Federal Register / Vol. 78, No. 41 / Friday, March 1, 2013 / Rules and Regulations 13797 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Parts 2560 and 2571 

RIN 1210–AB48 

Ex Parte Cease and Desist and 

Summary Seizure Orders—Multiple 

Employer Welfare Arrangements 

AGENCY: Employee Benefits Security 

Administration, Department of Labor. 

ACTION: Final rules. 

SUMMARY: This document contains two 

final rules under the Employee 

Retirement Income Security Act of 1974 

(ERISA) to facilitate implementation of 

new enforcement authority provided to 

the Secretary of Labor by the Patient 

Protection and Affordable Care Act 

(Affordable Care Act). The Affordable 

Care Act authorizes the Secretary to 

issue a cease and desist order, ex parte 

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

when it appears that the alleged conduct 

of a multiple employer welfare 

arrangement (MEWA) is fraudulent, 

creates an immediate danger to the 

public safety or welfare, or is causing or 

can be reasonably expected to cause 

significant, imminent, and irreparable 

public injury. The Secretary may also 

issue a summary seizure order when it 

appears that a MEWA is in a financially 

hazardous condition. The first 

regulation establishes the procedures for 

the Secretary to issue ex parte cease and 

desist orders and summary seizure 

orders with respect to fraudulent or 

insolvent MEWAs. The second 

regulation establishes the procedures for 

use by administrative law judges and 

the Secretary when a MEWA or other 

person challenges a temporary cease 

and desist order. 

DATES: Effective date. These final 

regulations are effective April 1, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Stephanie Lewis, Plan Benefits Security 

Division, Office of the Solicitor, 

Department of Labor, at (202) 693–5588 

or Suzanne Bach, Employee Benefits 

Security Administration, Department of 

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

toll-free numbers. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

A. Purpose of the Regulatory Action 

1. Need for Regulatory Action 

The Patient Protection and Affordable 

Care Act (Affordable Care Act) gives the 

Secretary authority to issue a cease and 

desist order when a multiple employer 

welfare arrangement (MEWA) engages 

in conduct that is fraudulent, creates an 

immediate danger to the public safety or 

welfare, or causes or can be reasonably 

expected to cause significant, 

immediate, and irreparable injury. The 

act also gives the Secretary authority to 

issue a summary seizure order when a 

MEWA is in a financially hazardous 

condition. These new powers strengthen 

the Secretary’s ability to protect plan 

participants, beneficiaries, employers, 

employee organizations, and other 

members of the public from fraudulent, 

abusive, and financially unstable 

MEWAs. 

These two regulations are necessary to 

set forth the criteria for determining 

whether the statutory grounds for 

issuing an order have been met, and, in 

the case of a cease and desist order, to 

establish reasonable administrative 

review procedures. The Secretary will 

generally obtain judicial authorization 

before issuing a summary seizure order. 

The substantive criteria for issuing an 

order are based on several decades of 

enforcement experience by the 

Department and the States regarding 

fraudulent or financially hazardous 

conduct of MEWAs (and persons acting 

as their agents and employees). The 

administrative procedures will allow 

affected persons to challenge a cease 

and desist order and obtain expeditious 

review, including the right to a hearing. 

2. Legal Authority 

Section 521 of ERISA, 29 U.S.C. 1151, 

sets out the Secretary’s authority to 

issue cease and desist orders and 

summary seizure orders. Section 521(f) 

provides that ‘‘the Secretary may 

promulgate such regulations or other 

guidance as may be necessary or 

appropriate to carry out’’ this new 

enforcement authority. Section 505 of 

ERISA, 29 U.S.C. 1135, also provides 

the Secretary with authority to prescribe 

such regulations as necessary or 

appropriate to carry out the provisions 

of Title I of ERISA, which includes the 

new section 521. 

B. Summary of the Major Provisions of 

This Regulatory Action 

These rules generally set forth the 

statutory criteria under which the 

Secretary may issue cease and desist 

orders and summary seizure orders. 

They also specify that orders may apply 

to MEWAs and to persons having 

custody or control of assets of a MEWA, 

any authority over management of a 

MEWA, or any role in the transaction of 

a MEWA’s business. Paragraph (b) of 

this section contains key definitions. 

Most notably, this paragraph sets forth 

the criteria for determining if it appears 

that the MEWA or any person acting as 

an agent or employee of the MEWA has 

engaged in conduct that would support 

issuance of an order under the statute. 

The regulations address the scope of the 

cease and desist order and the process 

for a person who is the subject of a 

temporary cease and desist order to 

request an administrative hearing to 

show cause why the order should be 

modified or set aside. The regulations 

also establish the procedures for such 

hearings. 

Although the Secretary may issue a 

cease and desist order without first 

seeking court approval, the procedure 

for a summary seizure order is 

somewhat different. The regulations 

generally require that the Secretary 

obtain judicial authorization before 

issuing a summary seizure order. They 

also require that the Secretary seek court 

appointment of a receiver or 

independent fiduciary and obtain court 

authorization for other actions to assert 

control over the MEWA’s and plan 

assets. 

Orders issued under these final rules 

are effective upon service and remain in 

effect until modified or set aside by the 

Secretary, an administrative law judge, 

or a reviewing court. Issued final orders 

will be made available to the public as 

will modifications and terminations of 

such final orders. Further, to facilitate 

coordination with the States, Federal 

agencies, and foreign authorities, the 

Secretary may disclose the issuance of 

any order (whether temporary or final) 

and any information and evidence of 

any proceedings and hearings related to 

the order to other Federal, State, or 

foreign authorities. (The sharing of such 

information, however, does not 

constitute a waiver of any applicable 

privilege or claim of confidentiality.) 

The Secretary remains committed to 

helping MEWAs and plan officials 

comply with legal requirements and 

serve plan participants and beneficiaries 

properly. These new enforcement tools 

will enhance the Department’s ability to 

protect plan participants and 

beneficiaries when MEWAs and plan 

actors fail to comply with their 

obligations. The Secretary will also 

continue to use any other investigatory 

and enforcement tools available under 

title I of ERISA. 

C. Costs and Benefits 

These final regulations will improve 

MEWA compliance and deter abusive 

practices. They will also enable the 

Secretary to take enforcement action 

against fraudulent, abusive, and 

financially unstable MEWAs more 

effectively. The Department’s primary 

judicial remedy for violations of ERISA 


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13798 Federal Register / Vol. 78, No. 41 / Friday, March 1, 2013 / Rules and Regulations 

1The term ‘‘multiple employer welfare 

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

1002(40). 

2See, e.g., Chao v. Graf, 2002 WL 1611122 (D. 

Nev. 2002), In re Raymond Palombo, et al., 2011 

WL 1871438 (Bankr. C.D. CA 2011) and Solis v. 

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

v. Crouse, 346 F.Supp.2d 975 (S.D. Ind. 2004). 

by MEWAs is court-ordered relief based 

on a breach of fiduciary duty. Gathering 

sufficient evidence to prove a fiduciary 

breach may be very time-consuming and 

labor intensive, even where it is clear 

that the MEWA is insolvent or unable to 

meet its financial commitments. In 

many MEWA cases, important financial 

records are poor or non-existent. The 

new authority implemented by these 

regulations provides an additional, more 

flexible tool for the Secretary to use, 

when appropriate, to combat fraudulent 

and abusive conduct by MEWAs and 

financially hazardous arrangements. 

Moreover, these regulations will enable 

the enforcement process to be more 

efficient because the subject of a cease 

and desist order can seek review of the 

order in an administrative hearing 

rather than a court. Since the rules do 

not require any action or impose any 

requirements on MEWAs, these 

regulations do not impose any major 

costs. 

II. Background 

Multiple employer welfare 

arrangements (MEWAs) 1 that are 

properly operated provide an additional 

option for small employers seeking 

affordable health coverage for their 

employees. Nevertheless, fraudulent 

and abusive practices and financial 

instability are recurrent themes in 

ERISA enforcement.2 Congress enacted 

section 6605 of the Patient Protection 

and Affordable Care Act (Affordable 

Care Act), Public Law 111–148, 124 

Stat. 119, 780 (2010), which adds 

section 521 to ERISA, to give the 

Secretary of Labor additional 

enforcement authority to protect plan 

participants, beneficiaries, employees or 

employee organizations, or other 

members of the public against 

fraudulent, abusive, or financially 

hazardous MEWAs. 

This section authorizes the Secretary 

to issue ex parte cease and desist orders 

when it appears to the Secretary that the 

alleged conduct of a MEWA is 

‘‘fraudulent, or creates an immediate 

danger to the public safety or welfare, or 

is causing or can be reasonably expected 

to cause significant, imminent, and 

irreparable public injury.’’ 29 U.S.C. 

1151(a). A person that is adversely 

affected by the issuance of a cease and 

desist order may request an 

administrative hearing regarding the 

order. 29 U.S.C. 1151(b). This section 

also allows the Secretary to issue an 

order to seize the assets of a MEWA that 

the Secretary determines to be in a 

financially hazardous condition. 29 

U.S.C. 1151(e). 

On December 6, 2011, the Department 

published in the Federal Register 

proposed regulations (76 FR 76235) 

implementing new ERISA section 521 

and setting forth the procedures for 

administrative hearings on the issuance 

of an ex parte cease and desist order. 

The Department received three (3) 

comment letters on these proposed 

rules. After consideration of the 

comments received, the Department is 

publishing these final regulations with 

little modification of the proposed rules. 

III. Overview of the Final Regulations 

A. Ex Parte Cease and Desist and 

Summary Seizure Order Regulations (29 

CFR 2560.521) 

Purpose and Definitions 

Pursuant to section 6605 of the 

Affordable Care Act, these rules set forth 

criteria and procedures for the Secretary 

to issue cease and desist orders and 

summary seizure orders and procedures 

for administrative review of the cease 

and desist orders. The rules apply to 

any cease and desist order and any 

summary seizure order issued under 

section 521 of ERISA. Paragraph (a) of 

section 2560.521–1 of the rules 

generally sets forth the statutory criteria 

under which the Secretary may issue 

orders. It also specifies that orders may 

apply to MEWAs and to persons having 

custody or control of assets of a MEWA, 

any authority over management of a 

MEWA, or any role in the transaction of 

a MEWA’s business. 

One commenter expressed concern 

that applying cease and desist and 

summary seizure orders to third party 

administrators (TPAs) would threaten 

their ability to perform their services, 

which may include helping MEWAs 

recover when they are in financial peril. 

TPAs perform critical services for the 

plan community. As the commenter 

notes, an important service TPAs do or 

can provide is to educate MEWAs about 

their duty to pay claims and provide 

promised benefits. TPAs also play an 

important role in informing the 

Department about MEWAs that ask 

them to deceive or defraud plan 

participants. The Department recognizes 

the role that conscientious and 

knowledgeable TPAs and other service 

providers may play in protecting plans 

and their participants and beneficiaries. 

Where the functions of a service 

provider are essential to the operation of 

a MEWA, cease and desist orders will 

need to cover these functions, whether 

or not the service provider engaged in 

conduct giving rise to the order. 

Moreover, in some cases a service 

provider may be integrally involved in 

conduct evidencing an intent to deceive 

or defraud plans and their participants 

and beneficiaries or other actions that 

endanger the public welfare. As an 

example, in U.S. v. William Madison 

Worthy, No. 7:11–cr–00487–HMH (D. 

S.C. 2011), Mr. Worthy, who owned the 

TPA providing services to the MEWA, 

pleaded guilty for diverting almost $1 

million in premium contributions for 

coverage provided in connection with 

the MEWA. Ultimately, about $1.7 

million in claims either went unpaid or 

had to be paid by plan members. 

Moreover, it should be emphasized 

that orders may often be issued to 

persons, who were not involved in 

improper conduct, but whose 

cooperation is necessary to carry out the 

purpose of the order. For instance, a 

bank holding assets of a MEWA may 

receive a court-approved summary 

seizure order that directs the bank to 

freeze those assets. See, e.g., 29 CFR 

2560.521–1(f)(4). 

