2510.3–40(b)(3)(iii)

The third criterion is that the

agreement identify the personnel, job

classifications and/or work jurisdiction

covered by the agreement. In the

Committee’s experience, collective

bargaining agreements generally

delineate the personnel covered by the

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64487

agreement by reference to the trade,

craft or class, industry or geographic

area in which the employer operates or

the job classifications utilized by the

employer.

Section 2510.3–40(b)(3)(iv)

The fourth criterion is that the

agreement provides for terms and

conditions of employment in addition to

coverage under, or contributions to, the

plan.

Section 2510.3–40(b)(3)(v)

The fifth criterion is that the

agreement is not unilaterally terminable

or automatically terminated solely for

nonpayment of benefits under, or

contributions to, the plan. This criterion

is met even if the plan trustees have

authority to terminate a delinquent

employer’s ability to contribute to or

otherwise participate in the plan, as

long as the underlying collective

bargaining agreement remains in full

force and effect with respect to that

employer. Similarly, the fact that the

employee organization may have the

right to suspend performance of its

obligations under the agreement in the

event of specified occurrences, which

may include the employer’s failure to

pay required contributions, does not

mean that the agreement is unilaterally

terminable for purposes of this criterion.

Section 2510.3–40(b)(4)—Factors

Indicative of a Bona Fide Collective

Bargaining Relationship

Subsection (b)(4) sets forth various

factors to be considered in determining

whether there is a bona fide collective

bargaining relationship. In any given

case, the decision is to be based on all

of the facts and circumstances. The

Committee first had attempted to

develop a list of criteria that could serve

as reliable proxies for what all

Committee members recognized were

legitimate multiemployer plans not

subject to state insurance regulation. To

avoid being classified as a MEWA, a

plan would have to satisfy certain

objective criteria, and it could not have

one of the disqualifying characteristics.

That approach eventually gave rise to

the flexible facts and circumstances test

proposed here. The Committee realized

that imposing a fixed, bright line profile

to define ‘‘collective bargaining’’ for the

purposes of this regulation would create

more unintended issues for

multiemployer plans without

addressing the problems at which

section 3(40) of ERISA was aimed.

Those intent on mimicking real

collectively bargained plans as a way to

avoid state insurance regulation would

have a blueprint for doing so, while

parties actually involved in collective

bargaining, which is sometimes not tidy

and compliance-driven in real life,

might inadvertently negotiate a health

or welfare coverage arrangement that

simply failed to fit familiar models or

patterns.

Under the proposed rule, the presence

or absence of the factors listed in

subsection (b)(4) is to be taken into

account in judging whether an actual

collective bargaining relationship exists

for purposes of section (3)(40) of ERISA,

but no one factor or set of factors is

intended to be determinative in every

case. Indeed, some of these factors can,

by their nature, apply only in

specialized circumstances, and few

plans are likely to satisfy all of them.

That is why the proposal includes a

range of circumstances commonly

associated with collectively bargained

plans. In addition, information on

factors not included in this list may be

relevant in individual cases. The

Department invites public comments on

the factors listed here, and suggestions

for other factors to be listed.

While the proposed regulation does

not define collective bargaining in terms

of specific uniform requirements, it does

recognize that where a significant

number of the first eight factors exist,

the resultant plans are more likely than

not to be established or maintained

under or pursuant to a collective

bargaining agreement within the

meaning of section 3(40) of ERISA.

Accordingly, in a Section 3(40) Finding

Proceeding before a Department of

Labor ALJ to determine whether a plan

or other arrangement is maintained

under or pursuant to a collective

bargaining agreement for this purpose, it

is presumed that if at least four of the

first eight listed factors are present, a

bona fide collective bargaining

relationship exists, that is, that the

requirements of subsection (b)(3)(i) are

met. That shifts the burden to the party

claiming that the arrangement is not the

product of a bona fide collective

bargaining relationship to persuade the

ALJ to the contrary (or, to the extent that

it meets all of the other criteria in

addition to subsection (b)(3)(i), to show

in some other way, such as by the

presence of one of the disqualifying

criteria, that the arrangement does not

qualify for a finding under the proposed

regulation).

Section 2510.3–40(b)(4)(i)

The first factor to be considered under

subsection (b)(4) is that the agreement

provides for contributions to a labormanagement trust fund designed and

operated in accordance with the TaftHartley Act or to a plan lawfully

negotiated under the Railway Labor Act.

A plan can meet the requirement that

the trust be ‘‘structured in accordance’’

with the Taft-Hartley Act even if the

plan has a minor violation of that Act’s

technical requirements. However, there

must be more than just a paper recital

of the formalities of the Taft-Hartley

Act, the trust must function as a labormanagement trust within the spirit of

the Taft-Hartley Act.

Section 2510.3–40(b)(4)(ii)

The second factor provides that the

collective bargaining agreement under

which contributions are made to the

employee welfare benefit plan also

requires that substantially all of the

participating employers contribute to a

multiemployer pension plan designed

and operated in accordance with the

Taft-Hartley Act and the plan

qualification requirements in section

401 of the Internal Revenue Code. In

addition, substantially all of the active

participants covered by the employee

welfare benefit plan must be eligible to

become participants in that pension

plan. Because the length of service

requirements may be different for the

pension plan and the welfare plan, this

factor does not require that substantially

all of the welfare plan participants in

fact become pension plan participants,

as long as they are eligible to do so if

they meet the pension plan’s

participation requirements.

Section 2510.3–40(b)(4)(iii)

The third factor applies if the

predominant employee organization

that is a party to the collective

bargaining agreement relating to the

employee welfare benefit plan has

maintained a series of agreements

incorporating or referencing the plan

since before January 1, 1983, the

effective date of ERISA section 3(40).

The term ‘‘predominant employee

organization,’’ which is specifically

defined in the regulation, is used

because it is not unusual for a

multiemployer plan to be maintained

under agreements with more than one

labor union. ‘‘Predominant employee

organization’’ refers to the union that

represents the plurality of the plan’s

participants employed under the

agreement. This factor is included as an

indicator of the bona fidesof collective

bargaining in recognition of the fact

that, if the union has negotiated for

health and welfare coverage under the

plan since before the enactment of

ERISA section 3(40), the plan and the

collective bargaining agreement

underlying it were not created for the

purposes of avoiding the MEWA

amendment to ERISA.

64488 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

The Committee received written

comments during the course of its

negotiations suggesting that a trust

providing health coverage that had been

in existence for a certain period of time

be ‘‘grandfathered,’’ regardless of the

percentage of participants covered by

collective bargaining agreements. The

Committee determined that a

grandfather that serves as an indicator of

thebona fides of the underlying

collective bargaining process was

warranted. See subsections (b)(4)(iii)

and (b)(4)(iv). The purpose of the

regulatory finding, however, is not to

determine what plans or arrangements

should or could be the subject of State

enforcement action, but rather to define

what employee welfare benefit plans are

established or maintained under or

pursuant to collective bargaining within

the meaning of section 3(40) of ERISA.

The Committee agreed that, for that

purpose, the 80% nexus standard is

appropriate regardless of the length of

time the plan or trust has been in

operation. If a plan or arrangement is

not established or maintained under or

pursuant to one or more collective

bargaining agreements, whether or not

ERISA preemption applies is beyond the

scope of this regulation.

Section 2510.3–40(b)(4)(iv)

Under the fourth factor, the

predominant employee organization

that is a party to the agreement relating

to the employee welfare benefit plan

must have been a national or

international union, or a federation of

national and international unions, or

affiliated with such a union or

federation, since before January 1, 1983.

