The Department of Labor (“DOL”) rescinded their 2018 rule entitled ‘‘Definition of Employer Under Section 3(5) of ERISA—Association Health Plans’’ (the “2018 AHP Rule”). The 2018 AHP Rule established an alternative set of criteria from those set forth in the Department’s pre-2018 AHP Rule (pre-rule) guidance for determining when a group or association of employers is acting ‘‘indirectly in the interest of an employer’’ under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”) for purposes of establishing an Association Health Plan (“AHP”) as a multiple employer group health plan. The 2018 AHP Rule was a significant departure from the Department’s longstanding pre-rule guidance respecting the qualifying definition of an ‘‘employer’’ under ERISA.
Employer Action Items
Employers, under guidance of counsel, who are interested in joining or forming a group or association under a single “multiple employer” plan should consider whether they satisfy the minimum required criteria. If a group satisfies the criteria, then the group or association is deemed a “bona fide” employer group or association.
The pre-rule guidance applied a facts-and-circumstances approach to determine whether a group or association of employers was a bona fide employer group or association capable of sponsoring an ERISA plan on behalf of its employer members. Under this approach, there were three general criteria:
- Whether the entity has business or organizational purposes and functions unrelated to the provision of benefits.
- Whether the employers share a commonality and genuine organizational relationship unrelated to the provision of benefits. And,
- Whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance.
Summary
ERISA defines the term “employer” as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.” Thus, ERISA defines the term “employer” to include the “direct” (or common-law) employer of the covered employees or “any person acting . . . indirectly in the interest of” the common-law employer, in relation to an employee benefit plan. Section 3(5) of ERISA also expressly identifies “a group or association of employers acting for an employer in such capacity” as falling within the definition of “employer.” A group or association may establish an employee welfare benefit plan only when it is acting as an “employer” within the meaning of section 3(5) of ERISA.
AHPs: Single ERISA Plans
An AHP is a type of ERISA-covered group health plan sponsored by a group or association of employers (rather than by a single employer) to provide health coverage to employees of the AHP’s employer members. When an AHP is treated as a single ERISA plan, all employees covered by the plan are considered when determining the insurance market rules (that is, small group or large group) applied to the plan. This permits small businesses to band together, allowing them to realize many of the regulatory and negotiating advantages large employers enjoy. For example, coverage in the large group market is not subject to the Affordable Care Act’s (“ACA’s”) reforms regarding premium rating restrictions and coverage of essential health benefits items and services, such as maternity and newborn care.
The DOL has released a series of advisory opinions establishing a narrow pathway for an AHP to qualify as a single ERISA plan (e.g., DOL Advisory Opinion 2008-07A). The DOL applies a facts and circumstances approach to determine whether a group or association of employers is a bona fide employer group or association capable of sponsoring an ERISA plan on behalf of its employer members.
2018 AHP Final Rule
The 2018 Final Rule made it easier for an AHP to be considered a single ERISA plan. However, on March 28, 2019, a federal district court vacated key portions of the final rule. The court held that the DOL’s expansion of the term “employer” to include associations of disparate employers and working owners without employees was an unreasonable interpretation of ERISA. Due to this ruling, the 2018 final rule was never fully implemented, and the DOL is not aware of any existing AHP formed based on the final rule.
2024 Rescission
The DOL is now rescinding the 2018 final rule in its entirety. According to the DOL, the rescission does not affect the ability to operate or form an AHP pursuant to the facts and circumstances approach of the pre-2018 guidance. The DOL believes the rescission will resolve uncertainties and allow for a reexamination of the criteria for forming an AHP that is a single ERISA plan, ultimately ensuring guidance consistent with ERISA.
For More Information
Federal Register, Volume 89, Number 84 – https://www.govinfo.gov/content/pkg/FR-2024-04-30/pdf/2024-08985.pdf
U.S. District Court for the District of Columbia – https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv1747-79
Definition of “Employer” Association Health Plans – https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2018cv1747-79
For more information
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