In an advisory opinion, the DOL addressed the effects of a proposed amendment to a health plan maintained by Ace Hardware (a retail hardware company) that would permit participation by affiliated retail store owners and their employees in addition to employees of the company and its wholly-owned corporate stores. The DOL concluded that under the proposed amendment the plan would be:

(Advisory Opinion 2019-01A (July 8, 2019).)

The DOL's advisory opinion addresses a proposed amendment and restatement to the company's health plan under which benefits would be provided to the company's small, closely held retail store owners and their employees, in addition to existing coverage for employees of the company's corporate stores (which are owned and operated as the company's wholly-owned subsidiaries). The closely held retail owners purchase merchandise and receive services from the company, such as advertising, insurance, and technology assistance. Each store owner owns one share of voting stock.

Currently, employees of the company and certain of its wholly-owned subsidiaries are eligible to participate in the plan. Under the proposed amendment, however, the small retail store owners and their employees also would be eligible to participate. The store owners would have at least one common law employee who participates in the plan.

The amended plan would be operated by an administrative committee. Participating employers would have the power to nominate and vote on committee members. Employer and employee contributions would be held in a plan trust and benefits would be provided under an insured arrangement.

The DOL's opinion first addressed whether the amended plan would be an AHP that is an employee welfare benefit plan under ERISA. (For a discussion of why AHP status is important, in the context of requirements in the individual and small group insurance markets, see Practice Note, Association Health Plans: Why the AHP Final Regulations Matter.) The DOL noted that its opinion was based on guidance in place before its 2018 AHP final regulations and related guidance were issued, and did not implicate those regulations and guidance (see Legal Updates, DOL Final Association Health Plan Rules Expand Coverage Options for Small Employers and Federal Judge Vacates Association Health Plan Provisions as Unreasonable Under ERISA).

An employee welfare benefit plan under ERISA must be established by an "employer." ERISA defines an "employer" as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity" (29 U.S.C. § 1002(5)). To constitute a bona fide group or association of employers under guidance pre-dating the DOL's 2018 AHP final regulations and related guidance, employers must share common business purposes and commonality of interests unrelated to providing benefits and exercise control of the arrangement.

The DOL concluded that the employers participating in the amended plan (as proposed) would constitute a bona fide group or association of employers under guidance pre-dating the DOL's 2018 AHP final regulations and related guidance. In reaching this conclusion, the DOL noted that the employers:

As a result, the amended plan would, in form, be an AHP that is an employee welfare benefit plan under ERISA.

The DOL also concluded that the amended plan would be a MEWA under ERISA. ERISA defines a MEWA as an arrangement offered by two or more employers to provide health or welfare benefits to the employers' employees and their beneficiaries, but excluding arrangements established or maintained:

(29 U.S.C. § 1002(40).)

In the DOL's view, the amended plan:

In its advisory opinion request, the company also asked whether the amended plan would be a fully insured MEWA under ERISA. To be fully insured, the benefits provided by the plan would need to be guaranteed by an insurance policy or contract (29 U.S.C. § 1144(b)(6)(D)). However, because the company's plan amendment was prospective and the company had not yet obtained an insurance contract, the DOL declined to express an opinion on this issue.

The DOL's opinion also generally addressed certain fiduciary and prohibited transaction issues presented by the company in its opinion request.

The DOL's advisory opinion includes a thorough description of the company's structure and plan governance provisions, both existing and as proposed. Although the DOL's opinion cannot be relied on by other parties, it therefore offers useful insights into how the DOL analyzes whether an arrangement is an AHP or a MEWA (or both) under guidance pre-dating the DOL's 2018 AHP final regulations and related guidance. Although portions of the DOL's 2018 AHP final regulations were vacated by court order earlier this year, the DOL noted that the court decision did not impact the guidance relied on in this opinion (see Legal Update, Federal Judge Vacates Association Health Plan Provisions as Unreasonable Under ERISA).