Section 2510.3–40(b)(4)(v)

The fifth factor is that there has been

a determination, following a

government-supervised election or a

contested proceeding, that the

predominant employee organization

that is a party to the agreement relating

to the employee welfare benefit plan is

the lawfully recognized or designated

collective bargaining representative

with respect to one or more bargaining

units of personnel covered by such

agreement.

Section 2510.3–40(b)(4)(vi)

The sixth factor applies to plans

where the employees’ coverage (but not

necessarily coverage for employees’

dependents) is, in large part, employerfunded. It applies where employers pay

at least 75% of the premiums or

contributions required for the coverage

of active participants under the plan, or

75% of the premiums or contributions

for retirees in the case of a retiree-only

plan. For this purpose, coverage for

dental or vision care, or coverage for

excepted benefits under the Health

Insurance Portability and

Accountability Act is disregarded,

unless the employer pays at least 75%

of the premiums or contributions for

that coverage. This calculation is

illustrated in the proposed regulation at

subsection (e), Example 4.

Section 2510.3–40(b)(4)(vii)

The seventh factor applies where the

predominant employee organization

provides, sponsors or jointly sponsors a

hiring hall and/or a state certified

apprenticeship program, the services of

which are available to substantially all

active participants in the plan. The

actual nature of the services offered by

the employee organization will control,

rather than the existence of self-serving

paper formalities that purport to

document the existence of such

services.

Section 2510.3–40(b)(4)(viii)

The eighth and last factor relevant to

the presumption of the bona fides of the

collective bargaining relationship

underlying the plan applies to collective

bargaining agreements in the building

and construction industry, where some

states have prevailing wage statutes for

public works projects. This factor

applies where a state agency has made

an investigation and a determination

about whether the collective bargaining

agreement is bona fide in the course of

making a prevailing wage

determination, such as under Article 8

of NYS Labor Law, section 220.

Section 2510.3–40(b)(4)(ix)

Subsection (b)(4)(ix) sets forth

additional subjective and objective

indicia that may be considered in

determining the existence of a bona fide

collective bargaining relationship. This

provision gives examples of some of the

kinds of indicia that the Committee

considered relevant and probative of the

existence of a bona fide collective

bargaining relationship. The examples

given, which were not meant to be

exhaustive, reflect the Committee’s

understanding of the realities of

collective bargaining. For example,

where a collectively bargained plan

covers self-employed participants, there

is usually a reason grounded in the

employment patterns and bargaining

structures in that industry, such as

owner-operators who remain in the plan

whether or not they are currently

working under an agreement.

Section 2510.3–40(c)—Exclusions

Section (c), Exclusions, sets forth

specific circumstances where, regardless

of whether an employee welfare benefit

plan meets the general criteria

provisions in section (b), an employee

welfare benefit plan shall not be deemed

to be established or maintained under or

pursuant to one or more agreements

which the Secretary finds to be

collective bargaining agreements for any

plan year where the circumstances are

present.

Section 2510.3–40(c)(1)

Subsection (c)(1)(i) addresses the use

of insurance agents and brokers

(referred to in the regulation as

‘‘insurance producers’’) to market selffunded or partially self-funded plans to

employers. Many of the problems in this

area involved commercial schemes

marketed by (1) insurance producers; or

(2) by individuals who are disqualified

or ineligible for a license to serve as

insurance producers; or (3) by other

individuals who are paid on a

commission-type basis.

Subsection (c)(1)(i) provides that

where a plan is self-funded or partially

self-funded, and it is marketed by

insurance producers or by individuals

who are disqualified from, ineligible for,

or have failed to obtain a license to

serve as an insurance producer, but who

engage in activities for which such a

license is required, it will be excluded

from the regulatory finding in

subsection (b), regardless of the method

of compensation for marketing.

Subsection (c)(1)(i) also takes a plan out

of the regulatory finding if individuals

other than those described above are

paid on a commission basis to market

the plan. This was designed to prevent

avoidance of the above limitation by use

of people other than insurance

producers. The qualification involving

payment on a commission basis was

intended to distinguish this kind of

commercial enterprise from union

organizing that features health or other

welfare benefits.

Subsection (c)(1)(ii) addresses the

concept of ‘‘marketing’’ for the purposes

of subsection (c)(1)(i). The Committee

recognized that insurance producers

have a role in the administration of

multiemployer plans, and they can be

compensated appropriately for those

services. Those services—including

offering or selling those services to the

plan—do not trigger the exclusion, and

the regulation makes this clear. The

regulation is not intended to preclude

insurance producers from selling

insurance coverage to the trustees of a

multiemployer plan, i.e., marketing

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64489

insurance products to a plan that is or

seeks to become partly or fully insured.

Nor is union organizing among

insurance producers the kind of

marketing that this regulation addresses.

On the other hand, marketing to

employers does include selling health

coverage under the guise of enrolling

their employees in union membership.

This subsection does not purport to

provide an exhaustive list of what is or

is not ‘‘marketing.’’ The Department

seeks suggestions on whether there

should be further clarification of the

definition of ‘‘marketing.’’

The Committee also recognized that

enterprises that are not really operating

pursuant to a bona fide collective

bargaining relationship may attempt to

market health coverage commercially

under the guise of union organizing,

using media such as the Internet, and

without using insurance producers or

paying other individuals on a

commission-type basis. While such a

situation would not come within the

subsection (c)(1) exclusion for

marketing, if the facts indicated that the

primary objective was not to achieve

broader representation of workers in

regard to their employment, but rather

to provide health coverage without

having to comply with state regulation,

that conduct could be evidence of a

scheme, sham or artifice intended to

evade state regulation that would cause

the undertaking to be treated as a

MEWA under subsection (c)(2).

Section 2510.3–40(c)(2)

Subsection (c)(2) is a general

provision excluding arrangements that

on the surface meet the affirmative

criteria of the regulation, but that in fact

are designed to evade compliance with

state law and insurance regulation. This

exclusion recognizes that sophisticated

entities might mimic the characteristics

of collective bargaining as set forth in

the regulation, but in fact be providing

commercial health coverage without

complying with state law.

Such a scheme might be present, for

example, if parties who collaborate in a

project to sell self-funded health

coverage to otherwise unrelated

members of the public set up an

organization that they label a labor

union, advertise broadly in commercial

venues and have people who pay

premiums sign forms that are labeled

‘‘union membership cards.’’ The attempt

to camouflage their commercial

enterprise as a collectively bargained

arrangement would be a scheme to

evade state law that would cause it to

be a MEWA, even if on its face it

appears to meet the criteria that would

qualify it for a finding under subsection

(b) of the proposed regulation.

Section 2510.3–40(c)(3)

Subsection (c)(3) provides an

exclusion in the event of fraud, forgery,

or willful misrepresentation regarding

the plan’s conformance with the

affirmative criteria of the regulation.

The Committee was aware of situations

where documentation of collective

bargaining had been manufactured for

the purposes of misleading state

regulators as to the availability of

federal preemption.

Section 2510.3–40(d)—Definitions

The following terms are defined in the

regulation: ‘‘active participant,’’

‘‘agreement,’’ ‘‘individual employed,’’

‘‘insurance producer,’’ and

‘‘predominant employee organization.’’

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

rulemaking is significant within the

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

Executive Order. Consistent with the

Executive Order, the Department of

Labor (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

has analyzed the economic impact of

this proposed regulation and has

concluded that the proposed

regulation’s benefits exceed its costs

although neither is quantified. The

proposed regulation yields positive

benefits by reducing uncertainty over

which health, life, disability or other

welfare benefit arrangements are

multiple employer welfare arrangements

under section 3(40) and therefore not

subject to state regulation. It also yields

positive benefits by clarifying when

state regulation applies and when it is

preempted.