Paragraph (b) contains key 

definitions. ERISA section 521 applies 

the Secretary’s cease and desist and 

seizure order authority to MEWAs, as 

defined under section 3(40) of ERISA, 

29 U.S.C. 1002(40). As stated in the 

proposed regulations, Congress did not 

limit the Secretary’s authority to issue 

orders to MEWAs that are ERISAcovered employee welfare benefits plans 

(ERISA-covered plans). Section 521 of 

ERISA also applies if the MEWA 

provides health coverage to one or more 

ERISA-covered plans, even if it also 

provides coverage to other persons 

unconnected to an ERISA-covered plan. 

These rules do not, however, apply to 

MEWAs that provide coverage only in 

connection with governmental plans, 

church plans, and plans maintained 

solely for the purpose of complying 

with workers’ compensation laws, 

which are not covered by ERISA. They 

also do not apply to arrangements that 

only provide coverage to individuals 

other than in connection with an 

employee welfare benefit plan (e.g., 

individual market coverage). The 

proposed rules also noted that they did 

not apply to arrangements licensed or 

authorized to operate as a health 

insurance issuer. Though the 

Department has not changed the 

substance of the regulations in this 

regard, it has revised paragraph (b)(1) 

for the sake of clarity. The definition of 

a MEWA in ERISA section 3(40) is very 

broadly worded. Read literally, it could 

be interpreted to include traditional 


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3Similarly, section 519 of ERISA, 29 U.S.C. 1149, 

(also enacted as part of the Affordable Care Act) 

prohibits false statements and representations by 

any person, in connection with a MEWA’s 

marketing or sales, concerning the financial 

condition or solvency of the MEWA, the benefits 

provided by the MEWA, and the regulatory status 

of the MEWA. Under ERISA section 501(b), 29 

U.S.C. 1131(b), (as amended by the Affordable Care 

Act) criminal penalties may apply to a violation of 

ERISA section 519. Other criminal penalties may 

apply under other federal provisions as well. See 

e.g., 29 U.S.C. 1131(a) (willful violations of ERISA 

reporting and disclosure requirements), 18 U.S.C. 

1001 (knowingly and willfully false statements to 

the U.S. government), and 18 U.S.C. 1027 

(knowingly false statement or knowing concealment 

of facts in relation to documents required by 

ERISA). 

health insurance issuers (including 

health maintenance organizations) that 

are fully licensed (i.e., subject to 

stringent and comprehensive insurance 

regulation) to offer health insurance 

coverage to the public and employers at 

large in every State in which they offer 

health insurance coverage. The 

Department has never, however, applied 

ERISA’s provisions on MEWAs to such 

organizations. These organizations do 

not pose the same level of risk for fraud, 

abuse, and financial instability that 

ERISA’s provisions on MEWAs, 

including the new ERISA section 521 

and these final rules, are designed to 

address. Consequently, these final rules 

do not apply to these entities. This 

exclusion applies to any arrangement 

that could fall within the definition of 

MEWA but is covered by the same level 

and scope of stringent and 

comprehensive insurance laws of a State 

(such as laws on licensure, solvency, 

reporting, anti-fraud, appeals, premium 

assessment, and guaranty funds) as 

traditional health insurance issuers 

(including health maintenance 

organizations) and that offers health 

insurance coverage to the public and 

employers at large. 

ERISA section 514(b)(6) makes clear 

that the States can regulate any MEWA, 

even a MEWA that is an ERISA-covered 

plan. The Department retains shared 

jurisdiction with the States. In some 

States, some MEWAs are permitted to 

operate if they have obtained a limited 

license from the State (e.g. a license 

that, for instance, allows them to 

operate subject to lower requirements or 

less extensive examination and 

oversight and/or to offer and provide 

coverage to a limited population.). 

These arrangements remain subject to 

ERISA section 521 and these final rules. 

One commenter encouraged the 

Department to focus its enforcement 

actions on abusive and fraudulent 

MEWAs that are self-funded or not fully 

insured (within the meaning of ERISA 

section 514(b)(6)(D)). The Department 

recognizes that fully insured MEWAs 

have raised fewer concerns than other 

MEWAs. Nevertheless, a fully insured 

MEWA that engages in the conduct 

meeting the statutory criteria could be 

subject to an order. 

ERISA section 521 provides three 

statutory grounds upon which the 

Secretary may issue a cease and desist 

order. Paragraphs (b)(2)–(4) of the final 

regulations clarify the scope and 

meaning of the statutory language. The 

first statutory ground, fraudulent 

conduct, is described in paragraph (b)(2) 

of the final rules as an act or omission 

intended to deceive or defraud plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public, the 

Secretary or a State about the MEWA’s 

financial condition or regulatory status, 

benefits, management, control, or 

administration, and other aspects of its 

operation (e.g. claims review, marketing, 

etc.) that the Secretary determines are 

material.3

One commenter expressed concern 

about the definition of fraudulent 

conduct. In particular, the commenter 

was concerned that a focus on 

omissions regarding the financial 

condition of the MEWA, including the 

management of plan assets, could 

inadvertently target service providers 

that adjudicate or pay claims. The 

commenter also expressed concern that 

service providers would be adversely 

implicated simply because they 

interacted with the MEWA and others 

with respect to claims or marketing. The 

new enforcement tools under ERISA 

section 521 are designed to prevent or 

address serious harm to plan 

participants, plan beneficiaries, 

employers, employee organizations, and 

other members of the public. Fraudulent 

conduct, as defined in the proposed 

rules and under these final regulations, 

requires knowledge and intentionality 

or a reckless disregard on the part of the 

MEWA or agent or employee of the 

MEWA. As stated previously, however, 

even though an order is based on the 

conduct of a person other than the 

service provider, the service provider’s 

activities may be affected simply 

because the order prohibits all or certain 

activities with respect to the MEWA, 

such as marketing, to continue. 

The second ground for issuing a cease 

and desist order, conduct that creates an 

immediate danger to the public safety or 

welfare, is described in paragraph (b)(3) 

of the final rules. Conduct meets this 

standard if it impairs, or threatens to 

impair, the MEWA’s ability to pay 

claims or otherwise unreasonably 

increases the risk of nonpayment of 

benefits. The third ground, conduct that 

causes or can be reasonably expected to 

cause significant, imminent, and 

irreparable injury, is described in 

paragraph (b)(4). Conduct meets this 

statutory standard if it has, or can be 

reasonably be expected to have, a 

significant and imminent negative effect 

that the Secretary reasonably believes 

will not be fully rectified on one or 

more of the following: (a) An employee 

welfare benefit plan that is, or offers 

benefits in connection with, a MEWA, 

(b) plan participants and plan 

beneficiaries, or (c) employers or 

employee organizations. 

Paragraphs (b)(2)–(4) also provide 

examples of conduct that falls within 

those standards. A single act or 

omission within the categories of 

conduct set forth in the regulation may 

provide the basis for a cease and desist 

order. However, because the categories 

set forth in the statute are broad and 

overlapping, the examples may provide 

more than one basis for a cease and 

desist order. 

The new ERISA section 521 also 

further expands the Secretary’s 

enforcement options with respect to 

MEWAs by authorizing the Secretary to 

issue a summary seizure order to 

remove plan assets and other property 

from the management, control, or 

administration of a MEWA when it 

appears that the MEWA is in a 

financially hazardous condition. Under 

paragraph (b)(5) a MEWA is in a 

financially hazardous condition when 

the Secretary has probable cause to 

believe that a MEWA is, or is in 

imminent danger of becoming, unable to 

pay benefit claims as they become due, 

or that a MEWA has sustained, or is in 

imminent danger of sustaining, a 

significant loss of assets. Under the 

definition, a MEWA may also be in a 

financially hazardous condition if the 

Secretary has issued a cease and desist 

order to a person responsible for the 

management, control, or administration 

of the MEWA or plan assets associated 

with the MEWA. 

Paragraph (b)(6) defines a person, for 

purposes of these regulations, to be an 

individual, partnership, corporation, 

employee welfare benefit plan, 

association, or other entity or 

organization. One commenter posited 

that the definition of person in the 

proposed rules was too broad because it 

reached service providers to MEWAs. 

The Department does not agree that the 

definition of person is overbroad. As 

discussed above, persons that provide 

services to MEWAs may engage in 

conduct that is grounds for the issuance 

of an order. Moreover, as previously 

noted, if a MEWA is being operated in 

a fraudulent or financially hazardous 


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4The scope of the summary seizure order in this 

rule is similar to that provided for in section 201(B) 

in the National Association of Insurance 

Commissioners (NAIC) Insurer Receivership Model 

Act (October 2007). 

manner, an order may need to apply to 

persons providing services to a MEWA 

in order to achieve its purpose. For 

example, it may be necessary for a cease 

and desist order to apply to an 

individual performing marketing 

services for a fraudulent MEWA even if 

the individual was not engaged in 

fraudulent conduct. In addition, the 

Department observes that the definition 

of person in ERISA section 3(9), while 

different from that in the proposed and 

these final rules, already encompasses 

service providers. 

Cease and Desist Order 

Paragraph (c) of § 2560.521–1 

addresses the scope of the cease and 

desist order. This paragraph is 

structured the same as in the proposed 

rules. Paragraph (c)(2)(i) notes that the 

Secretary may enjoin a MEWA or person 

from the conduct that served as the 

basis for the order and from activities in 

furtherance of that conduct though a 

cease and desist order. In addition, the 

cease and desist order may provide 

broader relief as the Secretary 

determines is necessary and appropriate 

to protect the interests of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public. Paragraph 

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

prohibit a person from taking any 

specified actions with respect to, or 

exercising authority over, specified 

funds of any MEWA or of any welfare 

or pension plan. Paragraph (c)(2)(iii) 

provides that an order may also bar a 

person from acting as a service provider 

to MEWAs or plans. This provision 

allows the Secretary to issue an order 

preventing a person from, for example, 

performing any administrative, 

management, financial, or marketing 

services for any MEWA or any welfare 

or pension plan. A cease and desist 

order containing such a prohibition 

against transacting business with any 

MEWA or plan would prevent the 

MEWA or a person from avoiding the 

cease and desist order by shutting the 

MEWA down and re-establishing it in a 

new location or under a new identity. 

Such a prohibition may be necessary in 

cases of serious harmful conduct where 

it would be contrary to the interests of 

plan participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public for a person 

whose conduct gave rise to the order to 

gain a position with other MEWAs or 

welfare or pension plans where they 

could repeat that conduct. The 

Department has added paragraph (c)(3) 

to clarify that it may require 

documentation from the subject of the 

order confirming compliance with the 

cease and desist order. Paragraph (d) of 

this section preserves the Secretary’s 

existing ability to seek additional 

remedies under ERISA. 

Under the new section 521(b) of 

ERISA, a person who is the subject of 

a temporary cease and desist order may 

request an administrative hearing to 

show cause why the order should be 

modified or set aside. Under the statute, 

the burden of proof rests with the 

person requesting the hearing. The 

process for the administrative hearing, 

set forth in paragraph (e) of § 2560.521– 

1 in these final regulations, is basically 

the same process set forth in the 

proposed rules. If parties subject to a 

cease and desist order fail to request a 

hearing before an administrative law 

judge within 30 days after receiving 

notice of the order, the order becomes 

final. If a party makes a timely request 

for an administrative hearing, the order 

is not final until the conclusion of the 

process set forth in 29 CFR part 2571. 

It remains, however, in effect and 

enforceable throughout the 

administrative review process unless 

stayed by the Secretary, an 

administrative law judge, or a court. The 

section was slightly revised to clarify 

the nature of evidence the Secretary and 

the person requesting the hearing must 

provide to the administrative law judge. 

