Filings Required of Multiple Employer Welfare Arrangements and Certain Other Related Entities, 76222-76235 [2011-30918]
Download as PDF
<![CDATA[
76222
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
Employee Benefits Security
Administration
29 CFR Part 2520
RIN 1210–AB51
Filings Required of Multiple Employer
Welfare Arrangements and Certain
Other Related Entities
Employee Benefits Security
Administration, Department of Labor.
ACTION: Proposed rule.
AGENCY:
This document contains a
proposed rule under title I of the
Employee Retirement Income Security
Act (ERISA) that, upon adoption, would
implement reporting requirements for
multiple employer welfare arrangements
(MEWAs) and certain other entities that
offer or provide health benefits for
employees of two or more employers.
The proposal amends existing reporting
rules to incorporate new provisions
enacted as part of the Patient Protection
and Affordable Care Act (Affordable
Care Act) to more clearly address the
reporting obligations of MEWAs that are
ERISA plans. This regulation is
designed to impose the minimal amount
of burden on legally compliant MEWAs
and entities claiming exception (ECEs)
while implementing the Secretary’s
authority to take enforcement action
against fraudulent or abusive MEWAs
included in the Affordable Care Act and
working to protect health benefits for
businesses and their employees. This
proposed rule implements the new
provisions while preserving the filing
structure and provisions of the 2003
regulations which direct plan MEWAs
and non-plan MEWAs to report
annually and file upon registration or
origination.
Elsewhere in this edition of the
Federal Register, the Employee Benefits
Security Administration (EBSA) is
publishing a Notice of Proposed
Rulemaking related to the Secretary’s
new enforcement authority with respect
to MEWAs and Notices of proposed
revisions of the Form M–1 and the Form
5500.
DATES: Written comments on the
proposed regulations should be
submitted to the Department of Labor
on or before March 5, 2012.
FOR FURTHER INFORMATION CONTACT:
Suzanne Bach or Kevin Horahan,
Employee Benefits Security
Administration, Department of Labor, at
(202) 693–8335. This is not a toll-free
number.
jlentini on DSK4TPTVN1PROD with PROPOSALS2
SUMMARY:
VerDate Mar<15>2010
17:37 Dec 05, 2011
Written comments may be
submitted to the address specified
below. All comments will be made
available to the public. Warning: Do not
include any personally identifiable
information (such as name, address, or
other contact information) or
confidential business information that
you do not want publicly disclosed. All
comments may be posted on the Internet
and can be retrieved by most Internet
search engines. Comments may be
submitted anonymously.
Department of Labor. Comments to
the Department of Labor, identified by
RIN 1210–AB51, by one of the following
methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: E-HPSCAMEWARegistration.
EBSA@dol.gov.
• Mail or Hand Delivery: Office of
Health Plan Standards and Compliance
Assistance, Employee Benefits Security
Administration, Room N–5653, U.S.
Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210,
Attention: RIN 1210–AB51; MEWA
Registration Proposed Regulation.
Comments received by the
Department of Labor will be posted
without change to https://
www.regulations.gov and https://
www.dol.gov/ebsa, and made available
for public inspection at the Public
Disclosure Room, N–1513, Employee
Benefits Security Administration, 200
Constitution Avenue NW., Washington,
DC 20210.
SUPPLEMENTARY INFORMATION:
ADDRESSES:
DEPARTMENT OF LABOR
Jkt 226001
I. Background
The Health Insurance Portability and
Accountability Act of 1996 (Pub. L.
104–191, 110 Stat. 1936) (1996))
(HIPAA) amended ERISA to provide for,
among other things, improved
portability and continuity of health
insurance coverage. HIPAA also added
section 101(g) to ERISA, 29 U.S.C.
1021(g), providing the Secretary with
the authority to require, by regulation,
annual reporting by MEWAs that are not
ERISA-covered plans. Section 6606 of
the Patient Protection and Affordable
Care Act (Affordable Care Act), Pub. L.
111–148, 124 Stat. 119 (2010), amended
section 101(g) of ERISA to require that
such MEWAs register with the
Department prior to operating in a State.
