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Greenberg Traurig Alert

New MEWA Reporting Requirement May Apply to Some Single Employer and Multiemployer Plans

June 2000
By Jack B. Helitzer and David B. Spanier, Greenberg Traurig, New York Office

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The Problem

On February 11, 2000, the Department of Labor (DOL) published a new interim rule requiring Multiple Employee Welfare Arrangements (MEWAs) and certain other entities to comply with reporting requirements established under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). With some limited exceptions, a MEWA is an arrangement that offers ERISA employee welfare plan benefits to the employees of two or more employers.

Under the new interim rule, MEWAs providing medical care coverage are required to file a report on a DOL Form M-1 by May 1, 2000 (a date that has obviously come and gone). The new interim rule provides for a penalty of $1,000 per day for every day the required filing is late, but it also provides for an automatic extension of the time to file to July 1, 2000 which could have been obtained simply by filing a request for the extension prior to May 1st. However, it may still be possible to avoid late filing penalties.

It appears that the DOL has recognized that its new requirement was not publicized widely enough for there to be reasonable compliance by all plans that fall within the definition of a MEWA. The DOL has also indicated that it will work with plan sponsors of MEWAs to achieve compliance and waive all penalties when good faith compliance is demonstrated. Accordingly, plans that are required to file the new Form M-1 and have not yet done so should complete parts I and II of the form to request an extension to July 1, 2000, sign the form and file it immediately accompanied by a written explanation as to why the May 1st deadline was not met. If this is done, it is unlikely that the DOL will impose late filing penalties.

With slight variations, failure to comply with one or more of the federal laws (about which the DOL Form M-1 inquires) can result in a $100 per day per participant penalty imposed on the employer for each day of noncompliance, with mandatory minimums of $2,500 (if noncompliance is de minimis) or $15,000 (if noncompliance is not de minimis), and, if the violation is due to reasonable cause and not willful neglect, a maximum of the lesser of 10% of the aggregate amount paid or incurred by the employer during the preceding taxable years for group health plans, directly or through insurance, or $500,000.00. There is no limit on the maximum penalty if noncompliance is due to willful neglect.

This Alert explains:

  • what it takes for a plan to fall within the definition of a MEWA;
  • how MEWAs are regulated;
  • what information is required to be filed on Form M-1;
  • how clients can obtain guidance on compliance with the filing requirements;
  • how good faith compliance with the filing requirements can be demonstrated;
  • and what consequences may flow from filing Form M-1.

What a MEWA Is

As stated, a MEWA is an arrangement that offers welfare benefit coverage (specifically medical, surgical, hospital care, or benefits and other welfare programs such as long term or short term disability benefits and group-term life insurance) to employees of two or more employers. The most obvious arrangement that constitutes a MEWA is a trade association that offers coverage to employees of its member employers.

Most, but not all, plans sponsored by single employers are clearly not MEWAs and thus their plan sponsors should not be concerned about or affected by these new requirements. However, the DOL currently takes the position that a single employer medical plan does fall within the definition of a MEWA if it:

  • provides coverage to outside directors and/or independent contractors (because those individuals are not employees and are considered self-employed and thus "employees" of another employer); or
  • provides coverage to employees of a subsidiary where the parent company sponsoring the plan owns less than 80% of the stock of the subsidiary (usually a joint venture situation where the plan of one of the joint venturers covers the employees of the corporate entity that is owned by the joint venturers).

In addition, when an employer enters into an arrangement with an employee leasing organization that provides medical coverage to its employees, the arrangement is probably a MEWA if the lessee rather than the leasing company (the lessor) has actual control of the employees (for example, hiring, firing, setting hours, compensation, working conditions, etc., and exercises practical control of the employment relationship). The determination of the employer-employee relationship is based on the actual facts and circumstances of each case, but most often the lessee and not the leasing company would be the employer under common law rules. The DOL would apply those common law rules, making the arrangement a MEWA.

Thus, an employer is a MEWA if it sponsors a medical plan that covers outside directors, independent contractors or employees of any corporate entity that it controls or is related to where it owns less than 80% of that corporate entity, or if it is a leasing company when the lessee actually controls the employment relationship. To avoid penalties, it should take immediate steps to comply with the filing of DOL Form M-1.

Not all multiple employer arrangements are MEWAs. Plans maintained pursuant to good-faith collective bargaining agreements in accordance with the Labor Management Relations Act, with employer contributions held in trust and which are jointly administered by labor and management trustees (commonly known as Multiemployer plans, and less commonly known as Taft-Hartley plans) are excluded from the definition of a MEWA. However, if such a Multiemployer plan has been in existence for less than 3 years, it must file Form M-1 now and for the next two years after it has been established.

Multiemployer plans that have been in existence more than three years do not have to file Form M-1. Certain other events, such as mergers (if one of the merging MEWAs has been in existence less than 3 years, or if the MEWAs experienced a coverage expansion that is greater than 50%), require filing the Form M-1 for the next 3 years.