The regulation sets forth a substantive

standard for distinguishing whether a

welfare plan sponsored by more than

one employer 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. The

regulation will serve to distinguish

multiemployer collectively bargained

plans, which are not subject to state

regulation, from MEWAs, which are so

subject.

The regulation, which is a product of

negotiated rulemaking, is designed so

that the benefits outweigh the costs. The

adoption of this regulation will limit

uncertainty in determining whether

certain plans are established or

maintained under or pursuant to one or

more collective bargaining agreements.

Although the criteria established in this

proposal should generally reduce

disputes over applicability of state laws,

a very small number of entities may still

become involved in disputes over

assertions of state law jurisdiction and,

in certain circumstances, may seek

administrative determinations by the

Secretary. The Department has

concluded that the cost of such

determinations will be small relative to

the cost of settling such disputes

through litigation or other currently

available means.

The regulation’s elements are

grounded in documentation that plans

or their agents generally maintain as

part of usual business practices. The

regulation also has some elements of

flexibility, allowing plans to

demonstrate the existence of a bona fide

collective bargaining agreement, one of

the regulatory factors, by satisfying any

four of eight specified factors. Finally,

the regulation is both sufficiently broad

to embrace all plans established or

64490 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

maintained under or pursuant to one or

more collective bargaining agreements

and exclusive enough to ensure the

applicability of state regulation

wherever such is not the case. Only a

very small number of entities are likely

to be treated differently under the

regulation than they are now. Plans will

be determined to be MEWAs only when

they are not established or maintained

under or pursuant to a collective

bargaining agreement, in which case the

additional cost attributable to state

regulation will be outweighed by the

benefit of additional protections for

participants and beneficiaries.

Background

For the protection of welfare benefit

plan participants and beneficiaries,

multiple employer welfare arrangements

(MEWAs) providing health insurance

are subject to both state and federal

regulation. An exception to the rule

applies to MEWAs established or

maintained under or pursuant to one or

more agreements which the Secretary

finds to be collective bargaining

agreements. Because collectively

bargained employee welfare benefit

plans are not subject to state insurance

regulation, unscrupulous operators have

created arrangements which purport to

offer health, life, disability or other

welfare benefit insurance and are

promoted as plans established or

maintained pursuant to one or more

collective bargaining agreements, but in

fact are not. These operators have sold

insurance to employers, usually for

reduced premiums, and then have been

unable to pay the insurance claims filed

by the employees. At the same time,

they have retained large administrative

fees for themselves.

The General Accounting Office, in a

March 1992 Report titled ‘‘Employee

Benefits: States Need Labor’s Help

Regulating Multiple Employer Welfare

Arrangements,’’ (GAO/HRD–92–40)

estimated that sham MEWAs owed $124

million in claims, affecting 398,000

participants and beneficiaries. State

insurance offices, however, were only

able to recover $10 million, often as a

result of dissolution of the MEWAs

following their insolvency.

At various times, both Congress and

the Department have published

guidelines in an attempt to help states

regulate MEWAs, but, without a

definition for a collective bargaining

agreement, sham MEWAs have

continued to operate and to claim the

collective bargaining agreement

exception when confronted with state

regulation. In order to establish

jurisdiction, states initiated

administrative or legal proceedings

contesting the defendant’s status as a

collectively bargained plan or were

themselves the subject of declaratory

judgment or removal actions by entities

claiming the exception. Likewise, for

both MEWAs and some plans

established or maintained under

collective bargaining agreements, there

was uncertainty about their legal status

and, consequently, about the

applicability of insurance regulations

and the recordkeeping and reporting

required.

Reducing Uncertainty

Confusion about whether a plan was

established or maintained under or

pursuant to an agreement which the

Secretary finds to be a collective

bargaining agreement has made it

difficult for the states to enforce

appropriate laws. With this proposed

regulation pertaining to the collective

bargaining agreement exception

applicable to MEWAs (ERISA section

3(40)(A)(i)), the Department is

promulgating a set of guidelines which

will aid employers, third parties, and

participants and beneficiaries of plans,

as well as state agencies, in determining

the legal status of a welfare benefit plan.

Specifically, the proposed regulation

sets out the various factors indicative of

when a plan is established or

maintained under or pursuant to a bona

fide collective bargaining agreement.

The regulation proposed today will

benefit states and plans by providing a

tool with which to independently

determine the legal status of a welfare

benefit plan or arrangement without

recourse to the Department or to the

courts. The result will be a positive

limitation of uncertainty for plans and

arrangements and the states, and a

reduction in time and expense

attributable to court actions or requests

to the Department for guidance. Plans

and arrangements will benefit from the

assurance of knowing their correct legal

status, and states, through warranted

intervention, will be better able to

protect employers, participants, and

beneficiaries from unscrupulous MEWA

operators.

For the majority of plans established

or maintained under or pursuant to

collective bargaining agreements, this

regulation will serve to codify the

manner in which the plans are currently

operating. Plan status under the

regulation generally will be clear based

on signed agreements, filings with the

IRS, participation in related industries,

or other design features which

categorize a plan as a collectively

bargained plan or a MEWA. Most plans,

therefore, will not perceive any need to

reassess their status systematically. It is

possible, however, that some plans will

undertake such an assessment and

comparison test. The Department has

estimated below the number of plans

likely to comparison test.

Under ERISA, multiemployer

collectively bargained plans are

required to file an annual financial

report, the Form 5500. Data from the

1995 filings showed 2,180 filings (6.0

million participants) from ERISA

multiemployer welfare benefit plans

established or maintained under or

pursuant to collective bargaining

agreements. The Department also

examined the number of MEWAs.

Preliminary findings of an analysis

conducted by the RAND Corporation of

data from the 1997 Robert Wood

Johnson Foundation Employer Health

Insurance Survey, indicate that there are

approximately 2,000 MEWAs (both

ERISA-plan and non-ERISA-plan

MEWAs), covering 4.1 million

employees. The total number of MEWAs

and collectively bargained plans, which

represents the total universe of

arrangements that might question their

legal status and comparison test under

this proposed regulation, is 4,180. (10.1

million participants).

The Department was unable to

identify any direct measure of the

number of plans or arrangements whose

status is uncertain or whose status

would remain uncertain under the

proposed regulation. Therefore, in order

to assess the economic impact of

reduced uncertainty under the proposed

regulation, the Department examined

proxies for the number of arrangements

that might be subject to such

uncertainty. First, the Department

estimated the total number of MEWAs

and collectively bargained plans, taking

this to reflect the universe of

arrangements which would encompass

the small subset of arrangements subject

to uncertainty. The Department then

tallied the number of inquiries to the

Department concerning MEWAs and the

number of MEWA-related lawsuits to

which the Department has been party,

taking this to represent a reasonable

indicator of arrangements that have

been subject to uncertainty in the past.

Department data indicate that for the

ten-year period from 1990 to 1999, the

Department received 88 MEWA-related

inquiries. These include inquiries

received from state and federal agencies

and the private sector. On an annualized

basis, this represents approximately 9

MEWA-related requests for information

per year. The Department also

considered the number of MEWArelated lawsuits which were filed during

the years 1990–1999. Department data

indicate that it has been a party to 375

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64491

civil and 75 criminal cases from 1990–

1999. The total number of lawsuits

would be 450 lawsuits, or 45 lawsuits

annually. For purposes of this analysis,

it has been assumed that each case

involves a different arrangement.

Accordingly, the estimated number of

arrangements that historically may have

demonstrated uncertainty over their

legal status would be 9 plus 45, or 54

plans per year. The estimated 54 plans,

as a percentage of the total number of

4,180 MEWAs and collectively

bargained plans, amounts to

approximately 1.3 percent.