The proposed rules simply stated that 

the Secretary must offer evidence 

supporting the findings made in issuing 

the order. The final rules were revised 

to clarify the findings that must be 

supported by evidence, i.e., the 

Secretary’s findings that she had 

reasonable cause to believe that the 

MEWA (or a person acting as an 

employee or agent of the MEWA) 

engaged in the conduct specified in the 

new ERISA section 521(a) and 

§ 2560.521–1(c)(1) of the proposed and 

these final rules. The proposed rules 

further stated that the person requesting 

the hearing has the burden of proof to 

show that the order was not necessary 

to protect the interests of the plan, plan 

participants, plan beneficiaries, and 

others. The final rules were revised to 

state that the person requesting the 

hearing has the burden of proof to show 

that the MEWA (or a person acting as an 

employee or agent of the MEWA) did 

not engage in the conduct specified in 

the new ERISA section 521(a) and 

§ 2560.521–1(c)(1) of the proposed and 

these final rules or that the requirements 

imposed by the order are arbitrary and 

capricious. This revision clarifies how 

the person requesting the hearing shows 

that the order was not necessary. 

Summary Seizure Order 

The new section 521(e) of ERISA and 

paragraph (f)(1) of § 2560.521–1 of these 

rules authorize the Secretary to issue a 

summary seizure order when it appears 

that a MEWA is in a financially 

hazardous condition. Pursuant to the 

Fourth Amendment of the U.S. 

Constitution, the Secretary will 

generally obtain judicial authorization 

before issuing a summary seizure order. 

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

397 U.S. 72 (1970): ‘‘Where Congress 

has authorized inspection but made no 

rules governing the procedures that 

inspectors must follow, the Fourth 

Amendment and its various restrictive 

rules apply.’’) As in the proposed rules, 

paragraph (f)(2) provides for such 

judicial authorization. A court’s 

authorization may be sought ex parte 

when the Secretary determines that 

prior notice could result in removal, 

dissipation, or concealment of plan 

assets. On its own initiative, the 

Department has slightly revised 

paragraph (f)(2) to clarify that it may 

seek appointment of a receiver or 

independent fiduciary by the court and 

other relief at the time it obtains judicial 

authorization. Paragraph (f)(3) clarifies 

that the Secretary may act on a summary 

seizure order prior to judicial 

authorization, however, if the Secretary 

reasonably believes that delay in issuing 

the order will result in the removal, 

dissipation, or concealment of assets. 

Under these circumstances, the 

Secretary will promptly seek judicial 

authorization after service of the order. 

Paragraph (f)(4) of § 2560.521–1 

describes the general scope of a seizure 

order.4 Under paragraph (f)(4), the 

Secretary may seize books, documents, 

and other records of the MEWA. She 

may also seize the premises, other 

property, and financial accounts for the 

purpose of transferring such property to 

a court-appointed receiver or 

independent fiduciary. In addition, the 

order may prohibit the MEWA and its 

operators from transacting any business 

or disposing of any property of the 

MEWA. This paragraph also clarifies 

that the order may be directed to any 

person holding assets that are the 

subject of the order, including banks or 

other financial institutions. 

The principal purpose of a seizure 

order is to preserve the assets of an 

employee welfare benefit plan that is a 

MEWA, and assets of any employee 

welfare benefit plans under the control 


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Federal Register / Vol. 78, No. 41 / Friday, March 1, 2013 / Rules and Regulations 13801 

of a MEWA, that is in a hazardous 

financial condition so that such assets 

are available to pay claims and other 

legitimate expenses of the MEWA and 

its participating plans. The Secretary 

will also issue summary seizure orders 

to prevent abusive operators from 

illegally using or acquiring plan assets. 

Seized assets are not deposited with the 

U.S. Treasury. Instead they are managed 

by a court-appointed receiver or 

independent fiduciary. Paragraph (f)(5) 

states that the Secretary may also, in 

connection with or following the 

execution of a summary seizure order, 

among other things, obtain court 

appointment of an independent 

fiduciary or receiver to perform any 

necessary functions of the MEWA, and 

court authorization for further actions in 

the best interest of plan participants, 

plan beneficiaries, employers or 

employee organizations, or other 

members of the public, including the 

liquidation and winding down of the 

MEWA, if appropriate. There were no 

comments on the procedures for issuing 

summary seizure orders or 

implementing other actions. With the 

minor exception noted above, and 

certain clarifying changes in paragraph 

(f)(5), the provisions in the proposed 

rules have been adopted without further 

modification. 

The provisions related to effective 

date of orders (paragraph g), disclosure 

(§ 2560.521–2), and effect of ERISA 

section 521 on other enforcement 

authority (§ 2560.521–3) have not 

changed from the proposed rules. 

Paragraph (h) of § 2560.521–1 of the 

proposed rules regarding the service of 

orders on persons who are corporations, 

associations, or other entities or 

organizations, was slightly revised for 

these final rules to state that service 

could also be made to any person 

designated for service of process under 

State law or the applicable plan 

document. Orders issued under these 

final rules are effective upon service and 

remain in effect until modified or set 

aside by the Secretary, an administrative 

law judge, or a reviewing court. Issued 

final orders will be made available to 

the public, as will modifications and 

terminations of such final orders. 

Further, coordination and 

collaboration with other Federal 

agencies and the States are integral and 

instrumental to successful MEWA 

enforcement efforts. The Secretary 

remains committed to working closely 

with them to help detect, prevent, and 

address MEWA fraud, abuse, and 

financial insolvency. To facilitate this 

collaborative approach to MEWA 

enforcement, the Secretary may disclose 

the issuance of any order (whether 

temporary or final) and any information 

and evidence of any proceedings and 

hearings related to the order to other 

Federal, State, or foreign authorities. 

The sharing of such information, 

however, does not constitute a waiver of 

any applicable privilege or claim of 

confidentiality as to the information so 

shared. 

The Secretary also remains committed 

to helping MEWAs and plan officials 

comply with legal requirements and 

serve plan participants and beneficiaries 

properly. Section 521 is not, however, 

the only enforcement tool available to 

the Secretary with regard to MEWAs. 

She will continue to use the other 

investigatory and enforcement tools 

which were available to the Secretary 

under title I of ERISA prior to the 

enactment of ERISA section 521. 

Cross-Reference 

These rules finalize the standards for 

the issuance of ex parte cease and desist 

and summary seizure orders. The 

Department has also finalized in this 

Notice rules for administrative hearings 

on ex parte cease and desist orders. In 

addition, elsewhere in this issue of the 

Federal Register is a separate regulation 

amending 29 CFR 2520–101.2, 

2520.103–1, 2520.104–20, and 

2520.104–41 to implement section 

101(g), as amended by the Affordable 

Care Act, and to enhance the 

Department’s ability to enforce 

requirements under 29 CFR 2520–101.2. 

B. Procedures for Administrative 

Hearings on the Issuance of Cease and 

Desist Orders Regulation (29 CFR Part 

2571) 

Purpose and Definitions 

These final procedural rules apply 

only to adjudicatory proceedings before 

administrative law judges of the U.S. 

Department of Labor. Under these 

procedural rules, an adjudicatory 

proceeding before an administrative law 

judge is commenced only after a person 

who is the subject of a temporary cease 

and desist order timely requests a 

hearing and files an answer showing 

cause why the temporary order should 

be modified or set aside. These 

procedural regulations are largely 

consistent with rules of practice and 

procedure under 29 CFR part 18 that 

generally apply to matters before the 

Department’s Office of Administrative 

Law Judges (OALJ). At the same time, 

they reflect the unique nature of orders 

issued under ERISA section 521. The 

definitional section of this rule, for 

instance, incorporates the basic 

adjudicatory principles set forth at 29 

CFR part 18, but includes terms and 

concepts of specific relevance to 

proceedings under ERISA section 521. 

These rules are controlling to the extent 

they are inconsistent with 29 CFR part 

18. 

The authority of the Secretary with 

respect to the orders and proceedings 

covered by this rule has been delegated 

to the Assistant Secretary for the 

Employee Benefits Security 

Administration pursuant to Secretary’s 

Order 1–2011, 77 FR 1088 (Jan. 9, 2012). 

With respect to appeals of 

administrative law judge decisions to 

the Secretary, the Assistant Secretary 

has redelegated this authority to the 

Director of the Office of Policy and 

Research of the Employee Benefits 

Security Administration. As required by 

the Administrative Procedure Act (5 

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

the Department under section 521 of 

ERISA shall be maintained, and 

available for public inspection, in the 

Public Disclosure Room of the 

Employee Benefits Security 

Administration, Room N–1513, U.S. 

Department of Labor, 200 Constitution 

Ave. NW., Washington, DC 20210. 

There were no comments on the 

proposed administrative procedures. 

The proposed rules are being published 

as final rules with only minor clarifying 

changes. Of note, under § 2571.4(d) of 

the proposed rules, if the administrative 

law judge denies a petition to 

participate in the hearing by persons not 

named in a temporary order, the 

administrative law judge shall treat the 

petition as a request for participation as 

an amicus curiae. The final rules give 

the administrative law judge discretion 

on the treatment of denied petitions and 

state that the administrative law judge 

may consider whether to treat the 

petition as a request for participation as 

amicus curiae. In addition, as stated in 

the preamble and § 2571.7 of the 

proposed rules, the fiduciary exception 

to the attorney-client and work product 

privileges applies. Consequently, the 

administrative law judge may not 

protect from discovery nor from use in 

the proceedings communications 

between an attorney and a plan 

administrator or other plan fiduciary, or 

work product, that fall under the 

fiduciary exception. The final rules 

clarify that the fiduciary exception 

applies to communications and work 

product between an attorney and plan 

fiduciary concerning plan 

administration and other fiduciary 

activities, and not to communications 

made or documents prepared to aid the 

fiduciary personally or for settlor acts. 

See Solis v. The Food Employers Labor 

Relations Ass’n, 644 F.3d 221 (4th Cir. 

2011). This provision should not be 


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5 GAO Report, supra note 2. 

6 Id. 

interpreted as excluding consideration 

by the administrative law judge of other 

relevant exceptions to the privileges. 

IV. Economic Impact and Paperwork 

Burdens 

A. Summary 

These final regulations implement 

amendments made by section 6605 of 

the Affordable Care Act, which added 

ERISA section 521. As discussed earlier 

in this preamble, ERISA section 521 

provides the Secretary of Labor with 

new enforcement authority over 

MEWAs. Specifically, ERISA section 

521(a) authorizes the Secretary to issue 

cease and desist orders, without prior 

notice or a hearing, when it appears to 

the Secretary that a MEWA’s alleged 

conduct is fraudulent, creates an 

immediate danger to the public safety or 

welfare, or causes or can be reasonably 

expected to cause significant, imminent, 

and irreparable public injury. This 

section also authorizes the Secretary to 

issue a summary order to seize the 

assets of a MEWA the Secretary 

determines to be in a financially 

hazardous condition. These final 

regulations implement ERISA section 

521(a) by setting forth procedures the 

Secretary will follow to issue ex parte 

cease and desist and summary seizure 

orders. 

ERISA section 521(b), as added by 

Affordable Care Act section 6605, 

provides that a person that is adversely 

affected by the issuance of a cease and 

desist order may request an 

administrative hearing regarding the 

order. These final regulations also 

implement the requirements of ERISA 

section 521(b) by describing the 

procedures before the Office of 

Administrative Law Judges (OALJ) that 

will apply when a person seeks an 

administrative hearing for review of a 

cease and desist order. These 

regulations maintain the maximum 

degree of uniformity with rules of 

practice and procedure under 29 CFR 

part 18 that generally apply to matters 

before the OALJ. At the same time, these 

regulations reflect the unique nature of 

orders issued under ERISA section 521, 

and are controlling to the extent they are 

inconsistent with 29 CFR part 18. 

B. Executive Order 12866 and 13563 

Statement 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing and 

streamlining rules, and of promoting 

flexibility. It also requires federal 

agencies to develop a plan under which 

the agencies will periodically review 

their existing significant regulations to 

make the agencies’ regulatory programs 

more effective or less burdensome in 

achieving their regulatory objectives. 

Under Executive Order 12866, a 

regulatory action deemed ‘‘significant’’ 

is subject to the requirements of the 

Executive Order and review by the 

Office of Management and Budget 

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

Order defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule (1) having an annual 

effect on the economy of $100 million 

or more, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or tribal governments or 

communities (also referred to as 

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

serious inconsistency or otherwise 

interfering with an action taken or 

planned by another agency; (3) 

materially altering the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or (4) 

raising novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive Order. 