Specifically, this section now provides
that multiple employer welfare
arrangements providing benefits
consisting of medical care (within the
meaning of section 733(a)(2) of ERISA,
29 U.S.C. 1191b(a)(2)) which are not
ERISA-covered group health plans must
register with the Secretary prior to
PO 00000
Frm 00002
Fmt 4701
Sfmt 4702
operating in a State. The Secretary may
also, by regulation, direct such multiple
employer welfare arrangements to
report, not more frequently than
annually, in such form and such manner
as the Secretary specifies for the
purpose of determining the extent to
which the requirements of part 7 of
subtitle B of title I of ERISA are being
carried out in connection with such
benefits.
The term ‘‘multiple employer welfare
arrangement’’ is defined in section 3(40)
of ERISA, 29 U.S.C. 1002(40) in
pertinent part, as an employee welfare
benefit plan, or any other arrangement
(other than an employee welfare benefit
plan), which is established or
maintained for the purpose of offering
or providing medical benefits to the
employees of two or more employers
(including one or more self-employed
individuals), or to their beneficiaries,
except that such term does not include
any such plan or other arrangement
which is established or maintained
under or pursuant to one or more
agreements which the Secretary finds to
be collective bargaining agreements, by
a rural electric cooperative, or by a rural
telephone cooperative association. For
purposes of this definition, two or more
trades or businesses, whether or not
incorporated, shall be deemed a single
employer if such trades or businesses
are within the same control group. The
term ‘‘control group’’ means a group of
trades or businesses under common
control, and the determination of
whether a trade or business is under
‘‘common control’’ with another trade or
business shall be determined under
regulations of the Secretary applying
principles similar to the principles
applied in determining whether
employees of two or more trades or
businesses are treated as employed by a
single employer under section 4001(b)
of ERISA, 29 U.S.C. 1301(b), except that,
for purposes of this paragraph, common
control shall not be based on an interest
of less than 25 percent.1
The original MEWA reporting
requirement created under HIPAA was
enacted in response to a 1992 General
1 This provision was added to ERISA by section
302(b) of the Multiple Employer Welfare
Arrangement Act of 1983, Public Law 97–473, 96
Stat. 2611, 2612 which also amended section 514(b)
of ERISA, 29 U.S.C. 1144(a). Section 514(a) of
ERISA provides that State laws that relate to
employee benefit plans are generally preempted by
ERISA. Section 514(b) sets forth several exceptions
to the general rule of section 514(a) and subjects
employee benefit plans that are MEWAs to various
levels of State regulation depending on whether the
MEWA is fully insured. Sec. 302(b), Public Law 97–
473, 96 Stat. 2611, 2613 (29 U.S.C. 1144(b)(6)).
E:\FR\FM\06DEP2.SGM
06DEP2
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
jlentini on DSK4TPTVN1PROD with PROPOSALS2
Accounting Office (GAO) report.2 In the
report, the GAO detailed a history of
MEWA fraud and abuse.3 The GAO
recommended that the Department
develop a mechanism to help States
identify MEWAs. The Secretary
exercised the authority under the
HIPAA provision by creating the Form
M–1 under a 2000 interim final rule and
2003 final rule,4 which generally require
non-plan and ERISA-covered MEWAs
(and certain other entities that offer or
provide group health benefits to the
employees of two or more employers) to
file the Form M–1 annually with the
Secretary. The final rule generally
directed the administrator of a MEWA,
whether or not an ERISA-covered group
health plan, (and certain other entities
that offer or provide health benefits to
the employees of two or more
employers) to file the Form M–1 with
the Secretary. The purpose of this form
is to allow the Department to determine
whether the requirements of part 7 are
being met. Part 7 of ERISA includes
statutory amendments made by HIPAA
and other statutes for which MEWAs
must annually report compliance. These
include, but are not limited to, the
Patient Protection and Affordable Care
Act of 2010 (Pub. L. 111–148, 124 Stat.
119), and the Health Care and Education
Reconciliation Act (Pub. L. 111–152,
124 Stat. 1029) (these are collectively
known as the ‘‘Affordable Care Act’’),
the Paul Wellstone and Pete Domenici
Mental Health Parity and Addiction
Equity Act of 2008 (Div. C, title V,
Subtitle B of Pub. L. 110–343, 122 Stat.