In one sense, this historical number of

plans and arrangements may represent

only a subset of all those that faced

uncertainty over their status. Some

plans and arrangements may have

confronted uncertainty but not become

the subject of an inquiry to the

Department or a lawsuit to which the

Department was party. On the other

hand, this number overstates the

number of plans and arrangements that

faced uncertainty because it is known

that only a portion of miscellaneous

inquiries and civil and criminal actions

involved issues related to collective

bargaining agreements or other MEWArelated matters. The number may also

overstate the number of plans or

arrangements likely to face uncertainty

because the issue of whether federal

preemption applies is not presented in

suits brought by the federal government;

ERISA generally applies both to plans

and to MEWAs. The Department

therefore views 54 plans per year as a

conservatively high estimate of the

number of plans or arrangements that

might perceive a need to systematically

assess their status under the proposed

regulation.

The cost to the 54 plans of conducting

such an assessment is expected to be

small. It will largely be attributed to

reviewing records kept by third parties

or by the plan or arrangement in the

ordinary course of business. The

Department assumes that this review

requires 16 hours of a lawyer’s or

comparable professional’s time plus 5

hours clerical staff time. Department

data suggest that average compensation

costs for lawyers and clerical workers

amount to $72 per hour and $21 per

hour respectively. Third party service

providers to plans or arrangements,

such as private law firms, typically bill

at higher rates than this. However, it is

expected that the cost of an in-house

attorney will equate to the cost of a firm

attorney due to firms’ efficiencies of

time and resources attributable to

specialists’ greater expertise and

experience in a given field. The total

cost then would be $1,173 per plan or

arrangement, or about $63,342 on

aggregate per year for 54 plans. This cost

would be incurred only once for a given

plan or arrangement unless its

circumstances changed substantially

relative to the standard. It is expected

that this cost will be far outweighed by

savings to plans and arrangements from

avoiding the need to engage in litigation

or seek guidance from the Department

in order to determine their status. These

net savings represent a net benefit from

this proposed regulation.

Following such assessments, some

fraction of these 54 plans or

arrangements might nonetheless dispute

a state’s assertions of jurisdiction and

consequently seek an administrative

determination from the Secretary,

incurring attendant costs. The

Department has elected to attribute the

net benefit from these savings not to this

proposed regulation, but to the

accompanying proposed regulation that

established an administrative process

for determining such plans’ or

arrangements’ status.

Reclassifying Incorrectly Classified

Plans and Arrangements

Some number of plans, but unlikely

any more than the same fraction of the

54 estimated to face uncertainty over

status, will be reclassified as a result of

comparison testing against the proposed

regulation’s standard. Plans formerly

classified (either by error or

intentionally self-classified in an

attempt to avoid state law requirements)

as collectively bargained plans may be

newly classified as MEWAs under this

proposed regulation. These MEWAs will

incur costs to comply with newly

applied protective state regulations.

Applicable regulations vary from state

to state, making it difficult to estimate

the cost of compliance, but it is likely

that costs might include those

attributable to audits, funding and

reserving, reporting, premium taxes and

assessments, provision of statemandated benefits, underwriting and

rating rules, market conduct standards,

and managed care patient protection

rules, among other costs. These costs

may be higher for those MEWAs that

conduct business in more than one

state.

The Department considered an

estimate of the cost to plans newly

classified as MEWAs as follows.

Relevant literature suggests that in the

upper range these costs can amount to

10 percent of premium. (The cost may

be substantially more than this if the

arrangement would otherwise have

benefitted from insuring a population

whose health costs are far lower than

average. However, these added costs

would be transfers and not true

economic costs, because they would

serve as cross-subsidies which reduce

costs for populations that are costlier

than average.) As noted above, the

universe of 4,180 plans and

arrangements that includes those

potentially subject to uncertainty

covered 10.1 million participants, or

about 2,400 participants per

arrangement on average. Industry

surveys put the cost of health coverage

at about $4,500 per employee and

retiree per year. Applying these figures

to 54 plans or arrangements that might

face uncertainty over status—an upper

bound on the number likely to be

reclassified—produces an upper-bound

estimate cost of about $58 million.

The Department has concluded that

actual costs will be far lower than this,

and will be outweighed by the benefit

of the associated protections. As noted

above, it is likely that the true number

of arrangements that are reclassified will

be a fraction of the estimated 54 that

might face uncertainty over status.

Among those that are reclassified, some

would have voluntarily elected to

comply with state regulatory

requirements and therefore would not

incur any cost from the application of

state law. For those that would not have

provided such benefits, the cost of

providing them would largely be offset

by the benefits themselves. Most

important, the added cost from state

regulation would be offset by the

benefits from the protections that state

regulation provide. GAO in 1992

identified $124 million in unpaid

claims owed by sham MEWAs.

Department enforcement actions

separately identified MEWA monetary

violations of $84 million, and more than

100 investigations remain open. With

state licensing and solvency

requirements in place, at least some

incidences of the $124 million in

unpaid claims cited in the GAO study

or the $84 million in violations would

most likely not have occurred.

It is also possible that some plans or

arrangements heretofore classified as

MEWAs will be reclassified as

collectively bargained plans. However,

it seems unlikely that many will,

because those that can qualify as

collectively bargained plans have an

economic incentive to do so. Any that

are so classified may choose to benefit

from savings, there being no obligation

to comply with state regulatory

requirements. There will be no

meaningful loss of benefits from the

removal of state protections in such

cases because the combination of a

legitimate collective bargaining

64492 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

agreement and the application of ERISA

provides adequate protections.

Paperwork Reduction Act

This Notice of Proposed Rulemaking

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).

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

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.

(1) Reasons for Action. PWBA is

proposing this regulation because it

believes that regulatory guidance in

determining criteria for what is a ‘‘plan

or arrangement which is established or

maintained under or pursuant to one or

more agreements which the Secretary

finds to be collective bargaining

agreements,’’ ERISA 3(40)(A)(1), 29

U.S.C. § 1002(40)(a)(1) is necessary to

ensure: (a) That state insurance

regulators have ascertainable guidelines

to help regulate MEWAs operating in

their jurisdictions, and; (b) that sponsors

of employee welfare benefit plans will

be able to determine independently

whether their plans are excepted plans

under section 3(40) of ERISA. A more

detailed discussion of the agency’s

reasoning for issuing the proposed

regulation is found in the Background

section, above.

(2) Objective. The objective of the

proposed regulation is to provide

criteria for the application of an

exception to the definition of the term

‘‘multiple employer welfare

arrangement’’ (MEWA) which is found

in ERISA section 3(40). An extensive list

of authority may be found in the

Statutory Authority section, below.

(3) 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 health plans; (2) non-collectively

bargained multiple employer group

health plans, or; (3) other multiple

employer arrangements which provide

medical 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.

IRS filings and Department data

indicate that there are a possible 4,180

plans that could be classified as a

collectively bargained plan or a MEWA

and that could be affected by the new

criteria for defining what is a collective

bargaining agreement. It is expected,

however, 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,

based on the health coverage reported in

the Employee Benefits Supplement to

the 1993 Current Population Survey and

a 1993 Small Business Administration

survey of retirement and other benefit

coverages in small firms, research data

indicates that there are more than 2.5

million private group health plans with

fewer than 100 participants. Thus, even

if every one of the 4,180 plans included

fewer than 100 participants, which is

highly unlikely, the number of plans

affected would represent approximately

one-tenth of one percent of all small

group health plans. Accordingly, the

Department has determined that this

regulation will not have a significant

economic impact on a substantial

number of small entities.

