‘‘(iii) is protective of the rights and
benefits of the individuals covered under
the arrangement,
‘‘(B) the application for the exemption
meets the requirements of paragraph (3), and
‘‘(C) the requirements of sections 703 and
704 are met with respect to the arrangement.
‘‘(3) INFORMATION TO BE INCLUDED IN APPLI-
CATION FOR EXEMPTION.—An application for an ex-
emption described in subsection (a) meets the re-
quirements of this paragraph only if it includes, in
a manner and form prescribed in regulations of the
Secretary, at least the following information:
‘‘(A) IDENTIFYING
INFORMATION.—The
names and addresses of—
‘‘(i) the sponsor, and
‘‘(ii) the members of the board of
trustees of the arrangement.
‘‘(B) STATES IN WHICH ARRANGEMENT IN-
TENDS TO DO BUSINESS.—The States in which
individuals covered under the arrangement are
to be located and the number of such individ-
uals expected to be located in each such State.
‘‘(C) BONDING REQUIREMENTS.—Evidence
provided by the board of trustees that the bond-
ing requirements of section 412 will be met as
of the date of the application or (if later) com-
mencement of operations.
‘‘(D) PLAN DOCUMENTS.—A copy of the
documents governing the arrangement (includ-
ing any bylaws and trust agreements), the sum-
mary plan description, and other material de-
scribing the benefits and coverage that will be
provided to individuals covered under the ar-
rangement.
‘‘(E) AGREEMENTS WITH SERVICE PROVID-
ERS.—A copy of any agreements between the
arrangement and contract administrators and
other service providers.
‘‘(F) FUNDING REPORT.—A report setting
forth information determined as of a date with-
in the 120-day period ending with the date of
the application, including the following:
‘‘(i) RESERVES.—A statement, cer-
tified by the board of trustees of the ar-
rangement, and a statement of actuarial
opinion, signed by a qualified actuary, that
all applicable requirements of section 705
are or will be met in accordance with regu-
lations which the Secretary shall prescribe.
‘‘(ii) ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets
forth a description of the extent to which
contribution rates are adequate to provide
for the payment of all obligations and the
maintenance of required reserves under the
arrangement for the 12-month period be-
ginning with such date within such 120-
day period, taking into account the ex-
pected coverage and experience of the ar-
rangement. If the contribution rates are
not fully adequate, the statement of actu-
arial opinion shall indicate the extent to
which the rates are inadequate and the
changes needed to ensure adequacy.
‘‘(iii) 
CURRENT
AND
PROJECTED
VALUE
OF
ASSETS
AND
LIABILITIES.—A
statement of actuarial opinion signed by a
qualified actuary, which sets forth the cur-
rent value of the assets and liabilities accu-
mulated under the arrangement and a pro-
jection of the assets, liabilities, income,
and expenses of the arrangement for the
12-month period referred to in clause (ii).
The income statement shall identify sepa-
rately the arrangement’s administrative ex-
penses and claims.
‘‘(iv) COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A
statement of the costs of coverage to be
charged, 
including 
an 
itemization 
of
amounts for administration, reserves, and
other expenses associated with the oper-
ation of the arrangement.
‘‘(v) 
OTHER
INFORMATION.—Any
other information which may be prescribed
in regulations of the Secretary as nec-
essary to carry out the purposes of this
part.
‘‘(4) FILING FEE.—Under the procedure pre-
scribed pursuant to paragraph (1), a multiple em-
ployer welfare arrangement shall pay to the Sec-
retary at the time of filing an application for an ex-
emption referred to in subsection (a) a filing fee in
the amount of $5,000, which shall be available, to
the extent provided in appropriation Acts, to the
Secretary for the sole purpose of administering the
exemption procedures applicable with respect to such
arrangement.