3881), and the Genetic Information
Nondiscrimination Act of 2008 (Pub. L.
110–233, 122 Stat. 881).
Despite the reporting rules, many of
the MEWA abuses discussed in the GAO
report persist today. MEWAs frequently
are marketed by unlicensed entities that
avoid State insurance reserve,
contribution, and consumer protection
requirements. By avoiding these
requirements, such entities often are
able to market insurance coverage at
rates substantially lower than licensed
insurers, making them particularly
attractive to some small employers that
find it difficult to obtain affordable
2 See, Employee Benefits: States Need Labor’s
Help Regulating Multiple Employer Welfare
Arrangements, March 1992, GAO/HRD–92–40.
3 For example, the 1992 GAO report indicated
that between 1988 and 1991, MEWAs left at least
398,000 participants and beneficiaries with over
$123 million in unpaid claims. Meanwhile more
than 600 MEWAs failed to comply with State
insurance laws. See supra note 2.
4 65 FR 715 (02/11/2000) and 68 FR 17494 (04/
09/2003). The Form M–1 has been updated and is
reissued each year in December by the Department
and modified periodically to address changes to the
statutory provisions in part 7 of ERISA.
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
health insurance for their employees.
Unfortunately, due to insufficient
funding and inadequate reserves, and in
some situations, excessive
administrative fees and fraud, some
MEWAs have become insolvent and
unable to pay medical benefit claims.
Therefore, affected employees and their
dependents have become financially
responsible for paying medical claims
they presumed were covered by
insurance after paying health insurance
premiums to MEWAs that become
insolvent. The unfortunate reality is that
currently, the Department often does not
find out about insolvent or fraudulent
MEWAs until significant harm has
occurred to employers and participants.
Furthermore, while the Department—
often working with State insurance
departments—has had some success
with both civil and criminal cases
against MEWA operators, the monetary
judgments are often uncollectible
leaving the employers and/or individual
participants without coverage for claims
that are sometimes very large. This
proposal implements the statutory
requirements in a way that limits the
burden on legitimate MEWAs but gives
the Secretary, employers, and the
participants and beneficiaries of the
plans those employers sponsor
additional information about these
entities and a stronger enforcement
scheme. Having this information will
aid the enforcement and prevention of
fraudulent and insolvent MEWAs.5
Pursuant to the Affordable Care Act’s
change to section 101(g) of ERISA, this
proposed rule would amend the 2003
final rule, as well as the rules related to
annual reports required of MEWAs that
are group health plans, and solicit
comments regarding the restructured
reporting requirements. Specifically, the
Affordable Care Act amended section
101(g) of ERISA to require MEWAs that
provide benefits consisting of medical
care (within the meaning of section
5 See, United States v. Edwards, plea agreement,
1:05CR 265 (M.D.N.C. 2006) (In 2005, a MEWA
operator, whom the Department showed collected
over 36 million dollars in healthcare insurance
premiums and failed to obtain health insurance
coverage for its employer clients which resulted in
thousands of uncovered employees and
approximately $8 million in unpaid claims) see also
Solis v. W.I.N. Ass’n, L.L.C., et. al., slip op. 4:11–
cv–00616 (S.D. Tex. 2011) (the Department
investigated a MEWA which failed to make
payments on health care claims, charged excessive
fees, engaged in self-dealing, and failed to disclose
fees to the client employers in the plan. The
Department obtained a Consent Judgment and
Order against the MEWA operators for leaving
hundreds of participants without coverage and
permanently enjoining them from acting as
fiduciaries in the future. Also, the court authorized
the Secretary to bring a collection action for the
plan losses against one of the MEWA operators
relative to his ability to restore those plan losses.)
PO 00000
Frm 00003
Fmt 4701
Sfmt 4702
76223
733(a)(2) of ERISA) which are not group
health plans to register with the
Secretary prior to their operating in a
State, in addition to reporting annually
regarding their compliance with part 7
of ERISA including the Public Health
Service Act (PHS Act) market reforms
incorporated by reference in section 715
of ERISA. These proposed regulations
implement the 101(g) MEWA
registration provision which directs
MEWAs to report compliance with the
part 7 rules including the PHS Act
sections 2701 through 2728. By
requiring MEWAs to register with the
Department before operating in a State
by filing the Form M–1 to provide
additional information, this proposed
rule would enhance the State and
Federal governments’ joint mission to
prevent and take enforcement action
against fraudulent and abusive MEWAs
and limit the losses suffered by
American workers, their families, and
businesses in instances when abusive
MEWAs become insolvent and fail to
reimburse medical claims.