Although relatively few small plans

and other arrangements are expected to

be affected by this proposal, it is known

that the employers typically involved in

these plans or arrangements are often

small (that is, they have fewer than 500

employees, which is generally

consistent with the definition of small

entity found in regulations issued by the

Small Business Administration (13 CFR

121.201)). The Department knows of no

data that would support a direct

measure of the number of small

employers potentially impacted by the

proposed regulation. However, because

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64493

these plans and arrangements involve at

least two employers, and assuming

conservatively that each is small, it can

be estimated that at least 8,360 small

employers may be affected. The

Department seeks comments and

supporting data with respect to the

number of small employers potentially

impacted by the establishment of a

standard for determining whether a

welfare plan is established or

maintained under or pursuant to one or

more collective bargaining agreements.

In addition, any one of the employers

participating in a MEWA or plan

established or maintained under or

pursuant to a collective bargaining

agreement may find that it has

unknowingly participated in a sham

MEWA and will need to join a new

plan. By restricting fraudulent and

financially unsound MEWAs, therefore,

the proposed regulation may limit the

sources of health care, life, disability or

other welfare benefit coverage offered to

some small businesses, requiring them

to seek alternative coverage for their

employees. The greater benefit for

employers, however, is that there is an

increased certainty that the remaining

MEWAs will meet state regulatory

standards and will be capable of

providing promised health, life,

disability or other welfare benefits to

employees. Consequently, employers

will receive a net benefit from the

reduced incidence of fraud and

insolvency among the pool of MEWAs

in the marketplace.

(4) Reporting and Recordkeeping. No

identical reporting or recordkeeping is

required under the proposed rule. In

most cases, the records used to

determine if a welfare benefit plan is

established or maintained under or

pursuant to a collective bargaining

agreement will be routinely prepared

and held by a collectively bargained

multiemployer plan in the ordinary

course of business. For any plans which

are newly determined to be MEWAs,

there will be an economic impact

related to the start-up costs of

compliance with state regulations. Startup costs may include expensing

registration, licensing, financial

reporting, auditing, and any other

requirement of state insurance law.

Reporting and filing this information

with the state would require the

professional skills of an attorney,

accountant, or other health benefit plan

professional; however, post start-up, the

majority of the recordkeeping and

reporting could be handled by clerical

staff.

(5) Duplication. No federal rules have

been identified that duplicate, overlap,

or conflict with the proposed rule.

(6) Alternatives. The proposed

regulation represents the consensus

report of a committee established to

provide an alternative to a Department

Notice of Proposed Rulemaking on

Plans Established or Maintained

pursuant to Collective Bargaining

Agreements, published in the Federal

Register in 1995. At that time,

recognizing that guidance was needed to

clarify the collective bargaining

exception to the MEWA regulation, the

Department proposed certain criteria

related to describing the collective

bargaining agreement. Commenters on

the proposal expressed concerns related

to plan compliance and the issue of

state regulation.

Based on the comments received, the

Department turned to negotiated

rulemaking as an appropriate alternative

to implementing 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.) The Committee

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 health care products,

insurance carriers and the federal

government. This regulation represents

the Committee’s consensus, in the form

of a proposed rule, for guiding state

governments and plans in determining

whether an entity has been established

or maintained under or pursuant to one

or more collective bargaining

agreements and is therefore not subject

to state regulation. 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 health care 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 small employer

participation in MEWAs. The

Department has concluded that the

proposed regulation is less costly in

comparison with alternative methods of

determining compliance with section

3(40), such as case-by-case analysis by

PWBA of each employee welfare plan or

litigation. In addition, not defining

specific guidelines for compliance with

section 3(40) and permitting sham

MEWAs to continue to function would

raise costs to small businesses in terms

of loss of coverage and unpaid claims.

No other significant alternatives which

would minimize economic impact on

small entities have been identified.

It would be inappropriate to create an

exemption under the proposed

regulation for small MEWAs because

small MEWAs are not less likely to be

underfunded or otherwise have

inadequate reserves to meet the benefit

claims submitted for payment than are

large MEWAs.

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

determining whether certain entities

64494 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

may be regulated under certain state law

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 interests

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 the following concerns: (1)

That the rule allow MEWAs to be easily

distinguishable from collectively

bargained plans so that MEWAs may be

properly subjected to state jurisdiction

and regulation; (2) that the rule prevent

the unlicensed sale of health insurance;

and; (3) that losses to individuals in the

form of unreimbursed and denied

medical claims be stopped.

The Department’s position with

regard to this rulemaking is that there is

an overwhelming need for this

regulation. Sham operators have been

exploiting the lack of regulation in this

area by claiming to be established or

maintained pursuant to collective

bargaining, thereby avoiding state

regulation. These operators have

marketed unlicensed health insurance

to small employers free of state solvency

and reserve requirements and have

therefore offered health insurance at

significantly cheaper rates than statelicensed insurance companies.

Ultimately these operations have gone

bankrupt, leaving participants with

significant unpaid claims and without

health insurance. This regulation will

provide objective criteria to distinguish

collectively bargained plans from

arrangements subject to state insurance

law. It will also provide entities that

claim to be exempt from state

regulation, an expedited procedure to

obtain a finding from the Department

under certain conditions.

By providing objective criteria

distinguishing collectively bargained

plans from arrangements subject to state

insurance law, the regulation should

facilitate state enforcement efforts

against arrangements attempting to

misuse the collectively bargained

exception in section 3(40) of ERISA. In

that regard, the regulation should make

more difficult the sale of unlicensed

insurance under the guise of collectively

bargained plans and limit the losses to

individuals in the form of unreimbursed

and denied medical and other welfare

benefit insurance claims resulting from

that type of sham arrangement.

Statutory Authority

This regulation is proposed pursuant

to the authority in sections 107, 209,

504, and 505 of ERISA (Pub. L. 93–406,

88 Stat. 894, 29 U.S.C. 1027, 1059, 1134,

1135) and under Secretary of Labor’s

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

1987.

List of Subjects in 29 CFR Part 2510

Collective bargaining, Employee

benefit plans, Pensions.

Proposed Regulation

For the reasons set out in the

preamble, the Department proposes to

amend Part 2510 of Chapter XXV of

Title 29 of the Code of Federal

Regulations as follows:

PART 2510—[AMENDED]

1. The authority citation for Part 2510

is revised to read as follows:

Secs. 3(2), 3(40), 111(c), 505, Pub. L. 93–

406, 88 Stat. 852, 894, (29 U.S.C. 1002(2),

1002(40), 1031, 1135); Secretary of Labor’s

Order No. 27–74, 1–86, 1–87, and Labor

Management Services Administration Order

No. 2–6.

Section 2510.3–101 is also issued under

sec. 102 of Reorganization Plan No. 4 of 1978

(43 FR 47713, October 17, 1978), effective

December 31, 1978 (44 FR 1065, January 3,

1978); 3 CFR, 1978 Comp., p. 332, and sec.

11018(d) of Pub. L. 99–272, 100 Stat. 82.

Section 2510.3–102 is also issued under

sec. 102 of Reorganization Plan No. 4 of 1978

(43 FR 47713, October 17, 1978), effective

December 31, 1978 (44 FR 1065, January 3,

1978); 3 CFR, 1978 Comp., p. 332, and sec.

11018(d) of Pub. L. 99–272, 100 Stat. 82.

2. Section 2510.3–40 is added to read

as follows:

§ 2510.3–40 Plans Established or

Maintained Under or Pursuant to Collective

Bargaining Agreements Under Section

3(40)(A) of ERISA.

