The DOL’s proposed regulation permitting Association Health Plans which cover unrelated employers is likely to have a significant impact on the market’s ability to offer Multiple Employer retirement plans to unrelated employers. This is because the regulation permits AHPs through the modification of the ERISA regulatory definition of the term “employer” under Section 3(5). It was this definition that the DOL used to turn down the idea of an Open MEP in Advisory Opinion 2012-04. To be an “employer,” the DOL claimed there must be “commonality” of employment between employers who “controlled” the plan.
The DOL makes a stunning admission in the AHP reg preamble about its historical application of the “commonality” rule. It sounds an awful lot like the argument we made in requesting the MEP advisory opinion:
These definitional terms are ambiguous as applied to a group or association in the context of ERISA section 3(5), and the statute does not specifically refer to or impose the particular historical elements of the “commonality” test on the determination of whether a group or association acts as the “employer” sponsor of an ERISA covered plan within the scope of ERISA section 3(5). Accordingly, that determination may be more broadly guided by ERISA’s purposes and appropriate policy considerations, including the need to expand access to healthcare and to respond to statutory changes and changing market dynamics.
In a nutshell, the DOL is proposing the following:
- An association can sponsor a health plan which can permit other, unrelated employers to join.
- The association can be formed for the sole purpose of offering the plan, lifting the long-standing prohibition against associations being formed for the sole purpose of providing the benefit plan.
- The “commonality” requirement will be met if the members of the association are in the same trade, industry, or state or metropolitan area (even if it crosses state lines).
- The direct or indirect “control” requirement will be met if the members of the association elect the directors or officers of the association
Interestingly enough, the AHP definition of employer will permit companies with no employees, but with only “owner-employees,” to participate-which was always a bugaboo with MEPS to begin with. There is also a health care related “non-discrimination” rule which doesn’t apply to retirement plans.
It is highly unlikely that the DOL will be able to hold the line now against MEPs formed through associations meeting the criteria outlined above, or what I call “AMEPS” (for “Association MEPs), especially considering what the DOL stated in its MEP advisory opinion:
“In your submission, you urge that the Department’s historical interpretation of “employer” under section 3(5) of ERISA regarding multiple employer welfare arrangements (MEWAs) should be restricted to welfare plans and that a less restrictive interpretation be applied to retirement plans. The Department is of the view, however, that the term “employer” should have the same meaning in this context whether applied to the term welfare plan or pension plan. See Sullivan v. Stroop, 496 U.S. 478, 484 (1990).”
Does this mean that we now run out and establish AMEPs? That, I think, would be ill-advised given that there are likely to be a number of changes to the proposed regs before they become final, and there really are a number of issues related to the proposal which need to be answered. For example, the ERISA language under 3(5) enabling one employer to act for another does not require any sort of trade or geographical link and, given the ways companies morph and move, such a requirement seems to unnecessarily deny modern business realities. Lets see, under the reg, you don’t have to be in same trade as long as you are in a large metro area. But if you have a multi-state, international business in a small town or state (yes, there are many of us like this, given the digital nature of business), you can’t belong to an Association plan of an unrelated trade which is based in another state. There’s sound policy behind this archaic thought? That seems counterintuitive, and restricts small business access to true competitive pricing- particularly where the benefits are not inherently “trade based.” But at the very least, it does give us a strong basis to advocate the same treatment for association MEPS as AHPs. And for this, no statutory change would be needed.