The Affordable Care Act reorganizes,
amends, and adds to the provisions in
part A of title XXVII of the PHS Act,
42 U.S.C. 300gg–1 et seq., relating to
group health plans and health insurance
issuers in the group and individual
markets. The term ‘‘group health plan’’
is defined in title XXVII of the PHS Act,
part 7 of ERISA, and chapter 100 of the
Code and includes both insured and
self-insured group health plans. The
Affordable Care Act adds section
715(a)(1) to ERISA, 29 U.S.C.
1185d(a)(1), and section 9815(a)(1) to
the Internal Revenue Code (the Code),
26 U.S.C. 9815(a)(1), to incorporate the
provisions of part A of title XXVII of the
PHS Act into ERISA and the Code, and
make them applicable to group health
plans, and health insurance issuers
providing health insurance coverage in
connection with group health plans.
The PHS Act sections incorporated by
this reference are sections 2701 through
2728. PHS Act sections 2701 through
2719A are substantially new, though
they incorporate some provisions of
prior law. PHS Act sections 2722
through 2728 are sections of prior law
renumbered, with some, mostly minor,
changes. Section 1251 of the Affordable
Care Act, as modified by section 10103
of the Affordable Care Act and section
2301 of the Reconciliation Act,
42 U.S.C. 18011, specifies that certain
plans or coverage existing as of the date
of enactment (i.e., grandfathered health
plans) are only subject to certain
provisions.
E:\FR\FM\06DEP2.SGM
06DEP2
76224
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
II. Overview of Proposal
jlentini on DSK4TPTVN1PROD with PROPOSALS2
A. Proposed Amendment to 29 CFR
§ 2520.101–2 Under ERISA Section
101(g)
These proposed rules would amend
existing filing rules for MEWAs and
ECEs in order to implement changes
made to ERISA section 101(g) in the
Affordable Care Act. Like the 2003
regulations, ECEs and MEWAs are
treated largely the same for filing
purposes. The main distinction in filing
requirements is that ECEs are only
subject to annual M–1 filings for the
first three years following an origination
event. We preserved this special rule
included in the 2003 regulations for
ECEs as well as e the special filing
events applicable to MEWAs. In keeping
with this structure, we propose to
extend the new filing events prescribed
by the Affordable Care Act provision to
MEWAs and ECEs alike.
Paragraph (a) of the proposal sets
forth section 101(g) of ERISA that
directs MEWAs that provide benefits
consisting of medical care (within the
meaning of section 733(a)(2) of ERISA)
to register with the Secretary prior to
operating in a State, and to report
annually regarding compliance with
part 7 of ERISA. While the language in
section 101(g) of ERISA only applies to
MEWAs that are not group health plans
(‘‘non-plan MEWAs’’), the proposal
preserves the structure promulgated as
part of the final 2003 regulations, which
required both MEWAs that are group
health plans (‘‘plan MEWAs’’) and nonplan MEWAs to file the Form M–1,
based on authority found in sections
505 and 734 of ERISA. 29 U.S.C. 1135
and 1191c. Section 505 of ERISA states
that the Secretary may prescribe such
regulations as she finds necessary or
appropriate to carry out the provisions
of Title I of ERISA. Section 734 of
ERISA allows the Secretary to
promulgate such regulations as may be
necessary or appropriate to carry out the
provisions of part 7 of ERISA.
Paragraph (b) defines the terms used
in the proposal, with some additions
and modifications from the 2003 final
rule. Amended paragraph (c) sets forth
the requirement that, with certain
exceptions, all MEWAs and certain
entities that claim not to be a MEWA
solely due to the exception in section
3(40)(A)(i) of ERISA (referred to as
Entities Claiming Exception or ECEs)
file reports with the Department.