‘‘(5) CLASS EXEMPTION TREATMENT FOR EX-
ISTING LARGE ARRANGEMENTS.—Under the proce-
dure prescribed pursuant to paragraph (1), if—
‘‘(A) at the time of application for an ex-
emption under section 514(b)(6)(B) with re-
spect to an arrangement which has been in ex-
istence as of the date of the enactment of the
Health Coverage Availability and Affordability
Act of 1996 for at least 3 years, either (A) the
arrangement covers at least 1,000 participants
and beneficiaries, or (B) with respect to the ar-
rangement there are at least 2,000 employees of
eligible participating employers,
‘‘(B) a complete application for the exemp-
tion with respect to the arrangement has been
filed and is pending, and
‘‘(C) the application meets such require-
ments (if any) as the Secretary may provide
with respect to class exemptions under this sub-
section,
the exemption shall be treated as having been grant-
ed with respect to the arrangement unless and until
the Secretary provides appropriate notice that the
exemption has been denied.
‘‘(c) 
FILING
NOTICE
OF
EXEMPTION
WITH
STATES.—An 
exemption 
granted 
under 
section
514(b)(6)(B) to a multiple employer welfare arrangement
shall not be effective unless written notice of such exemp-
tion is filed with the State insurance commissioner of each
State in which at least 5 percent of the individuals covered
under the arrangement are located. For purposes of this
subsection, an individual shall be considered to be located
in the State in which a known address of such individual
is located or in which such individual is employed. The
Secretary may by regulation provide in specified cases for
the application of the preceding sentence with lesser per-
centages in lieu of such 5 percent amount.
‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case
of any multiple employer welfare arrangement exempt
under section 514(b)(6)(B), descriptions of material
changes in any information which was required to be sub-
mitted with the application for the exemption under this
part shall be filed in such form and manner as shall be
prescribed in regulations of the Secretary. The Secretary
may require by regulation prior notice of material changes
with respect to specified matters which might serve as the
basis for suspension or revocation of the exemption.
‘‘(e) REPORTING REQUIREMENTS.—Under regula-
tions of the Secretary, the requirements of sections 102,
103, and 104 shall apply with respect to any multiple em-
ployer welfare arrangement which is or has been exempt
under section 514(b)(6)(B) in the same manner and to
the same extent as such requirements apply to employee
welfare benefit plans, irrespective of whether such exemp-
tion continues in effect. The annual report required under
section 103 for any plan year in the case of any such mul-
tiple employer welfare arrangement shall also include in-
formation described in subsection (b)(3)(F) with respect
to 
the 
plan 
year 
and, 
notwithstanding 
section
104(a)(1)(A), shall be filed not later than 90 days after
the close of the plan year.
‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The
board of trustees of each multiple employer welfare ar-
rangement which is or has been exempt under section
514(b)(6)(B) shall engage, on behalf of all covered individ-
uals, a qualified actuary who shall be responsible for the
preparation of the materials comprising information nec-
essary to be submitted by a qualified actuary under this
part. The qualified actuary shall utilize such assumptions
and techniques as are necessary to enable such actuary
to form an opinion as to whether the contents of the mat-
ters reported under this part—
‘‘(1) are in the aggregate reasonably related to
the experience of the arrangement and to reasonable
expectations, and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the arrangement.
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘SEC. 
703. 
REQUIREMENTS 
RELATING 
TO 
SPONSORS,
BOARDS OF TRUSTEES, AND PLAN OPER-
ATIONS.