These regulatory actions are not 

economically significant within the 

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

Executive Order. However, OMB has 

determined that the actions are 

significant within the meaning of 

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

and the Department accordingly 

provides the following assessment of 

their potential benefits and costs. 

1. Need for Regulatory Action 

Properly structured and managed 

MEWAs that are licensed to operate in 

a State provide a viable option for some 

employers to purchase affordable health 

insurance coverage. However, some 

MEWAs are marketed by unlicensed 

entities attempting to avoid State 

insurance reserve, contribution, and 

consumer protection requirements. By 

avoiding these requirements, such 

entities often are able to market 

insurance coverage at lower rates than 

licensed insurers, making them 

particularly attractive to some small 

employers that find it difficult to obtain 

affordable health insurance coverage for 

their employees. Due to insufficient 

funding and inadequate reserves, and in 

some situations, fraud, some MEWAs 

have become insolvent and unable to 

pay benefit claims. In addition, certain 

promoters set up arrangements that they 

claim are not MEWAs subject to state 

insurance regulation, because they are 

established pursuant to collective 

bargaining agreements. Often, however, 

these collective bargaining agreements 

are nothing more than shams designed 

to avoid state insurance regulation. 

Employees and their dependents have 

become financially responsible for 

paying medical claims they presumed 

were covered by insurance after paying 

health insurance premiums to 

fraudulent MEWAs.5 The impact, 

financial and otherwise, on individuals 

and families can be devastating when 

MEWAs become insolvent. Moreover, 

employees and their dependents may be 

deprived of medical services if they 

cannot afford to pay medical claims outof-pocket that are not paid by the 

MEWA. 

Before the enactment of ERISA 

section 521, the Department’s primary 

enforcement tool against fraudulent and 

abusive MEWAs was court-ordered 

injunctive relief. In order to obtain this 

relief, the Department must present 

evidence to a federal court that an 

ERISA fiduciary breach occurred and 

that the Department is likely to prevail 

based on the merits of the case. 

Gathering sufficient evidence to prove a 

fiduciary breach is time-consuming and 

labor-intensive, in most cases, because 

the Department’s investigators must 

work with poor or nonexistent financial 

records and uncooperative parties. As a 

result, the Department at times has been 

unable to shut down fraudulent and 

abusive MEWAs quickly enough to 

preserve their assets and ensure that 

outstanding benefit claims are timely 

paid. 

States also encountered problems in 

their enforcement efforts against 

MEWAs in the absence of federal 

authority to shut down fraudulent and 

abusive MEWAs nationally. When one 

State succeeded in shutting down an 

abusive MEWA, in some cases, its 

operators continued operating in 

another State.6 ERISA section 521 

provides the Department with stronger 

legal remedies to combat fraudulent and 

abusive MEWAs. 

ERISA section 521(f) provides the 

Secretary of Labor with the authority to 

promulgate regulations that may be 

necessary and appropriate to carry out 

the Department’s authority under ERISA 


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7The Department’s estimate is based on the 

number of MEWA participants reported on the 2010 

Form M–1. Please note that this is an undercount, 

because the Form M–1 definition of participants 

specifically excludes dependents. 

section 521. These regulations are 

necessary, because they set forth 

standards and procedures the 

Department would use to implement 

this new enforcement authority. They 

also are necessary to provide procedures 

that a person who is adversely affected 

by the issuance of a cease and desist 

order may follow to request an 

administrative hearing regarding the 

order pursuant to ERISA section 521(b). 

2. ERISA Section 521(a) and (e), Ex 

Parte Cease and Desist and Summary 

Seizure Orders—Multiple Employer 

Welfare Arrangements (29 CFR 

2560.521–1) 

a. Benefits of Final Rules 

As discussed earlier in this preamble, 

ERISA section 521(a) authorizes the 

Secretary to issue an ex parte cease and 

desist order if it appears to the Secretary 

that the alleged conduct of a MEWA is 

fraudulent, or creates an immediate 

danger to the public safety or welfare, or 

is causing or can reasonably be expected 

to cause, significant, imminent, and 

irreparable public injury. ERISA section 

521(e) allows the Secretary to issue a 

summary seizure order if it appears that 

a MEWA is in a financially hazardous 

condition. These final regulations 

implement the Department’s enhanced 

enforcement authority by setting forth 

the standards and procedures the 

Department will follow in issuing cease 

and desist and summary seizure orders. 

They also define important statutory 

terms and clarify the scope of the 

Department’s authority under ERISA 

sections 521(a) and (e). 

ERISA section 521 and these final 

regulations will potentially benefit 

approximately two million MEWA 

participants 7 by ensuring that MEWA 

assets are preserved and benefits timely 

paid. In some cases, individuals have 

incurred significant medical claims 

before they learn that their claims are 

not being paid by improperly operated 

MEWAs and that they are responsible 

for paying these claims out-of-pocket. 

These regulations will help such 

individuals avoid the financial hardship 

and adverse health effects that result 

from unpaid health claims. They also 

will benefit health care providers that 

are detrimentally impacted when they 

are not paid for services they have 

performed. ERISA section 521 and these 

final regulations also will improve 

MEWA compliance and deter abusive 

practices of fraudulent MEWAs, 

potentially lessening the need for future 

use of these provisions. As a result of 

these statutory and regulatory 

provisions, the Department will be able 

to take enforcement action against 

fraudulent and abusive MEWAs much 

more quickly and efficiently than under 

prior law. Common examples of such 

fraudulent and abusive conduct include 

a systematic failure to pay benefits 

claims or a diversion of premiums for 

personal use. For example, Employers 

Mutual, a MEWA covering 22,000 

individuals which turned out to be a 

nationwide health insurance fraud, 

advertised deceptively low premium 

rates that were far less than necessary to 

pay promised benefits and 

misrepresented that the benefits were 

fully insured. Operators of this MEWA 

misused and misappropriated premiums 

so extensively that by the time the 

Department was able to shut down the 

MEWA and appoint an independent 

fiduciary to take over, the fraud left $27 

million in unpaid benefits. With this 

new authority, the Department can take 

steps to protect plan participants and 

small employers much earlier in the 

process and before a MEWA’s assets 

have been exhausted. In addition, the 

Department will be able to take action 

against fraudulent and abusive MEWAs 

nationally, which will prevent 

unscrupulous MEWA operators from 

moving their operations to another State 

when they are shut down in a State. 

b. Costs of the Final Rules 

As discussed earlier in this preamble, 

the final rules provide standards and 

procedures the Department would 

follow to issue ex parte cease and desist 

and summary seizure orders with 

respect to MEWAs. The Department 

does not expect the rules to impose any 

significant costs, because it does not 

require any action or impose any 

requirements on MEWAs as defined in 

ERISA section 3(40). Therefore, the 

Department concludes that the final 

rules would enhance the Department’s 

ability to take immediate action against 

fraudulent and abusive MEWAs without 

imposing major costs. 

3. ERISA Section 521(b), Procedures for 

Administrative Hearings on the Issues of 

Cease and Desist Orders—Multiple 

Employer Welfare Arrangements (29 

CFR 2571.1 Through 2571.12) 

a. Benefits of Final Rule 

The Department expects that 

administrative hearings held pursuant 

to ERISA section 521(b) and the 

procedures set forth in the final 

regulations would benefit the 

Department and parties requesting a 

hearing. The Department foresees 

improved efficiencies through use of 

administrative hearings, because such 

hearings should allow the parties 

involved to obtain a decision in a more 

timely and efficient manner than is 

customary in federal court proceedings, 

which would be the alternative 

adjudicative forum. The Department 

expects that these final rules setting 

forth the standards and procedures the 

Department would use to implement its 

cease and desist authority under ERISA 

section 521 will allow it to take action 

against fraudulent and abusive MEWAs 

much more quickly and efficiently than 

under prior law. These benefits have not 

been quantified. 

To access the benefit of improved 

efficiencies that would result from an 

administrative proceeding, the 

Department compared the cost of 

contesting a cease and desist order 

under the final regulations to the cost of 

contesting an action taken against a 

MEWA by the Department before the 

enactment of the Affordable Care Act. 

The Department’s primary enforcement 

tool against fraudulent and abusive 

MEWAs before Congress enacted ERISA 

section 521 was court-ordered 

injunctive relief. In order to obtain this 

relief, the Department must present 

evidence to a court that an ERISA 

fiduciary breach occurred and that the 

Department likely would prevail based 

on the merits of the case. Gathering 

sufficient evidence to prove a fiduciary 

breach is very time-consuming and 

labor-intensive, in most cases, because 

the Department’s investigators must 

work with poor or nonexistent financial 

records and uncooperative parties. 

The Department believes that an 

administrative hearing should result in 

cost savings compared with the baseline 

cost of litigating in federal court. 

Because the procedures and evidentiary 

rules of an administrative hearing 

generally track the Federal Rules of 

Civil Procedure and Evidence, 

document production will be similar for 

both an administrative hearing and a 

federal court proceeding. It is unlikely 

that any additional cost will be incurred 

for an administrative hearing than 

would be required to prepare for federal 

court litigation. Moreover, certain 

administrative hearing practices and 

other new procedures initiated by these 

regulations are expected to result in cost 

savings over court litigation. For 

example, parties may be more likely to 

appear pro se; the prehearing exchange 

is expected to be short and general; a 

motion for discovery only will be 

granted upon a showing of good cause; 

the general formality of the hearing may 

vary, particularly depending on whether 


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8As stated in the Department’s December l, 2011 

Fact Sheet on MEWA Enforcement, the Department 

has filed 99 civil complaints against MEWAs since 

1990, which averages approximately five 

complaints per year. With the expanded 

enforcement authority provided to the Department 

under the Affordable Care Act, the number of civil 

complaints brought against MEWAs by the 

Department could increase. Therefore, for purposes 

of this Paperwork Reduction Act analysis, the 

Department assumes that twenty complaints will be 

filed as an upper bound. The Department is unable 

to estimate the number of cease and desist orders 

that will be contested; therefore, for purposes of this 

analysis it assumes that half of the MEWAs will 

contest cease and desist orders. The Department’s 

fact sheet on MEWA enforcement can be found on 

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

newsroom/fsMEWAenforcement. 

9The Department’s estimate for the attorney’s 

hourly rate is taken from the Laffey Matrix which 

provides an estimate of legal service for court cases 

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

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

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

rates. The proposed rule included an estimate of 40 

hours of outside attorney time for an administrative 

appeal. Though no comments were submitted on 

that estimate and we cannot state an estimate with 

certainty, after further consideration of the potential 

tasks involved we determined that a higher number 

would be more appropriate. 

the petitioner is appearing pro se; and 

the administrative law judge would be 

required to make its decision 

expeditiously after the conclusion of the 

ERISA section 521 proceeding. The 

Department cannot with certainty 

predict that any or all of these 

conditions will exist nor that any of 

these factors represent a cost savings, 

but it is likely that the administrative 

hearing process will create a consistent 

legal standard for section 521 

proceedings. 

The Department invited public 

comments on the comparative cost of a 

federal court proceeding versus an 

administrative hearing. The Department 

did not receive any comments that 

addressed this issue. 

b. Costs of Final Rule 

The Department estimates that the 

cost of the final regulation would total 

approximately $548,900 annually. The 

total hour burden is estimated to be 

approximately 20 hours, and the dollar 

equivalent of the hour burden is 

estimated to be approximately $564. 

The data and methodology used in 

developing these estimates are 

described more fully in the Paperwork 

Reduction Act section, below. 

C. Paperwork Reduction Act 

This issuance of the cease and desist 

order final regulation is not subject to 

the requirements of the Paperwork 

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

et seq.), because it does not contain a 

‘‘collection of information’’ as defined 

in 44 U.S.C. 3502(3). The Final Rule on 

Procedures for Administrative Hearings 

Regarding the Issuance of Cease and 

Desist Orders under ERISA section 

521—Multiple Employer Welfare 

Arrangements contains a collection of 

information and the associated hour and 

cost burden are discussed below. 