Also excluded are rural electric cooperatives and rural telephone cooperative associations, neither of which are common in the northeastern United States, as well as state licensed or authorized health insurance issuers, and governmental plans.

How MEWAs Are Regulated

Prior to 1983, MEWAs were virtually unregulated. ERISA effectively preempted state regulation of MEWAs, and the regulations of ERISA were ineffective to control several serious abuses that arose with respect to many MEWA plans (primarily because many MEWAs were not properly funded or because their principals engaged in ERISA prohibited transactions). In 1983, Congress amended the ERISA preemption provision to permit the states to regulate MEWAs.

Under current law, if a MEWA is fully insured it is subject to any state laws which regulate insurance to the extent those laws provide "standards, requiring the maintenance of specified levels of reserves and specified levels of contributions." A MEWA is fully insured if all the benefits it provides are guaranteed under a contract or policy of insurance issued by an insurer qualified to conduct business in a state.

If a MEWA is not fully insured, it is subject to any state laws which regulate insurance. Thus, in addition to meeting the reserve and contribution requirements of state law, the medical plan provided by the MEWA must also comply with all mandated benefit laws applicable in the state in which it does business.

State laws that regulate MEWAs vary. New York State does not regulate all MEWAs. It only regulates those MEWAs that market health care coverage contrary to the requirements of New York’s insurance Law. If a plan that comes within the definition of a MEWA covers people in other states, it may be subject to more significant regulation.

Information to be Disclosed on DOL Form M-1

Form M-1 is a simple two-page form that only asks for:

  • identification information;
  • registration information (the states in which coverage is offered and if the coverage is insured or self-insured);
  • and information regarding compliance with the following federal laws and regulations:
    • HIPAA;
    • Mental Health Parity Act;
    • Newborns’ and Mothers’ Health Protection Act; and
    • Women’s Health and Cancer Rights Act.

The Form M-1 is accompanied by a 13-page set of instructions that includes a set of four worksheets (one for each of the four laws for which information is requested) that list the specific compliance requirements of each law so that the person who completes the form can know if the plan indeed complies with all of those requirements.

Guidance on Compliance with the Filing Requirements

In February and April the DOL released Q’s and A’s on Filing the Form M-1. The DOL is also providing information to employers as part of its Form 5500 Education Outreach Programs, offering workshops through the end of June. It also provided a phone number (202-219-8818) to the Pension and Welfare Benefits Administration Help Desk where an analyst will help anyone complete the report. In answer to the question, "What if I still make a mistake?" the DOL stated:

"The Department of Labor’s Pension and Welfare Benefits Administration is committed to working together with administrators to help them comply with this filing requirement. In this regard, with respect to filings due in the Year 2000, the Department does not intend to assess penalties in cases where there has been a good faith effort to comply with the filing requirement."

Guidance is also available on the internet at http://www.dol.gov/ebsa/.

Demonstrating a Good Faith Effort to Comply

It appears that the DOL has recognized that many plans that are MEWAs have not met the May 1 deadline for filing Form M-1. On April 20, it also issued a press release reemphasizing that it will not assess penalties where there has been a good faith effort to comply with the filing requirements. Immediate filing of a request for an extension coupled with a letter explaining the reason for missing the May 1st deadline should demonstrate that good faith effort.

Completion of the form should be very simple, even where consultation with legal counsel is necessary to determine whether or not the plan is in compliance with the laws for which information is requested. But what if a plan determines that it is a MEWA as the DOL defines a MEWA and:

  • The plan is not registered with and/or may not be in compliance with applicable state laws; and/or
  • The plan is not in full compliance with any or all of the laws for which information is requested?

Consequences That Flow From Completion of the Form

If the MEWA is known to the state or states in which it provides coverage and is in compliance with the applicable state laws, and if the MEWA’s medical plan complies with the four federal laws for which information is requested, the completion of Form M-1 will be nothing more than a minor inconvenience. Even if the form has not been filed on time, it seems likely that no negative consequences will occur.

On the other hand, if the MEWA is not in compliance with applicable state laws (for example, it is not in compliance with applicable reserve or contribution requirements applicable to insured plans, and/or does not provide all benefits mandated in the state(s) in which it operates that are required to be provided by insurers), or if the plan is not in compliance with the applicable federal laws, the plan will, at the very least, have to bring itself into compliance with all applicable laws as soon as possible.

At Greenberg Traurig we are available to assist our clients in preparing an appropriate request for an extension to file Form M-1, and in completing the form itself. We are also available to assist our clients in bringing their plans into full compliance with all applicable state and federal laws and to work with them and both state and federal government agencies to mitigate or eliminate any potential penalties that may be applicable.

 

© 2000 Greenberg Traurig


This GT ALERT is issued for informational purposes only and is not intended to be construed or used as general legal advice. Greenberg Traurig attorneys provide practical, result-oriented strategies and solutions tailored to meet our clients’ individual legal needs.