(a) Scope and purpose. Section

3(40)(A) of the Employee Retirement

Income Security Act of 1974 (ERISA)

provides that the term ‘‘multiple

employer welfare arrangement’’

(MEWA) does not include an employee

welfare benefit plan which is

established or maintained under or

pursuant to one or more agreements

which the Secretary of Labor (the

Secretary) finds to be collective

bargaining agreements. This section sets

forth a finding by the Secretary that an

arrangement is an employee welfare

benefit plan established or maintained

under or pursuant to one or more

collective bargaining agreements if the

plan meets the criteria in this section.

This section also sets forth a finding by

the Secretary that certain arrangements

are not employee welfare benefit plans

established or maintained under or

pursuant to a collective bargaining

agreement, regardless of whether they

purport to meet the regulatory criteria.

No finding by the Secretary in or

pursuant to this section shall constitute

a finding for any purpose other than the

exception for plans established or

maintained under or pursuant to one or

more collective bargaining agreements

under section 3(40) of ERISA. The

procedure for obtaining a finding by the

Secretary in a particular case where

there is an attempt to assert state

jurisdiction or the application of state

law with respect to a plan or other

arrangement that allegedly is covered

under Title I of ERISA, is set forth in 29

CFR part 2570, subpart G.

(b) General criteria. The Secretary

finds, for purposes of section 3(40) of

ERISA, that an employee welfare benefit

plan is ‘‘established or maintained

under or pursuant to one or more

agreements which the Secretary finds to

be collective bargaining agreements’’ for

any plan year in which the plan meets

the criteria set forth in paragraphs (b)(1),

(2), (3), and (4) of this section, and is not

excluded under paragraph (c) of this

section:

(1) The entity is an employee welfare

benefit plan within the meaning of

section 3(1) of ERISA.

(2) At least 80% of the participants in

the plan are:

(i) Individuals employed under one or

more agreements meeting the criteria of

paragraph (b)(3) of this section, under

which contributions are made to the

plan, or pursuant to which coverage

under the plan is provided;

(ii) Retirees who either participated in

the welfare benefit plan at least five of

the last 10 years preceding their

retirement, or:

(A) Are receiving benefits as

participants under a multiemployer

pension benefit plan that is maintained

under the same agreement referred to in

paragraph (b)(2)(i) of this section, and

(B) Have at least five years of service

or the equivalent under that

multiemployer pension benefit plan;

(iii) Participants on extended coverage

under the plan pursuant to the

requirements of a statute or court or

administrative agency decision,

including but not limited to the

continuation coverage requirements of

the Consolidated Omnibus Budget

Reconciliation Act of 1985, sections

601–609, the Family and Medical Leave

Act, 29 U.S.C. 2601 et seq., the

Uniformed Services Employment and

Reemployment Rights Act of 1994, 38

U.S.C. 4301 et seq., or the National

Labor Relations Act, 29 U.S.C. 158(a)(5);

(iv) Participants who were active

participants and whose coverage is

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64495

otherwise extended under the terms of

the plan, including but not limited to

extension by reason of self-payment,

hour bank, long or short-term disability,

furlough or temporary unemployment,

provided that the charge to the

individual for such extended coverage is

no more than the applicable premium

under section 604 of the Act;

(v) Participants whose coverage under

the plan is maintained pursuant to a

reciprocal agreement with one or more

other employee welfare benefit plans

established or maintained under or

pursuant to one or more collective

bargaining agreements and that are

multiemployer plans;

(vi) Individuals employed by:

(A) An employee organization that

sponsors, jointly sponsors or is

represented on the association,

committee, joint board of trustees, or

other similar group of representatives of

the parties who sponsor the plan,

(B) The plan or associated trust fund,

or

(C) Other employee benefit plans or

trust funds to which contributions are

made pursuant to the same agreement

described in paragraph (b)(2)(i) of this

section;

(vii) individuals who were employed

under an agreement described in

paragraph (b)(3) of this section,

provided that they are employed by one

or more employers that are parties to an

agreement described in paragraph (b)(3)

and are covered under the plan on terms

that are generally no more favorable

than those that apply to similarly

situated individuals described in

paragraph (b)(2)(i) of this section;

(viii) Individuals (other than

individuals described in paragraph

(b)(2)(i) of this section) who are

employed by employers that are bound

by the terms of an agreement described

in paragraph (b)(3)(i) of this section and

that employ personnel covered by such

agreement, and who are covered under

the plan on terms that are generally no

more favorable than those that apply to

such covered personnel. For this

purpose, such individuals in excess of

10% of the total population of

participants in the plan are disregarded;

(ix) Individuals who are, or were for

a period of at least three years,

employed under one or more

agreements between or among one or

more ‘‘carriers’’ (including ‘‘carriers by

air’’) and one or more ‘‘representatives’’

of employees for collective bargaining

purposes and as defined by the Railway

Labor Act, 45 U.S.C. 151 et seq.,

providing for such individuals’ current

or subsequent participation in the plan,

or providing for contributions to be

made to the plan by such carriers; or

(x) Individuals who are licensed

marine pilots operating in United States

ports as a state-regulated enterprise and

are covered under an employee welfare

benefit plan that meets the definition of

a qualified merchant marine plan, as

defined in section 415(b)(2)(F) of the

Internal Revenue Code (26 U.S.C.).

(3) The plan is incorporated or

referenced in a written agreement

between two or more employers and one

or more employee organizations, which

agreement, itself or together with other

agreements among the same parties:

(i) Is the product of a bona fide

collective bargaining relationship

between the employers and the

employee organization(s);

(ii) Identifies employers and

employee organization(s) that are parties

to and bound by the agreement;

(iii) Identifies the personnel, job

classifications and/or work jurisdiction

covered by the agreement;

(iv) Provides for terms and conditions

of employment in addition to coverage

under, or contributions to, the plan; and

(v) Is not unilaterally terminable or

automatically terminated solely for nonpayment of benefits under or

contributions to, the plan.

(4) For purposes of paragraph (b)(3)(i),

of this section, the following factors,

among others, are to be considered in

determining the existence of a bona fide

collective bargaining relationship. In

any proceeding initiated under 29 CFR

part 2570 Subpart G, the existence of a

bona fide collective bargaining

relationship under paragraph (b)(3)(i)

shall be presumed where at least four of

the factors set out in paragraphs (b)(4)(i)

through (viii), of this section are

established:

(i) The agreement referred to in

paragraph (b)(3) of this section

provide(s) for contributions to a labormanagement trust fund structured

according to section 302(c)(5), (6), (7),

(8), or (9) of the Taft-Hartley Act, 29

U.S.C. 186(c)(5), (6), (7), (8) or (9), or to

a plan lawfully negotiated under the

Railway Labor Act;

(ii) The agreement referred to in

paragraph (b)(3) of this section requires

contributions by substantially all of the

participating employers to a

multiemployer pension plan that is

structured in accordance with section

401 of the Internal Revenue Code (26

U.S.C.), and is either structured in

accordance with section 302(c)(5) of the

Taft-Hartley Act, 29 U.S.C. 186(c)(5), or

is lawfully negotiated under the Railway

Labor Act, and substantially all of the

active participants covered by the

employee welfare benefit plan are also

eligible to become participants in that

pension plan;

(iii) The predominant employee

organization that is a party to the

agreement referred to in paragraph (b)(3)

of this section has maintained a series

of agreements incorporating or

referencing the plan since before

January 1, 1983;

(iv) The predominant employee

organization that is a party to the

agreement referred to in paragraph (b)(3)

of this section has been a national or

international union, or a federation of

national and international unions, or

has been affiliated with such a union or

federation, since before January 1, 1983;