In accordance with the requirements 

of the Paperwork Reduction Act of 1995 

(PRA) (44 U.S.C. 3506(c)(2)), the 

Department submitted an information 

collection request (ICR) to OMB in 

accordance with 44 U.S.C. 3507(d), 

contemporaneously with the 

publication of the proposed regulation, 

for OMB’s review and solicited public 

comment. No public comments were 

received related to the administrative 

hearing procedures for cease and desist 

orders. OMB assigned OMB control 

number 1210–0148 to the ICR but did 

not approve the ICR at the proposed rule 

stage. 

In connection with publication of 

these final rules, the Department 

submitted a revision to the ICR under 

OMB Control Number 1210–0116. OMB 

approved the revised ICR, which is 

scheduled to expire on February 29, 

2016. A copy of the revised ICR may be 

obtained by contacting the PRA 

addressee shown below or at http:// 

www.RegInfo.gov. 

PRA ADDRESSEE: G. Christopher 

Cosby, Office of Policy and Research, 

U.S. Department of Labor, Employee 

Benefits Security Administration, 200 

Constitution Avenue NW., Room N 

5647, Washington, DC 20210. 

Telephone (202) 693–8410; Fax: (202) 

219–4745. These are not toll free 

numbers. 

This final regulation establishes 

procedures for hearings and appeals 

before an administrative law judge and 

the Secretary when a MEWA or other 

person challenges a temporary cease 

and desist order. As stated in the 

Regulatory Flexibility Act analysis 

below, the Department estimates that, 

on average, a maximum of 10 MEWAs 

would initiate an adjudicatory 

proceeding before an administrative law 

judge to revoke or modify a cease and 

desist order.8 Most of the factual 

information necessary to prepare the 

petition should be readily available to 

the MEWA and is expected to take 

approximately two hours of clerical 

time to assemble and forward to legal 

professionals resulting in an estimated 

total hour burden of approximately 20 

hours. 

The Department believes that MEWAs 

will hire outside attorneys to prepare 

and file the appeal, which is estimated 

to require 120 hours at $457 per hour.9

The majority of the attorneys’ time is 

expected to be spent drafting motions, 

petitions, pleadings, briefs, and other 

documents relating to the case. Based on 

the foregoing, the total estimated legal 

cost associated with the information 

collection would be approximately 

$54,840 per petition filed. Additional 

costs material and mailing costs are 

estimated at approximately $50.00 per 

petition. 

Type of Review: New. 

Agency: Employee Benefits Security 

Administration. 

Title: Final Rule on Procedures for 

Administrative Hearings Regarding the 

Issuance of Cease and Desist Orders 

under ERISA section 521—Multiple 

Employer Welfare Arrangements. 

OMB Number: 1210–0148. 

Affected Public: Business or other for 

profit; not for profit institutions; State 

government. 

Respondents: 10. 

Responses: 10. 

Estimated Total Burden Hours: 20 

hours. 

Estimated Total Burden Cost 

(Operating and Maintenance): $548,900. 

D. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

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

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

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

Unless an agency certifies that such a 

rule will not have a significant 

economic impact on a substantial 

number of small entities, section 603 of 

the RFA requires the agency to present 

an initial regulatory flexibility analysis 

at the time of the publication of the 

notice of proposed rulemaking 

describing the impact of the rule on 

small entities. Small entities include 

small businesses, organizations and 

governmental jurisdictions. In 

accordance with the RFA, the 

Department prepared an initial 

regulatory flexibility analysis at the 

proposed rule stage and requested 

comments on the analysis. No 

comments were received. Below is the 

Department’s final regulatory flexibility 

analysis and its certification that these 

final regulations do not have a 

significant economic impact on a 

substantial number of small entities. 

The Department does not have data 

regarding the total number of MEWAs 

that currently exist. The best 

information the Department has to 

estimate the number of MEWAs is based 

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

annual report that MEWAs and certain 

collectively bargained arrangements file 

with the Department. Form M–1 was 

filed with the Department by 436 

MEWAs in 2010, the latest year for 

which data is available. 


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10U.S. Small Business Administration, ‘‘Table of 

Small Business Size Standards Matched to North 

American Industry Classification System Codes.’’ 

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

Size_Standards_Table.pdf. 

11 Kaiser Family Foundation and Health Research 

Educational Trust ‘‘Employer Health Benefits, 2009 

Annual Survey.’’ The reported numbers are from 

Exhibit 1.2 and are for the category Annual, all 

Small Firms (3–199 workers). 

12With the expanded enforcement authority 

provided to the Department under the Affordable 

Care Act, the number of civil complaints brought 

against MEWAs by the Department could increase. 

Therefore, for purposes of this analysis, the 

Department assumes that twenty complaints will be 

filed as an upper bound. The Department is unable 

to estimate the number of cease and desist orders 

that will be contested; therefore, it assumes that half 

the MEWAs will contest cease and desist orders. 

The Small Business Administration 

uses a size standard of less than $7 

million in average annual receipts to 

determine whether businesses in the 

finance and insurance sector are small 

entities.10 While the Department does 

not collect revenue information on the 

Form M–1, it does collect data regarding 

the number of participants covered by 

MEWAs that file Form M–1 and can use 

average premium data to determine the 

number of MEWAs that are small 

entities because they do not exceed the 

$7 million dollar threshold. For 2009, 

the average annual premium for single 

coverage was $4,717 and the average 

annual premium for family coverage 

was $12,696.11 Combining these 

premium estimates with estimates from 

the Current Population Survey regarding 

the fraction of policies that are for single 

or family coverage at employers with 

less than 500 workers, the Department 

estimates approximately 60 percent of 

MEWAs (258 MEWAs) are small 

entities. 

In order to develop an estimate of the 

number of MEWAs that could become 

subject to a cease and desist order, the 

Department examined the number of 

civil claims the Department filed against 

MEWAs since FY 1990. During this 

time, the Department filed 99 civil 

complaints against MEWAs, an average 

of approximately five complaints per 

year. For purposes of this analysis, the 

Department believes that an average of 

twenty complaints a year is a reasonable 

upper bound estimate of the number of 

MEWAs that could be subject to a cease 

and desist order 12 and that half this 

number, or an average of ten complaints 

a year, is a reasonable upper bound 

estimate of the number of MEWAs that 

could be expected to request an 

administrative hearing in a year. 

Based on the foregoing, the 

Department estimates that the greatest 

number of small MEWAs likely to be 

subject to a cease and desist order (20/ 

258 or 7.8 percent) and the greatest 

number of MEWAs likely to petition for 

an administrative hearing (10/258 or 3.9 

percent) represents a small fraction of 

the total number of small MEWAs. 

Accordingly, the Department hereby 

certifies that these final regulations will 

not have a significant economic impact 

on a substantial number of small 

entities. 

E. Unfunded Mandates Reform Act 

For purposes of the Unfunded 

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

1501 et seq.), as well as Executive Order 

12875, these final rules do not include 

any federal mandate that may result in 

expenditures by State, local, or tribal 

governments, or the private sector, 

which may impose an annual burden of 

$100 million adjusted for inflation since 

1995. 

F. Executive Order 13132 

When an agency promulgates a 

regulation that has federalism 

implications, Executive Order 13132 (64 

FR 43255, August 10, 1999), requires the 

Agency to provide a federalism 

summary impact statement. Pursuant to 

section 6(c) of the Order, such a 

statement must include a description of 

the extent of the agency’s consultation 

with State and local officials, a 

summary of the nature of their concerns 

and the agency’s position supporting the 

need to issue the regulation, and a 

statement of the extent to which the 

concerns of the State have been met. 

This regulation has federalism 

implications, because the States and the 

Federal Government share dual 

jurisdiction over MEWAs that are 

employee benefit plans or hold plan 

assets. Generally, States are primarily 

responsible for overseeing the financial 

soundness and licensing of MEWAs 

under State insurance laws. The 

Department enforces ERISA’s 

provisions, including its fiduciary 

responsibility provisions against 

MEWAs that are ERISA plans or that 

hold or control plan assets. 

Over the years, the Department and 

State insurance departments have 

worked closely and coordinated their 

investigations and other actions against 

fraudulent and abusive MEWAs. For 

example, EBSA regional offices have 

met with State officials in their regions 

and provided information necessary for 

States to obtain cease and desist orders 

to stop abusive and insolvent MEWAs. 

The Department also has relied on 

States to obtain cease and desist orders 

against MEWAs in individual States 

while it pursued investigations to gather 

sufficient evidence to obtain injunctive 

relief in the federal courts to shut down 

MEWAs nationally. States have often 

lobbied for stronger federal enforcement 

tools to help combat fraudulent and 

insolvent MEWAs. By providing 

procedures and standards the 

Department would follow to issue ex 

parte cease and desist and summary 

seizure orders and providing procedures 

for use by administrative law judges and 

the Secretary of Labor when a MEWA or 

other person challenges a temporary 

cease and desist order, these final rules 

address the States’ concerns and 

enhance the State and Federal 

Government’s joint mission to take 

immediate action against fraudulent and 

abusive MEWAs and limit the losses 

suffered by American workers and their 

families when abusive MEWAs become 

insolvent and fail to reimburse medical 

claims. 

List of Subjects 

29 CFR Part 2560 

Administrative practice and 

procedure, Employee welfare benefit 

plans, Employee Retirement Income 

Security Act, Law enforcement, 

Pensions, Multiple employer welfare 

arrangements, Cease and desist, Seizure. 

29 CFR Part 2571 

Administrative practice and 

procedure, Employee benefit plans, 

Employee Retirement Income Security 

Act, Multiple employer welfare 

arrangements, Law enforcement, Cease 

and desist. 

For the reasons set out in the 

preamble, 29 CFR chapter XXV is 

amended as follows: 

PART 2560—RULES AND 

REGULATIONS FOR ADMINISTRATION 

AND ENFORCEMENT 

■ 1. The authority citation for part 2560 

is revised to read as follows: 

Authority: 29 U.S.C. 1002(40), 1132, 1133, 

1134, 1135, and 1151; and Secretary of 

Labor’s Order 1–2011, 77 FR 1088 (Jan. 9, 

2012). 

■ 2. Sections 2560.521–1 through 

2560.521–4 are added to read as follows: 

§ 2560.521–1 Cease and desist and seizure 

orders under section 521. 

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

Employee Retirement Income Security 

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

authorizes the Secretary of Labor to 

issue an ex parte cease and desist order 

if it appears to the Secretary that the 

alleged conduct of a multiple employer 

welfare arrangement (MEWA) under 

section 3(40) of ERISA is fraudulent, or 

creates an immediate danger to the 

public safety or welfare, or is causing or 

can be reasonably expected to cause 


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significant, imminent, and irreparable 

public injury. Section 521(e) of ERISA 

authorizes the Secretary to issue a 

summary seizure order if it appears that 

a MEWA is in a financially hazardous 

condition. An order may apply to a 

MEWA or to persons having custody or 

control of assets of the subject MEWA, 

any authority over management of the 

subject MEWA, or any role in the 

transaction of the subject MEWA’s 

business. This section sets forth 

standards and procedures for the 

Secretary to issue ex parte cease and 

desist and summary seizure orders and 

for administrative review of the 

issuance of such cease and desist orders. 

(b) Definitions. When used in this 

section, the following terms shall have 

the meanings ascribed in this paragraph 

(b). 

(1) Multiple employer welfare 

arrangement (MEWA) is an arrangement 

as defined in section 3(40) of ERISA that 

either is an employee welfare benefit 

plan subject to Title I of ERISA or offers 

benefits in connection with one or more 

employee welfare benefit plans subject 

to Title I of ERISA. For purposes of 

section 521 of ERISA, a MEWA does not 

include a health insurance issuer 

(including a health maintenance 

organization) that is licensed to offer or 

provide health insurance coverage to the 

public and employers at large in each 

State in which it offers or provides 

health insurance coverage, and that, in 

each such State, is subject to 

comprehensive licensure, solvency, and 

examination requirements that the State 

customarily requires for issuing health 

insurance policies to the public and 

employers at large. The term health 

insurance issuer does not include group 

health plans. For purposes of this 

section, the term ‘‘health insurance 

coverage’’ has the same meaning as in 

ERISA section 733(b)(1). 

