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Just What Is a MEWA and Why Should You Care?

June 01, 1995

The Employee Retirement Income Security Act of 1974 (ERISA) has spawned many acronyms over the years, including its own. Another is MEWA, which stands for "multiple employer welfare arrangement." MEWAs are drawing increasing interest from private employers and regulators, principally the Department of Labor (DOL). A MEWA is defined in ERISA as an employee welfare benefit plan, typically providing medical, surgical, or hospital care benefits or benefits in the event of sickness, accident, disability, death or unemployment, to the employees of two or more employers.

For purposes of the above definition, two or more employers who are members of the same "control group" are treated as a single employer. A control group exists if there is 25% or more common ownership. For example, a parent corporation and a 25% or more owned subsidiary would constitute a "control group" and any health plan that covers their respective eligible employees would be a "single employer" welfare benefit plan and not a MEWA. However, if the parent owned less than 25% of its subsidiary, the two would be treated as separate employers instead of a single "control group" employer, and their common plan would be a MEWA.

The distinction between single employer welfare benefit plans and MEWAs is important because it determines which laws govern their operation. Single employer welfare benefit plans are subject only to the applicable provisions of ERISA, which preempts any state insurance laws that otherwise purport to regulate these arrangements. MEWAs, on the other hand, can be subject to ERISA, state insurance laws, or both. The law applicable to a MEWA will depend upon whether the MEWA is collectively bargained, fully insured, or self-insured.

A MEWA that is maintained pursuant to a collective bargaining agreement is subject only to the applicable provisions of ERISA. In contrast, a fully insured MEWA (that is, one in which all benefits are guaranteed under a contract or policy of insurance issued by a qualified life insurance company) is subject to state insurance laws, to the extent those laws provide:

(i) standards requiring the maintenance of specified levels of reserves and specified levels of contributions, which the MEWA, or any funding vehicle established under it, must meet in order to be considered able to pay benefits in full when due; or
(ii) provisions to enforce those standards.

A self-insured MEWA is subject to those provisions of ERISA that protect employee benefit rights under welfare benefit plans and also any applicable state insurance laws (not just those relating to the establishment or enforcement of reserve or contribution requirements) that do not conflict with ERISA.

Based upon our review of the laws relating to MEWAs and their applicability to specific client situations, two conclusions may be drawn. First, as our clients' organiza-tional structures and the nation's health care laws and health care delivery systems become increasingly complex, it is very easy for an employee welfare benefit plan arrangement to become subject to the MEWA rules. Second, the consequences of such a classification are that a broad array of state insurance laws can apply to self-insured MEWAs maintained by companies with multi-state operations.

In light of all of this, companies offering welfare plans should consider one or all of the following actions:

1. Determine whether your current welfare benefit plan covers employees of more than one employer and may, therefore, be subject to the MEWA rules.
2. If a determination is made that an arrangement is a MEWA, consider taking a survey of those states where covered employees reside to determine which laws may apply. This survey would include not only a summary of applicable ERISA requirements, but also summaries of the require-ments imposed by the applicable insurance laws of each state in which plan participants or their beneficiaries reside.
3. After it has been determined whether the plan is a MEWA, and after applicable federal and state laws have been surveyed, steps should be taken to ensure that the plan operates in accordance with those rules. The most obvious starting point is finalizing a written plan document and related summary plan description so that ERISA's participant disclosure requirements will be met.
4. Consider redesigning the plan if the cost of maintaining it as a MEWA becomes prohibitive.

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