(v) A court, government agency or

other third-party adjudicatory tribunal

has determined, in a contested or

adversary proceeding, or in a

government-supervised election, that

the predominant employee organization

that is a party to the agreement

described in paragraph (b)(3) of this

section is the lawfully recognized or

designated collective bargaining

representative with respect to one or

more bargaining units of personnel

covered by such agreement;

(vi) Employers who are parties to the

agreement described in paragraph (b)(3)

of this section pay at least 75% of the

premiums or contributions required for

the coverage of active participants under

the plan or, in the case of a retiree only

plan, the employer pays at least 75% of

the premiums or contributions required

for the coverage of the retirees. For this

purpose, coverage under the plan for

dental or vision care, or coverage for

excepted benefits under 29 CFR

2590.732(b), is disregarded;

(vii) The predominant employee

organization that is a party to the

agreement described in paragraph (b)(3)

of this section (b)(3) provides, sponsors

or jointly sponsors a hiring hall(s) and/

or a state-certified apprenticeship

program(s) that provide services that are

available to substantially all active

participants covered by the plan;

(viii) The agreement described in

paragraph (b)(3) of this section has been

determined to be a bona fide collective

bargaining agreement for purposes of

establishing the prevailing practices

with respect to wages and supplements

in a locality, pursuant to a prevailing

wage statute of any state or the District

of Columbia.

(ix) There are other objective or

subjective indicia of actual collective

bargaining and representation, such as

that arm’s length negotiations occurred

between the parties to the agreement

described in paragraph (b)(3) of this

section; that the predominant employee

organization that is party to such

agreement actively represents

employees covered by such agreement

64496 Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules

with respect to grievances, disputes or

other matters involving employment

terms and conditions other than

coverage under or contributions to the

employee welfare benefit plan; that

there is a geographic, occupational,

trade, organizing or other rationale for

the employers and bargaining units

covered by such agreement; that there is

a connection between such agreement

and the participation, if any, of selfemployed individuals in the employee

welfare benefit plan established or

maintained under or pursuant to such

agreement.

(c) Exclusions. (1) An employee

welfare benefit plan shall not be deemed

to be ‘‘established or maintained under

or pursuant to one or more agreements

which the Secretary finds to be

collective bargaining agreements’’ for

any plan year in which:

(i) The plan is self-funded or partially

self-funded, and is marketed to

employers or sole proprietors:

(A) By one or more insurance

producers as defined in paragraph (d) of

this section,

(B) By an individual who is

disqualified from or ineligible for, or has

failed to obtain, such a license to serve

as an insurance producer to the extent

that the individual engages in an

activity for which such license is

required, or

(C) By individuals (other than

individuals described in paragraphs

(c)(1)(i) (A) and (B) of this section) who

are paid on a commission-type basis to

market the plan;

(ii) For the purposes of this paragraph

(c):

(A) ‘‘Marketing’’ does not include

administering the plan, consulting with

plan sponsors, counseling on benefit

design or coverage, or explaining the

terms of coverage available under the

plan to employees or union members;

(B) ‘‘Marketing’’ does include the

marketing of union membership that

carries with it plan participation by

virtue of such membership, except for

membership in unions representing

insurance producers themselves;

(2) The agreement under which the

plan is established or maintained is a

scheme, plan, stratagem or artifice of

evasion, a principal intent of which is

to evade compliance with state law and

regulations applicable to insurance; or

(3) There is fraud, forgery or willful

misrepresentation as to the factors relied

on to demonstrate that the plan satisfies

the criteria set forth in paragraph (b) of

this section.

(d) Definitions. (1) Active participant

means a participant who is not retired

and who is not on extended coverage

under paragraphs (b)(2)(iii) or (b)(2)(iv)

of this section.

(2) Agreement means the contract

embodying the terms and conditions

mutually agreed upon between or

among the parties to such agreement.

Where the singular is used in this

section, the plural is automatically

included.

(3) Individual employed means any

natural person who furnishes services to

another person or entity in the capacity

of an employee under common law,

without regard to any specialized

definitions or interpretations of the

terms ‘‘employee,’’ ‘‘employer,’’ or

‘‘employed’’ under federal or state

statutes other than ERISA.

(4) Insurance producer means an

agent, broker, consultant, or producer

who is an individual, entity, or sole

proprietor, that is licensed under the

laws of the state to sell, solicit, or

negotiate insurance.

(5) Predominant employee

organization means, where more than

one employee organization is a party to

an agreement, either the organization

representing the plurality of individuals

employed under such agreement, or

organizations that in combination

represent the majority of such

individuals.

(e) Examples. The operation of the

provisions of this section may be

illustrated by the following examples.

Example 1. Plan A has 500 participants, in

the following 4 types of participants under

paragraph (b)(2) of this section:

Type of participants Total

number

Nexus

group Non-nexus

1. Individuals working under CBAs ............................................................................................................... 320 (64%) 320 (64%) 0

2. Retirees ..................................................................................................................................................... 50 (10%) 50 (10%) 0

3. ‘‘Special Class’’—Non-CBA, non-alumni ................................................................................................... 100 (20%) 50 (10%) 50 (10%)

4. Non-nexus participants .............................................................................................................................. 30 (6%) 0 30 (6%)

Total ........................................................................................................................................................ 500

(100%)

420 (84%) 80 (16%)

(2) In determining whether at least 80% of

Plan A’s participant population is made up

of individuals with the required nexus to the

collective bargaining agreement as required

by paragraph (b)(2) of this section, the Plan

may count as part of the nexus group only

50 (10% of the total plan population) of the

100 individuals described in paragraph

(b)(2)(viii) of this section. That is because the

number of individuals meeting the category

of individuals in paragraph (b)(2)(viii)

exceeds 10% of the total participant

population by 50 individuals. The paragraph

specifies that those individuals who are

deemed to be nexus individuals because they

are the type of individuals described in

paragraph (b)(2)(viii) in excess of 10% of the

total plan population may not be counted in

the nexus group. Here, 50 of the 100

individuals employed by signatory

employers, but not covered by the collective

bargaining agreement, are counted as nexus

individuals and 50 are not counted as nexus

individuals. Nonetheless, the Plan satisfies

the 80% criterion under paragraph (b)(2)

because a total of 420 (320 individuals

covered by the collective bargaining

agreement, plus 50 retirees, plus 50

individuals employed by signatory

employers), or 84%, of the 500 participants

in Plan A are individuals who may be

counted as nexus participants under

paragraph (b)(2). Beneficiaries (e.g., spouses,

dependent children, etc.) are not counted to

determine whether the 80% test has been

met.

Example 2. (1) International Union MG and

its Local Unions have represented people

working primarily in a particular industry for

over 60 years. Since 1950, most of their

collective bargaining agreements have called

for those workers to be covered by the

National MG Health and Welfare Plan.

During that time, the number of unionrepresented workers in the industry, and the

number of active participants in the National

MG Health and Welfare Plan, first grew and

then declined. New Locals were formed and

later were shut down. Despite these

fluctuations, the National MG Health and

Welfare Plan meets the factors described in

paragraphs (b)(4)(iii) and (iv) of this section,

as the plan has been in existence pursuant to

collective bargaining agreements to which

the International Union and its affiliates have

been parties, since prior to January 1, 1983.

(2) Assume the same facts, except that on

January 1, 1999, International Union MG

merged with International Union RE to form

International Union MRGE. MRGE and its

Locals now represent the active participants

in the National MG Health and Welfare Plan

and in the National RE Health and Welfare

Plan which, for 45 years, had been

maintained under collective bargaining

agreements negotiated by International Union

Federal Register / Vol. 65, No. 209 / Friday, October 27, 2000 / Proposed Rules 64497

RE and its Locals. Since International Union

MRGE is the continuation of, and successor

to, the MG and RE unions, the two plans

continue to meet the factors in paragraphs

(b)(4)(iii) and (iv) of this section. This also

would be true if the two plans were merged.