(2) The conduct of a MEWA is 

fraudulent: 

(i) When the MEWA or any person 

acting as an agent or employee of the 

MEWA commits an act or omission 

knowingly and with an intent to deceive 

or defraud plan participants, plan 

beneficiaries, employers or employee 

organizations, or other members of the 

public, the Secretary, or a State 

regarding: 

(A) The financial condition of the 

MEWA (including the MEWA’s 

solvency and the management of plan 

assets); 

(B) The benefits provided by or in 

connection with the MEWA; 

(C) The management, control, or 

administration of the MEWA; 

(D) The existing or lawful regulatory 

status of the MEWA under Federal or 

State law; or, 

(E) Any other material fact, as 

determined by the Secretary, relating to 

the MEWA or its operation. 

(ii) Fraudulent conduct includes any 

false statement regarding any of 

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

(b)(2)(i)(E) of this section that is made 

with knowledge of its falsity or that is 

made with reckless indifference to the 

statement’s truth or falsity, and the 

knowing concealment of material 

information regarding any of paragraphs 

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

section. Examples of fraudulent conduct 

include, but are not limited to, 

misrepresenting the terms of the 

benefits offered by or in connection 

with the MEWA or the financial 

condition of the MEWA or engaging in 

deceptive acts or omissions in 

connection with marketing or sales or 

fees charged to employers or employee 

organizations. 

(3) The conduct of a MEWA creates an 

immediate danger to the public safety or 

welfare if the conduct of a MEWA or 

any person acting as an agent or 

employee of the MEWA impairs, or 

threatens to impair, a MEWA’s ability to 

pay claims or otherwise unreasonably 

increases the risk of nonpayment of 

benefits. Intent to create an immediate 

danger is not required for this criterion. 

Examples of such conduct include, but 

are not limited to, a systematic failure 

to properly process or pay benefit 

claims, including failure to establish 

and maintain a claims procedure that 

complies with the Secretary’s claims 

procedure regulations (29 CFR 

2560.503–1 and 29 CFR 2590.715– 

2719), failure to establish or maintain a 

recordkeeping system that tracks the 

claims made, paid, or processed or the 

MEWA’s financial condition, a 

substantial failure to meet applicable 

disclosure, reporting, and other filing 

requirements, including the annual 

reporting and registration requirements 

under sections 101(g) and 104 of ERISA, 

failure to establish and implement a 

policy or method to determine that the 

MEWA is actuarially sound with 

appropriate reserves and adequate 

underwriting, failure to comply with a 

cease and desist order issued by a 

government agency or court, and failure 

to hold plan assets in trust. 

(4) The conduct of a MEWA is causing 

or can be reasonably expected to cause 

significant, imminent, and irreparable 

public injury: 

(i) If the conduct of a MEWA, or of a 

person acting as an agent or employee 

of the MEWA, is having, or is 

reasonably expected to have, a 

significant and imminent negative effect 

on one or more of the following: 

(A) An employee welfare benefit plan 

that is, or offers benefits in connection 

with, a MEWA; 

(B) The sponsor of such plan or the 

employer or employee organization that 

makes payments for benefits provided 

by or in connection with a MEWA; or 

(C) Plan participants and plan 

beneficiaries; and 

(ii) If it is not reasonable to expect 

that such effect will be fully repaired or 

rectified. 

Intent to cause injury is not required 

for this criterion. Examples of such 

conduct include, but are not limited to, 

conversion or concealment of property 

of the MEWA; improper disposal, 

transfer, or removal of funds or other 

property of the MEWA, including 

unreasonable compensation or 

payments to MEWA operators and 

service providers (e.g. brokers, 

marketers, and third party 

administrators); employment by the 

MEWA of a person prohibited from such 

employment pursuant to section 411 of 

ERISA, and embezzlement from the 

MEWA. For purposes of section 521 of 

ERISA, compensation that would be 

excessive under 26 CFR 1.162–7 will be 

considered unreasonable compensation 

or payments for purposes of this 

regulation. Depending upon the facts 

and circumstances, compensation may 

be unreasonable under this regulation 

even it is not excessive under 26 CFR 

1.162–7. 

(5) A MEWA is in a financially 

hazardous condition if: 

(i) The Secretary has probable cause 

to believe that a MEWA: 

(A) Is, or is in imminent danger of 

becoming, unable to pay benefit claims 

as they come due, or 

(B) Has sustained, or is in imminent 

danger of sustaining, a significant loss of 

assets; or 

(ii) A person responsible for 

management, control, or administration 

of the MEWA’s assets is the subject of 

a cease and desist order issued by the 

Secretary. 

(6) A person, for purposes of this 

section, is an individual, partnership, 

corporation, employee welfare benefit 

plan, association, or other entity or 

organization. 

(c) Temporary cease and desist order. 

(1)(i) The Secretary may issue a 

temporary cease and desist order when 

the Secretary finds there is reasonable 

cause to believe that the conduct of a 

MEWA, or any person acting as an agent 

or employee of the MEWA, is – 

(A) Fraudulent; 

(B) Creates an immediate danger to 

the public safety or welfare; or 


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(C) Is causing or can be reasonably 

expected to cause significant, imminent, 

and irreparable public injury. 

(ii) A single act or omission may be 

the basis for a temporary cease and 

desist order. 

(2) A temporary cease and desist 

order, as the Secretary determines is 

necessary and appropriate to stop the 

conduct on which the order is based, 

and to protect the interests of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public, may— 

(i) Prohibit specific conduct or 

prohibit the transaction of any business 

of the MEWA; 

(ii) Prohibit any person from taking 

specified actions, or exercising authority 

or control, concerning funds or property 

of a MEWA or of any employee benefit 

plan, regardless of whether such funds 

or property have been commingled with 

other funds or property; and, 

(iii) Bar any person either directly or 

indirectly, from providing management, 

administrative, or other services to any 

MEWA or to an employee benefit plan 

or trust. 

(3) The Secretary may require 

documentation from the subject of the 

order verifying compliance. 

(d) Effect of order on other remedies. 

The issuance of a temporary or final 

cease and desist order shall not 

foreclose the Secretary from seeking 

additional remedies under ERISA. 

(e) Administrative hearing. (1) A 

temporary cease and desist order shall 

become a final order as to any MEWA 

or other person named in the order 30 

days after such person receives notice of 

the order unless, within this period, 

such person requests a hearing in 

accordance with the requirements of 

this paragraph (e). 

(2) A person requesting a hearing 

must file a written request and an 

answer to the order showing cause why 

the order should be modified or set 

aside. The request and the answer must 

be filed in accordance with 29 CFR part 

2571 and § 18.4 of this title. 

(3) A hearing shall be held 

expeditiously following the receipt of 

the request for a hearing by the Office 

of the Administrative Law Judges, 

unless the parties mutually consent, in 

writing, to a later date. 

(4) The decision of the administrative 

law judge shall be issued expeditiously 

after the conclusion of the hearing. 

(5) The Secretary must offer evidence 

supporting the findings made in issuing 

the order that there is reasonable cause 

to believe that the MEWA (or a person 

acting as an employee or agent of the 

MEWA) engaged in conduct specified in 

paragraph (c)(1) of this section. 

(6) The person requesting the hearing 

has the burden to show that the order 

should be modified or set aside. To meet 

this burden such person must show by 

a preponderance of the evidence that 

the MEWA (or a person acting as an 

employee or agent of the MEWA) did 

not engage in conduct specified in 

paragraph (c)(1) of this section or must 

show that the requirements imposed by 

the order, are, in whole or part, arbitrary 

and capricious. 

(7) Any temporary cease and desist 

order for which a hearing has been 

requested shall remain in effect and 

enforceable, pending completion of the 

administrative proceedings, unless 

stayed by the Secretary, an 

administrative law judge, or by a court. 

(8) The Secretary may require that the 

hearing and all evidence be treated as 

confidential. 

(f) Summary seizure order. (1) Subject 

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

section, the Secretary may issue a 

summary seizure order when the 

Secretary finds there is probable cause 

to believe that a MEWA is in a 

financially hazardous condition. 

(2) Except as provided in paragraph 

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

before issuing a summary seizure order 

to remove assets and records from the 

control and management of the MEWA 

or any persons having custody or 

control of such assets or records, shall 

obtain judicial authorization from a 

federal court in the form of a warrant or 

other appropriate form of authorization 

and may at that time pursue other 

actions such as those set forth in 

paragraph (f)(5) of this section. 

(3) If the Secretary reasonably believes 

that any delay in issuing the order is 

likely to result in the removal, 

dissipation, or concealment of plan 

assets or records, the Secretary may 

issue and serve a summary seizure order 

before seeking court authorization. 

Promptly following service of the order, 

the Secretary shall seek authorization 

from a federal court and may at that 

time pursue other actions such as those 

set forth in paragraph (f)(5) of this 

section. 

(4) A summary seizure order may 

authorize the Secretary to take 

possession or control of all or part of the 

books, records, accounts, and property 

of the MEWA (including the premises in 

which the MEWA transacts its business) 

to protect the benefits of plan 

participants, plan beneficiaries, 

employers or employee organizations, or 

other members of the public, and to 

safeguard the assets of employee welfare 

benefit plans. The order may also direct 

any person having control and custody 

of the assets that are the subject of the 

order not to allow any transfer or 

disposition of such assets except upon 

the written direction of the Secretary, or 

of a receiver or independent fiduciary 

appointed by a court. 

(5) In connection with or following 

the execution of a summary seizure 

order, the Secretary may— 

(i) Secure court appointment of a 

receiver or independent fiduciary to 

perform any necessary functions of the 

MEWA; 

(ii) Obtain court authorization for the 

Secretary, the receiver or independent 

fiduciary to take any other action to 

seize, secure, maintain, or preserve the 

availability of the MEWA’s assets; and 

(iii) Obtain such other appropriate 

relief available under ERISA to protect 

the interest of employee welfare benefit 

plan participants, plan beneficiaries, 

employers or employee organizations or 

other members of the public. Other 

appropriate equitable relief may include 

the liquidation and winding up of the 

MEWA’s affairs and, where applicable, 

the affairs of any person sponsoring the 

MEWA. 

(g) Effective date of orders. Cease and 

desist and summary seizure orders are 

effective immediately upon issuance by 

the Secretary and shall remain effective, 

except to the extent and until any 

provision is modified or the order is set 

aside by the Secretary, an administrative 

law judge, or a court. 

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

practicable after the issuance of a 

temporary or final cease and desist 

order and no later than five business 

days after issuance of a summary 

seizure order, the Secretary shall serve 

the order either: 

(i) By delivering a copy to the person 

who is the subject of the order. If the 

person is a partnership, service may be 

made to any partner. If the person is a 

corporation, association, or other entity 

or organization, service may be made to 

any officer of such entity or any person 

designated for service of process under 

State law or the applicable plan 

document. If the person is an employee 

welfare benefit plan, service may be 

made to a trustee or administrator. A 

person’s attorney may accept service on 

behalf of such person; 

(ii) By leaving a copy at the principal 

office, place of business, or residence of 

such person or attorney; or 

(iii) By mailing a copy to the last 

known address of such person or 

attorney. 

(2) If service is accomplished by 

certified mail, service is complete upon 

mailing. If service is done by regular 

mail, service is complete upon receipt 

by the addressee. 


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13808 Federal Register / Vol. 78, No. 41 / Friday, March 1, 2013 / Rules and Regulations 

(3) Service of a temporary or final 

cease and desist order and of a summary 

seizure order shall include a statement 

of the Secretary’s findings giving rise to 

the order, and, where applicable, a copy 

of any warrant or other authorization by 

a court. 

§ 2560.521–2 Disclosure of order and 

proceedings. 

(a) Notwithstanding § 2560.521– 

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

available to the public final cease and 

desist and summary seizure orders or 

modifications and terminations of such 

final orders. 