‘‘(a) IN GENERAL.—A complete application for an ex-
emption under section 514(b)(6)(B) shall include informa-
tion which the Secretary determines to be complete and
accurate and sufficient to demonstrate that the following
requirements are met with respect to the arrangement:
‘‘(1) SPONSOR.—The sponsor is, and has been
(together with its immediate predecessor, if any) for
a continuous period of not less than 5 years before
the date of the application, organized and main-
tained in good faith, with a constitution and bylaws
specifically stating its purpose and providing for
periodic meetings on at least an annual basis, as a
trade association, an industry association, a profes-
sional association, or a chamber of commerce (or
similar business group, including a corporation or
similar organization that operates on a cooperative
basis (within the meaning of section 1381 of the In-
ternal Revenue Code of 1986)), for substantial pur-
poses other than that of obtaining or providing med-
ical care (within the meaning of section 607(1)), and
the applicant demonstrates to the satisfaction of the
Secretary that the sponsor is established as a per-
manent entity which receives the active support of
its members and collects dues or contributions from
its members on a periodic basis, without condi-
tioning such dues or contributions on the basis of
the health status of the employees of such members
or the dependents of such employees or on the basis
of participation in a group health plan. Any sponsor
consisting of an association of entities meeting the
preceding requirements of this paragraph shall be
treated as meeting the requirements of this para-
graph.
‘‘(2) BOARD OF TRUSTEES.—The arrangement
is operated, pursuant to a trust agreement, by a
board of trustees which has complete fiscal control
over the arrangement and which is responsible for
all operations of the arrangement, and the board of
trustees has in effect rules of operation and financial
controls, based on a 3-year plan of operation, ade-
quate to carry out the terms of the arrangement and
to meet all requirements of this title applicable to
the arrangement. The members of the board of
trustees are individuals selected from individuals
who are the owners, officers, directors, or employees
of the participating employers or who are partners
in the participating employers and actively partici-
pate in the business. No such member is an owner,
officer, director, or employee of, or partner in, a con-
tract administrator or other service provider to the
arrangement, except that officers or employees of a
sponsor which is a service provider (other than a
contract administrator) to the arrangement may be
members of the board if they constitute not more
than 25 percent of the membership of the board and
they do not provide services to the arrangement
other than on behalf of the sponsor. The board has
sole authority to approve applications for participa-
tion in the arrangement and to contract with a serv-
ice provider to administer the day-to-day affairs of
the arrangement.
‘‘(3) COVERED
PERSONS.—The instruments
governing the arrangement include a written instru-
ment which provides that, effective upon becoming
an 
arrangement 
exempt 
under 
section
514(b)(6)(B)—
‘‘(A) all participating employers must be
members or affiliated members of the sponsor,
except that, in the case of a sponsor which is
a professional association or other individual-
based association, if at least one of the officers,
directors, or employees of an employer, or at
least one of the individuals who are partners in
an employer and who actively participates in
the business, is a member or affiliated member
of the sponsor, participating employers may
also include such employer,
‘‘(B) all individuals thereafter commencing
coverage under the arrangement must be—
‘‘(i) active or retired owners (includ-
ing self-employed individuals), officers, di-
rectors, or employees of, or partners in,
participating employers, or
‘‘(ii) the beneficiaries of individuals
described in clause (i), and
‘‘(C) no participating employer may pro-
vide health insurance coverage in the individual
market for any employee not covered under the
arrangement which is similar to the coverage
contemporaneously provided to employees of the
employer under the arrangement, if such exclu-
sion of the employee from coverage under the
arrangement is based in whole or in part on the
health status of the employee and such em-
ployee would, but for such exclusion on such
basis, be eligible for coverage under the ar-
rangement.
‘‘(4) INCLUSION OF ELIGIBLE EMPLOYERS AND
EMPLOYEES.—No employer described in paragraph
(3) is excluded as a participating employer (except
to the extent that requirements of the type referred
to in section 131(d)(2) of the Health Coverage
Availability and Affordability Act of 1996 are not
met) and the requirements of section 103 of such
Act (as referred to in section 104(b)(1) of such Act)
are met.
‘‘(5) RESTRICTION ON VARIATIONS OF PREMIUM
RATES.—Premium rates under the arrangement with
respect to any particular employer do not vary on
the basis of the claims experience of such employer
alone.
‘‘(b) TREATMENT OF FRANCHISE NETWORKS.—In
the case of a multiple employer welfare arrangement which
is established and maintained by a franchisor for a fran-