Example 3. Assume the same facts as in

paragraph (2) of Example 2 with respect to

International Union MG. However, in 1997,

one of its Locals and the employers with

which it negotiates agree to set up a new

multiemployer health and welfare plan that

only covers the individuals represented by

that Local Union. That plan would not meet

the factor in paragraph (b)(4)(iii) of this

section, as it has not been incorporated or

referenced in collective bargaining

agreements, dating back to before January 1,

1983.

Example 4. (1) Pursuant to a collective

bargaining agreement between various

employers and Local 2000, the employers

contribute $2 per hour to the Fund for every

hour that a covered employee works under

the agreement. The covered employees are

automatically entitled to health and

disability coverage from the Fund for every

calendar quarter the employees have 300

hours of additional covered service in the

preceding quarter. The employees do not

need to make any additional contributions

for their own coverage, but must pay $250

per month if they want health coverage for

their dependent spouse and children.

Because the employer payments cover 100%

of the required contributions for the

employees’ own coverage, the Local 2000

Employers Health and Welfare Fund meets

the ‘‘75% employer payment’’ factor under

paragraph (b)(3)(vi) of this section.

(2) Assume, however, that the negotiated

employer contribution rate was $1 per hour,

and the employees could only obtain health

coverage for themselves if they also elected

to contribute $1 per hour, paid on a pre-tax

basis through salary reduction. The Fund

would not meet the 75% employer payment

factor, even though the employees’

contributions are treated as employer

contributions for tax purposes. Under ERISA,

and therefore under this section, elective

salary reduction contributions are treated as

employee contributions. The outcome would

be the same if a uniform employee

contribution rate applied to all employees,

whether they had individual or family

coverage, so that the $1 per hour employee

contribution qualified an employee for his or

her own coverage and, if he or she had

dependents, dependent coverage as well.

Example 5. Arthur is a licensed insurance

broker, one of whose clients is

Multiemployer Fund M, a partially selffunded plan. Arthur takes bids from

insurance companies on behalf of Fund M for

the insured portion of its coverage, helps the

trustees to evaluate the bids, and places the

Fund’s health insurance coverage with the

carrier that is selected. Arthur also assists the

trustees of Fund M in preparing material to

explain the plan and its benefits to the

participants, as well as in monitoring the

insurance company’s performance under the

contract. At the Trustees’ request, Arthur

meets with a group of employers with which

the union is negotiating for their employees’

coverage under Fund M, and he explains the

cost structure and benefits that Fund M

provides. Arthur is not engaged in marketing

within the meaning of paragraph (c)(1) of this

section, so the fact that he provides these

administrative services and sells insurance to

the Fund itself does not affect the plan’s

status as a plan established or maintained

under or pursuant to a collective bargaining

agreement. This is the case, whether or how

he is compensated.

Example 6. Assume the same facts as

Example 5, except that Arthur has a group of

clients unrelated to the employees covered

by or the employers bound to the collective

bargaining agreement, whose insurance

carrier has withdrawn from the market in

their locality. He persuades them to retain

him to find them other coverage. The group

of clients has no relationship with the labor

union that represents the participants in

Fund M. However, Arthur offers them

coverage under Fund M, and persuades the

Fund’s Trustees to allow the client group to

join Fund M in order to broaden Fund M’s

contribution base. Arthur’s activities in

obtaining coverage for the unrelated group

under Fund M constitutes marketing through

an insurance producer, which makes Fund M

a MEWA under paragraph (c)(1) of this

section.

Example 7. (1) Union A represents

thousands of construction workers in a threestate geographic region. For many years,

Union A has maintained a standard written

collective bargaining agreement with several

hundred large and small building

contractors, covering wages, hours, and other

terms and conditions of employment for all

work performed in Union A’s geographic

territory. The terms of those agreements are

negotiated every three years between Union

A and a multiemployer Association, which

signs on behalf of those employers who have

delegated their bargaining authority to the

Association. Hundreds of other employers—

including both local and traveling

contractors—have chosen to become bound

to the terms of Union A’s standard area

agreement for various periods of time and in

various ways, such as by signing short-form

binders or ‘‘me too’’ agreements, executing a

single job or project labor agreement, or

entering into a subcontracting arrangement

with a signatory employer. All of these

employ individuals represented by Union A

and contribute to Plan A, a self-insured

multiemployer health and welfare plan

established and maintained under Union A’s

standard area agreement. During the past

year, the trustees of Plan A have brought

lawsuits against several signatory employers

seeking contributions allegedly owed, but not

paid to the trust. In defending that litigation,

a number of employers have sworn that they

never intended to operate as union

contractors, that their employees want

nothing to do with Union A, that Union A

procured their assent to the collective

bargaining agreement solely by threats and

fraudulent misrepresentations, and that

Union A has failed to file certain reports

required by the Labor Management Reporting

and Disclosure Act. In at least one instance,

a petition for a decertification election has

been filed with the National Labor Relations

Board.

(2) In this example, Plan A qualifies for the

regulatory finding that it is a multiemployer

plan established and maintained under or

pursuant to one or more collective bargaining

agreements, assuming that its participant

population satisfies the 80% test of

paragraph (b)(2) of this section and that none

of the disqualifying factors in paragraph (c)

of this section is present. Plan A’s status for

the purpose of this section is not affected by

the fact that some of the employers who deal

with Union A have challenged Union A’s

conduct, or have disputed under labor

statutes and legal doctrines other than ERISA

section 3(40) the validity and enforceability

of their putative contract with Union A,

regardless of the outcome of those disputes.

Example 8. (1) Assume the same facts as

Example 7. Plan A’s benefits consultant

recently entered into an arrangement with

the Medical Consortium, a newly formed

organization of health care providers, which

allows the Plan to offer a broader range of

health services to Plan A’s participants while

achieving cost savings to the Plan and to

participants. Union A, Plan A, and Plan A’s

consultant each have added a page to their

websites publicizing the new arrangement

with the Medical Consortium. Concurrently,

Medical Consortium’s website prominently

publicizes its recent affiliation with Plan A

and the innovative services it makes

available to the Plan’s participants. Union A

has mailed out informational packets to its

members describing the benefit

enhancements and encouraging election of

family coverage. Union A has also begun

distributing similar material to workers on

hundreds of non-union construction job sites

within its geographic territory.

(2) In this example, Plan A remains a plan

established and maintained under or

pursuant to one or more collective bargaining

agreements under section 3(40) of ERISA.

Neither Plan A’s relationship with a new

organization of health care providers, nor the

use of various media to publicize Plan A’s

attractive benefits throughout the area served

by Union A, alters Plan A’s status for purpose

of this section.

Example 9. (1) Assume the same facts as

in Example 7. Union A undertakes an areawide organizing campaign among the

employees of all the health care providers

who belong to the Medical Consortium.

When soliciting individual employees to sign

up as union members, Union A distributes

Plan A’s information materials and promises

to bargain for the same coverage. At the same

time, when appealing to the employers in the

Medical Consortium for voluntary

recognition, Union A promises to publicize

the Consortium’s status as a group of

unionized health care service providers.

Union A eventually succeeds in obtaining

recognition based on its majority status

among the employees working for Medical

Consortium employers. The Consortium,

acting on behalf of its employer members,

negotiates a collective bargaining agreement

with Union A that provides terms and

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