(b) Except as prohibited by applicable 

law, and at his or her discretion, the 

Secretary may disclose the issuance of 

a temporary cease and desist order or 

summary seizure order and information 

and evidence of any proceedings and 

hearings related to an order, to any 

Federal, State, or foreign authorities 

responsible for enforcing laws that 

apply to MEWAs and parties associated 

with, or providing services to, MEWAs. 

(c) The sharing of such documents, 

material, or other information and 

evidence under this section does not 

constitute a waiver of any applicable 

privilege or claim of confidentiality. 

§ 2560.521–3 Effect on other enforcement 

authority. 

The Secretary’s authority under 

section 521 shall not be construed to 

limit the Secretary’s ability to exercise 

his or her enforcement or investigatory 

authority under any other provision of 

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

The Secretary may, in his or her sole 

discretion, initiate court proceedings 

without using the procedures in this 

section. 

§ 2560.521–4 Cross-reference. 

See 29 CFR 2571.1 through 2571.13 

for procedural rules relating to 

administrative hearings under section 

521 of ERISA. 

■ 3. Add part 2571 to read as follows: 

PART 2571—PROCEDURAL 

REGULATIONS FOR ADMINISTRATION 

AND ENFORCEMENT UNDER THE 

EMPLOYEE RETIREMENT INCOME 

SECURITY ACT 

Subpart A—Procedures for Administrative 

Hearings on the Issuance of Cease and 

Desist Orders Under ERISA Section 521— 

Multiple Employer Welfare Arrangements 

Sec. 

2571.1 Scope of rules. 

2571.2 Definitions. 

2571.3 Service: copies of documents and 

pleadings. 

2571.4 Parties. 

2571.5 Consequences of default. 

2571.6 Consent order or settlement. 

2571.7 Scope of discovery. 

2571.8 Summary decision. 

2571.9 Decision of the administrative law 

judge. 

2571.10 Review by the Secretary. 

2571.11 Scope of review by the Secretary. 

2571.12 Procedures for review by the 

Secretary. 

2571.13 Effective date. 

Subpart B—[Reserved] 

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

and 1151, Secretary of Labor’s Order 1–2011, 

77 FR 1088 (January 9, 2012). 

Subpart A—Procedures for 

Administrative Hearings on the 

Issuance of Cease and Desist Orders 

Under ERISA Section 521—Multiple 

Employer Welfare Arrangements 

§ 2571.1 Scope of rules. 

The rules of practice set forth in this 

part apply to ex parte cease and desist 

order proceedings under section 521 of 

the Employee Retirement Income 

Security Act of 1974, as amended 

(ERISA). The rules of procedure for 

administrative hearings published by 

the Department’s Office of 

Administrative Law Judges at Part 18 of 

this Title will apply to matters arising 

under ERISA section 521 except as 

modified by this section. These 

proceedings shall be conducted as 

expeditiously as possible, and the 

parties and the Office of the 

Administrative Law Judges shall make 

every effort to avoid delay at each stage 

of the proceedings. 

§ 2571.2 Definitions. 

For section 521 proceedings, this 

section shall apply in lieu of the 

definitions in § 18.2 of this title: 

(a) Adjudicatory proceeding means a 

judicial-type proceeding before an 

administrative law judge leading to an 

order; 

(b) Administrative law judge means an 

administrative law judge appointed 

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

3105; 

(c) Answer means a written statement 

that is supported by reference to specific 

circumstances or facts surrounding the 

temporary order issued pursuant to 29 

CFR 2560.521–1(c); 

(d) Commencement of proceeding is 

the filing of an answer by the 

respondent; 

(e) Consent agreement means a 

proposed written agreement and order 

containing a specified proposed remedy 

or other relief acceptable to the 

Secretary and consenting parties; 

(f) Final order means a cease and 

desist order that is a final order of the 

Secretary of Labor under ERISA section 

521. Such final order may result from a 

decision of an administrative law judge 

or of the Secretary on review of a 

decision of an administrative law judge, 

or from the failure of a party to invoke 

the procedures for a hearing under 29 

CFR 2560.521–1 within the prescribed 

time limit. A final order shall constitute 

a final agency action within the 

meaning of 5 U.S.C. 704; 

(g) Hearing means that part of a 

section 521 proceeding which involves 

the submission of evidence, either by 

oral presentation or written submission, 

to the administrative law judge; 

(h) Order means the whole or any part 

of a final procedural or substantive 

disposition of a section 521 proceeding; 

(i) Party includes a person or agency 

named or admitted as a party to a 

section 521 proceeding; 

(j) Person includes an individual, 

partnership, corporation, employee 

welfare benefit plan, association, or 

other entity or organization; 

(k) Petition means a written request, 

made by a person or party, for some 

affirmative action; 

(l) Respondent means the party 

against whom the Secretary is seeking to 

impose a cease and desist order under 

ERISA section 521; 

(m) Secretary means the Secretary of 

Labor or his or her delegate; 

(n) Section 521 proceeding means an 

adjudicatory proceeding relating to the 

issuance of a temporary order under 29 

CFR 2560.521–1 and section 521 of 

ERISA; 

(o) Solicitor means the Solicitor of 

Labor or his or her delegate; and 

(p) Temporary order means the 

temporary cease and desist order issued 

by the Secretary under 29 CFR 

2560.521–1(c) and section 521 of ERISA. 

§ 2571.3 Service: copies of documents and 

pleadings. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.3 of 

this title: 

(a) In general. Copies of all documents 

shall be served on all parties of record. 

All documents should clearly designate 

the docket number, if any, and short 

title of all matters. All documents to be 

filed shall be delivered or mailed to the 

Chief Docket Clerk, Office of 

Administrative Law Judges, 800 K Street 

NW., Suite 400, Washington, DC 20001– 

8002, or to the OALJ Regional Office to 

which the section 521 proceeding may 

have been transferred for hearing. Each 

document filed shall be clear and 

legible. 

(b) By parties. All motions, petitions, 

pleadings, briefs, or other documents 

shall be filed with the Office of 

Administrative Law Judges with a copy, 

including any attachments, to all other 


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parties of record. When a party is 

represented by an attorney, service shall 

be made upon the attorney. Service of 

any document upon any party may be 

made by personal delivery or by mailing 

a copy to the last known address. The 

Secretary shall be served by delivery to 

the Associate Solicitor, Plan Benefits 

Security Division, ERISA Section 521 

Proceeding, P.O. Box 1914, Washington, 

DC 20013 and any attorney named for 

service of process as set forth in the 

temporary order. The person serving the 

document shall certify to the manner of 

date and service. 

(c) By the Office of Administrative 

Law Judges. Service of orders, decisions, 

and all other documents shall be made 

in such manner as the Office of 

Administrative Law Judges determines 

to the last known address. 

(d) Form of pleadings. 

(1) Every pleading or other paper filed 

in a section 521 proceeding shall 

designate the Employee Benefits 

Security Administration (EBSA) as the 

agency under which the proceeding is 

instituted, the title of the proceeding, 

the docket number (if any) assigned by 

the Office of Administrative Law Judges 

and a designation of the type of 

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

dismiss, etc.). The pleading or paper 

shall be signed and shall contain the 

address and telephone number of the 

party or person representing the party. 

Although there are no formal 

specifications for documents, they 

should be printed when possible on 

standard size 81⁄2 × 11 inch paper. 

(2) Illegible documents, whether 

handwritten, printed, photocopies, or 

otherwise, will not be accepted. Papers 

may be reproduced by any duplicating 

process provided all copies are clear 

and legible. 

§ 2571.4 Parties. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.10 of 

this title: 

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

these rules shall include any person that 

is a subject of the temporary order and 

is challenging the temporary order 

under these section 521 proceedings, 

and the Secretary. A party challenging 

a temporary order shall be designated as 

the ‘‘respondent.’’ The Secretary shall 

be designated as the ‘‘complainant.’’ 

(b) Other persons shall be permitted 

to participate as parties only if the 

administrative law judge finds that the 

final decision could directly and 

adversely affect them or the class they 

represent, that they may contribute 

materially to the disposition of the 

section 521 proceeding and their 

interest is not adequately represented by 

the existing parties, and that in the 

discretion of the administrative law 

judge the participation of such persons 

would be appropriate. 

(c) A person not named in a 

temporary order, but wishing to 

participate as a respondent under this 

section shall submit a petition to the 

administrative law judge within fifteen 

(15) days after the person has 

knowledge of, or should have known 

about, the section 521 proceeding. The 

petition shall be filed with the 

administrative law judge and served on 

each person who has been made a party 

at the time of filing. Such petition shall 

concisely state: 

(1) Petitioner’s interest in the section 

521 proceeding (including how the 

section 521 proceedings will directly 

and adversely affect them or the class 

they represent and why their interest is 

not adequately represented by the 

existing parties); 

(2) How his or her participation as a 

party will contribute materially to the 

disposition of the section 521 

proceeding; 

(3) Who will appear for the petitioner; 

(4) The issues on which petitioner 

wishes to participate; and 

(5) Whether petitioner intends to 

present witnesses. 

(d) Objections to the petition may be 

filed by a party within fifteen (15) days 

of the filing of the petition. If objections 

to the petition are filed, the 

administrative law judge shall then 

determine whether petitioners have the 

requisite interest to be a party in the 

section 521 proceeding, as defined in 

paragraph (b) of this section, and shall 

permit or deny participation 

accordingly. Where persons with 

common interest file petitions to 

participate as parties in a section 521 

proceeding, the administrative law 

judge may request all such petitioners to 

designate a single representative, or the 

administrative law judge may designate 

one or more of the petitioners to 

represent the others. The administrative 

law judge shall give each such 

petitioner, as well as the parties, written 

notice of the decision on his or her 

petition. For each petition granted, the 

administrative law judge shall provide a 

brief statement of the basis of the 

decision. If the petition is denied, he or 

she shall briefly state the grounds for 

denial and may consider whether to 

treat the petition as a request for 

participation as amicus curiae. 

§ 2571.5 Consequences of default. 

For section 521 proceedings, this 

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

this title. Failure of the respondent to 

file an answer to the temporary order 

within the 30-day period provided by 29 

CFR 2560.521–1(e) shall constitute a 

waiver of the respondent’s right to 

appear and contest the temporary order. 

Such failure shall also be deemed to be 

an admission of the facts as alleged in 

the temporary order for purposes of any 

proceeding involving the order issued 

under section 521 of ERISA. The 

temporary order shall then become the 

final order of the Secretary, within the 

meaning of 29 CFR 2571.2(f), 30 days 

from the date of the service of the 

temporary order. 

§ 2571.6 Consent order or settlement. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.9 of 

this title: 

(a) In general. At any time after the 

commencement of a section 521 

proceeding, the parties jointly may 

move to defer the hearing for a 

reasonable time in order to negotiate a 

settlement or an agreement containing 

findings and a consent order disposing 

of the whole or any part of the section 

521 proceeding. The administrative law 

judge shall have discretion to allow or 

deny such a postponement and to 

determine its duration. In exercising 

this discretion, the administrative law 

judge shall consider the nature of the 

section 521 proceeding, the 

requirements of the public interest, the 

representations of the parties and the 

probability of reaching an agreement 

that will result in a just disposition of 

the issues involved. 

(b) Content. Any agreement 

containing consent findings and an 

order disposing of the section 521 

proceeding or any part thereof shall also 

provide: 

(1) That the consent order shall have 

the same force and effect as an order 

made after full hearing; 

(2) That the entire record on which 

the consent order is based shall consist 

solely of the notice and the agreement; 

(3) A waiver of any further procedural 

steps before the administrative law 

judge; 

(4) A waiver of any right to challenge 

or contest the validity of the consent 

order and decision entered into in 

accordance with the agreement; and 

(5) That the consent order and 

decision of the administrative law judge 

shall be final agency action within the 

meaning of 5 U.S.C. 704. 

(c) Submission. On or before the 

expiration of the time granted for 

negotiations, the parties or their 

authorized representatives or their 

counsel may: 

(1) Submit the proposed agreement 

containing consent findings and an 

order to the administrative law judge; 


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13810 Federal Register / Vol. 78, No. 41 / Friday, March 1, 2013 / Rules and Regulations 

(2) Notify the administrative law 

judge that the parties have reached a full 

settlement and have agreed to dismissal 

of the action subject to compliance with 

the terms of the settlement; or 

(3) Inform the administrative law 

judge that agreement cannot be reached. 

