In Advisory Opinion 2011-01A (the “Opinion”), the Department of Labor (the “DOL”) expressed its view on whether the Custom Rail Employer Welfare Trust Fund (the “Fund”) is a “multiple employer welfare arrangement” (a “MEWA”), within the meaning of ERISA section 3(40), that is “fully insured” within the meaning of ERISA section 514(b)(6).
Based on Advisory Opinion 2007-06A, the Fund is a MEWA. But is it fully insured? And what is at stake here? Generally, in the case of a welfare benefit plan-which the Fund is assumed to be-ERISA preempts the application of all State law. However, for a MEWA like the Fund, the following exceptions apply. If the MEWA is not fully insured, then under ERISA section 514(b)(6)(A)(ii), any State law that regulates insurance may apply to the MEWA, to the extent that such law is not inconsistent with ERISA. However, if the MEWA is fully insured, then under ERISA section 514(b)(6)(A)(i), only those State laws that regulate the maintenance of specified contribution and reserve levels may apply to the MEWA. Thus, a fully insured MEWA could be subject to significantly less State regulation than a non-fully insured MEWA.
ERISA section 514(b)(6)(D) provides that a MEWA is not fully insured, unless all of the benefits it offers or provides are guaranteed under a contract or policy of insurance issued by an insurance company that is “qualified to conduct business in a State.” In this case, as discussed in Advisory Opinion 2007-06A, the Fund had purchased a “Certificate of Insurance” (the ” Original Certificate”) from certain Underwriters at Lloyd’s, London (the “Underwriters”). However, the Original Certificate did not unconditionally guarantee payment of all benefits due to participants under the Fund. Under the Original Certificate, the Underwriters’ liability for paying benefits was conditioned upon, among other things:
–the Fund maintaining a “terminal fund” to pay benefits;
–the Fund failing to pay a participant’s claim for benefits within thirty days of determining that the claim was payable; and
–the Fund assigning to the participant its right to recover from the Underwriters specific “incurred claims” that were not paid within a thirty-day period.
Since the Original Certificate did not unconditionally guarantee payment of all benefits due from the Fund, as concluded in Advisory Opinion 2007-06A, that certificate did not fully insure the Fund .
The Fund later obtained a Revised Certificate, presumably from the same source as the Original Certificate. The Revised Certificate did correct some of the problems with the Original Certificate. However, even under the Revised Certificate, the Fund, and not any Underwriter, retained” first-in-line” responsibility for all “incurred claims” of participants and beneficiaries. Here, the Underwriters could not assume this first-in-line responsibility, since they were not licensed to sell direct group health insurance to the Fund or its participants. As such, the Opinion concludes that, even under the Revised Certificate, the Fund is not fully insured. The Opinion referred to Advisory Opinion 93-11A, which discussed a fully insured MEWA.
The Opinion further points out that, to be considered “fully insured” within the meaning of ERISA section 514(b)(6), a MEWA-which like the Fund offers group health benefits- must obtain an insurance policy from an insurer which is licensed or admitted to conduct business under a State’s group health insurance laws, and this policy must be regulated under such laws. The Revised Certificate does not meet this requirement, with the result-again- that the Fund is not fully insured.