(d) Disposition. If a settlement 

agreement containing consent findings 

and an order, agreed to by all the parties 

to a section 521 proceeding, is 

submitted within the time allowed 

therefor, the administrative law judge 

shall incorporate all of the findings, 

terms, and conditions of the settlement 

agreement and consent order of the 

parties. Such decision shall become a 

final agency action within the meaning 

of 5 U.S.C. 704. 

(e) Settlement without consent of all 

respondents. In cases in which some, 

but not all, of the respondents to a 

section 521 proceeding submit an 

agreement and consent order to the 

administrative law judge, the following 

procedure shall apply: 

(1) If all of the respondents have not 

consented to the proposed settlement 

submitted to the administrative law 

judge, then such non-consenting parties 

must receive notice and a copy of the 

proposed settlement at the time it is 

submitted to the administrative law 

judge; 

(2) Any non-consenting respondent 

shall have fifteen (15) days to file any 

objections to the proposed settlement 

with the administrative law judge and 

all other parties; 

(3) If any respondent submits an 

objection to the proposed settlement, 

the administrative law judge shall 

decide within thirty (30) days after 

receipt of such objections whether to 

sign or reject the proposed settlement. 

Where the record lacks substantial 

evidence upon which to base a decision 

or there is a genuine issue of material 

fact, then the administrative law judge 

may establish procedures for the 

purpose of receiving additional 

evidence upon which a decision on the 

contested issue may be reasonably 

based; 

(4) If there are no objections to the 

proposed settlement, or if the 

administrative law judge decides to sign 

the proposed settlement after reviewing 

any such objections, the administrative 

law judge shall incorporate the consent 

agreement into a decision meeting the 

requirements of paragraph (d) of this 

section; and 

(5) If the consent agreement is 

incorporated into a decision meeting the 

requirements of paragraph (d) of this 

section, the administrative law judge 

shall continue the section 521 

proceeding with respect to any nonconsenting respondents. 

§ 2571.7 Scope of discovery. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.14 of 

this title: 

(a) A party may file a motion to 

conduct discovery with the 

administrative law judge. The 

administrative law judge may grant a 

motion for discovery only upon a 

showing of good cause. In order to 

establish ‘‘good cause’’ for the purposes 

of this section, the moving party must 

show that the requested discovery 

relates to a genuine issue as to a fact that 

is material to the section 521 

proceeding. The order of the 

administrative law judge shall expressly 

limit the scope and terms of the 

discovery to that for which ‘‘good 

cause’’ has been shown, as provided in 

this paragraph. 

(b) Any evidentiary privileges apply 

as they would apply in a civil 

proceeding in federal district court. For 

example, legal advice provided by an 

attorney to a client is generally 

protected from disclosure. Mental 

impressions, conclusions, opinions, or 

legal theories of a party’s attorney or 

other representative developed in 

anticipation of litigation are also 

generally protected from disclosure. The 

administrative law judge may not, 

however, protect from discovery or use, 

relevant communications between an 

attorney and a plan administrator or 

other plan fiduciary, or work product, 

that fall under the fiduciary exception to 

the attorney-client or work product 

privileges. The fiduciary exception to 

these privileges exists when an attorney 

advises the plan administrator or other 

plan fiduciary on matters concerning 

plan administration or other fiduciary 

activities. Consequently, the 

administrative law judge may not 

protect such communications from 

discovery or from use by the Secretary 

in the proceedings. The administrative 

law judge also may also not protect 

attorney work product prepared to assist 

the fiduciary in its fiduciary capacity 

from discovery or from use by the 

Secretary in the proceedings. The 

fiduciary exception does not apply, 

however, to the extent that 

communications were made or 

documents were prepared exclusively to 

aid the fiduciary personally or for nonfiduciary matters (e.g. settlor acts), 

provided that the plan did not pay for 

the legal services. The Secretary need 

not make a special showing, such as 

good cause, merely to obtain 

information or documents covered by 

the fiduciary exception. Other relevant 

exceptions to the attorney-client or work 

product privileges shall also apply. 

§ 2571.8 Summary decision. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.41 of 

this title: 

(a) No genuine issue of material fact. 

Where the administrative law judge 

finds that no issue of a material fact has 

been raised, he or she may issue a 

decision which, in the absence of an 

appeal, pursuant to §§ 2571.10 through 

2571.12, shall become a final agency 

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

704. 

(b) A decision made under this 

section, shall include a statement of: 

(1) Findings of fact and conclusions of 

law, and the reasons thereof, on all 

issues presented; and 

(2) Any terms and conditions of the 

ruling. 

(c) A copy of any decision under this 

section shall be served on each party. 

§ 2571.9 Decision of the administrative law 

judge. 

For section 521 proceedings, this 

section shall apply in lieu of § 18.57 of 

this title: 

(a) Proposed findings of fact, 

conclusions, and order. Within twenty 

(20) days of the filing of the transcript 

of the testimony, or such additional 

time as the administrative law judge 

may allow, each party may file with the 

administrative law judge, subject to the 

judge’s discretion, proposed findings of 

fact, conclusions of law, and order 

together with a supporting brief 

expressing the reasons for such 

proposals. Such proposals and briefs 

shall be served on all parties, and shall 

refer to all portions of the record and to 

all authorities relied upon in support of 

each proposal. 

(b) Decision of the administrative law 

judge. The administrative law judge 

shall make his or her decision 

expeditiously after the conclusion of the 

section 521 proceeding. The decision of 

the administrative law judge shall 

include findings of fact and conclusions 

of law with reasons therefore upon each 

material issue of fact or law presented 

on the record. The decision of the 

administrative law judge shall be based 

upon the whole record and shall be 

supported by reliable and probative 

evidence. The decision of the 

administrative law judge shall become 

final agency action within the meaning 

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

pursuant to the procedures set forth in 

§§ 2571.10 through 2571.12. 

§ 2571.10 Review by the Secretary. 

(a) The Secretary may review the 

decision of an administrative law judge. 


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Federal Register / Vol. 78, No. 41 / Friday, March 1, 2013 / Rules and Regulations 13811 

Such review may occur only when a 

party files a notice of appeal from a 

decision of an administrative law judge 

within twenty (20) days of the issuance 

of such a decision. In all other cases, the 

decision of the administrative law judge 

shall become the final agency action 

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

(b) A notice of appeal to the Secretary 

shall state with specificity the issue(s) 

in the decision of the administrative law 

judge on which the party is seeking 

review. Such notice of appeal must be 

served on all parties of record. 

(c) Upon receipt of an appeal, the 

Secretary shall request the Chief 

Administrative Law Judge to submit to 

the Secretary a copy of the entire record 

before the administrative law judge. 

§ 2571.11 Scope of review by the 

Secretary. 

The review of the Secretary shall be 

based on the record established before 

the administrative law judge. There 

shall be no opportunity for oral 

argument. 

§ 2571.12 Procedures for review by the 

Secretary. 

(a) Upon receipt of a notice of appeal, 

the Secretary shall establish a briefing 

schedule which shall be served on all 

parties of record. Upon motion of one or 

more of the parties, the Secretary may, 

in her discretion, permit the submission 

of reply briefs. 

(b) The Secretary shall issue a 

decision as promptly as possible after 

receipt of the briefs of the parties. The 

Secretary may affirm, modify, or set 

aside, in whole or in part, the decision 

on appeal and shall issue a statement of 

reasons and bases for the action(s) 

taken. Such decision by the Secretary 

shall be the final agency action with the 

meaning of 5 U.S.C. 704. 

§ 2571.13 Effective date. 

This regulation is effective with 

respect to all cease and desist orders 

issued by the Secretary under section 

521 of ERISA at any time after April 1, 

2013. 

Subpart B—[Reserved] 

Signed at Washington, DC, this 26th day of 

February, 2013. 

Phyllis C. Borzi, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2013–04862 Filed 2–28–13; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[Docket No. USCG–2012–1094] 

Special Local Regulation; Annual 

Marine Events on the Colorado River, 

Between Davis Dam (Bullhead City, 

AZ) and Headgate Dam (Parker, AZ) 

Within the San Diego Captain of the 

Port Zone 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of enforcement of 

regulation. 

SUMMARY: The Coast Guard will enforce 

the Parker International Water Ski Race 

Special Local Regulation located upon 

the Colorado River from 8 a.m. through 

5 p.m. on March 9 and March 10, 2013. 

The event will cover an area beginning 

at the Blue Water Marina in Parker, AZ, 

and extending approximately 10 miles 

to La Paz County Park. This action is 

necessary provide for the safety of the 

participants, crew, spectators, sponsor 

vessels of the race, and general users of 

the waterway. During the enforcement 

period, no spectators shall anchor, 

block, loiter in, or impede the through 

transit of participants or official patrol 

vessels in the regulated area during the 

effective dates and times, unless cleared 

for such entry by or through an official 

patrol vessel. 

DATES: The regulations in 33 CFR 

100.1102 will be enforced from 8 a.m. 

through 5 p.m. on March 9 and March 

10, 2013. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this notice, call 

or email Bryan Gollogly, Waterways 

Management, U.S. Coast Guard Sector 

San Diego Coast Guard; telephone 

(619)–278–7656, email D11–PFMarineEventsSanDiego@uscg.mil. 

SUPPLEMENTARY INFORMATION: The Coast 

Guard will enforce the Special Local 

Regulation for the Parker International 

Water Ski Race in 33 CFR 100.1102 from 

8 a.m. through 5 p.m. on March 9 

through March 10, 2013. 

Under the provisions of 33 CFR 

100.1102, a vessel may not enter the 

regulated area, unless it receives 

permission from the COTP. Spectator 

vessels may safely transit outside the 

regulated area but may not anchor, 

block, loiter in, or impede the transit of 

ship parade participants or official 

patrol vessels. The Coast Guard may be 

assisted by other Federal, State, or local 

law enforcement agencies in enforcing 

this regulation. 

This notice is issued under authority 

of 33 CFR 100.1102 and 5 U.S.C. 552 (a). 

In addition to this notice in the Federal 

Register, the Coast Guard will provide 

the maritime community with extensive 

advance notification of this enforcement 

period via the Local Notice to Mariners. 

If the COTP or his designated 

representative determines that the 

regulated area need not be enforced for 

the full duration stated in this notice, he 

or she may use a Broadcast Notice to 

Mariners to grant general permission to 

enter the regulated area. 

Dated: February 12, 2013. 

S.M. Mahoney, 

Captain, U.S. Coast Guard, Captain of the 

Port San Diego. 

[FR Doc. 2013–04730 Filed 2–28–13; 8:45 am] 

BILLING CODE 9110–04–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket No. USCG–2013–0048] 

Safety Zone; Underwater Escape 

Event, Seaport, East River, NY 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of enforcement of 

regulation. 

SUMMARY: The Coast Guard will enforce 

a safety zone in the Captain of the Port 

New York Zone on the specified date 

and time. This action is necessary to 

ensure the safety of participants, vessels 

and spectators from hazards associated 

with the escape artist event and 

associated pyrotechnics display. During 

the enforcement period, no person or 

vessel may enter the safety zone without 

permission of the Captain of the Port 

(COTP). 

DATES: The regulation for the safety 

zone described in 33 CFR 165.160 will 

be enforced March 24, 2013, from 6:30 

p.m. to 8:30 p.m. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this notice, call 

or email Lieutenant Junior Grade 

Kristopher Kesting, Coast Guard; 

telephone 718–354–4154, email 

Kristopher.R.Kesting@uscg.mil. 

SUPPLEMENTARY INFORMATION: The Coast 

Guard will enforce the safety zone listed 

in 33 CFR 165.160 on the specified date 

and time as indicated in Table 1 below. 

This regulation was published in the 

Federal Register on November 9, 2011 

(76 FR 69614). 


emcdonald on DSK67QTVN1PROD with RULES