Paragraph (d) describes how MEWAs
and ECEs will comply with the
proposed rule by filing the Form M–1,
and the conditions under which the
Secretary may reject a filing.
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
Paragraph (e) sets forth the times
when MEWAs and ECEs will file the
Form M–1. Paragraph (f) directs that the
Form M–1 be filed electronically. In
addition to minimizing errors and
providing faster access to reported data,
electronic filing will also be less
burdensome on the filer. Once
information about the MEWA or ECE is
entered into the system, filers will have
the option of allowing the system to
copy information provided on a past
filing into a new filing. This transfer of
past information provides filers an easy
way to update or verify information.
The information provided through Form
M–1 filings will then be accessible by
the public and other interested parties
such as State regulators.
Paragraph (g) explains the civil
penalties that may result from a failure
to comply with the proposed rule. Civil
penalties for failure to file a report
required by ERISA section 101(g) or
§ 2520.101–2 have been applicable for
non-plan MEWAs under ERISA section
502(c)(5) since May 1, 2000. Under
these proposed regulations, the
Department has extended similar civil
penalties for a failure to file an annual
report by plan MEWAs under ERISA
section 502(c)(2).
Also, new criminal penalties were
added by the Affordable Care Act under
ERISA section 519 for any person who
knowingly submits false statements or
false representations of fact in filing
reports required under the proposal. See
paragraph 2 below for these changes
that are being proposed to §§ 2520.103–
1, 104–20, and 104–41 to further
enhance the Department’s ability to
enforce these provisions with regard to
MEWAs that are group health plans.
1. Basis and Scope
These proposed regulations set forth
rules implementing section 101(g) of
ERISA, as amended by section 6606 of
the Affordable Care Act, which directs
MEWAs that are not group health plans
to register with the Secretary prior to
operating in a State. These proposed
regulations also update the existing
requirement in section 101(g) of ERISA
that MEWAs, which are group health
plans, and certain other entities
claiming an exception, file the Form
M–1 upon the occurrence of specified
events as well as annually.
2. Definitions
a. Operating. Paragraph (b)(8) of the
proposed rule adds a definition of
‘‘operating,’’ and defines it as any
activity including but not limited to
marketing, soliciting, providing, or
offering to provide benefits consisting of
medical care. This definition, which
PO 00000
Frm 00004
Fmt 4701
Sfmt 4702
includes marketing and administrative
activities, governs registration and
origination filing events for the Form
M–1 filing for MEWAs and ECEs.
b. Origination. In order to implement
the Affordable Care Act amendment to
ERISA section 101(g), the Department
amended the 2003 filing rules. The rule
is meant to apply equally to MEWAs
and ECEs. The 2003 rules treated
MEWAs and ECEs equally for purposes
of special filings by having a combined
rule for both of these entities to
determine if special filings were
necessary which relied on the
origination definition. The Department
concluded it to be more responsive to
the change in the section 101(g)
statutory language to now refer to
special filings by MEWAs as a
registration. The effect of this is that
MEWAs and ECEs are no longer
collectively referencing the term
origination, but now have separate
origination and registration terms—
albeit subject to the same special filing
events.
The proposed rule first indicates
events which require a special filing in
the definition of origination. A special
filing is required when (in the case of an
ECE):
‘‘(i) The ECE first begins operating
(within the meaning of (b)(8) of this
section) with regard to the employees of
two or more employers (including one
or more self-employed individuals); (ii)
The ECE, while required to report
pursuant to paragraph (c)(1)(ii) of this
section, begins operating in any
additional State; (iii) The ECE begins
operating following a merger with
another ECE (unless all of the ECEs that
participate in the merger previously
were last originated at least three years
prior to the merger); (iv) The number of
employees receiving coverage for
medical care under the ECE is at least
50 percent greater than the number of
such employees on the last day of the
previous calendar year (unless the
increase is due to a merger with another
ECE under which all ECEs that
participate in the merger were last
originated at least three years prior to
the merger); or (v) The ECE experiences
a material change in the information
reported on the most recently filed Form
M–1 as defined by the Form M–1
instructions. Event (i) Was modified to
comply with the new statutory
requirement that filings be made prior to
operating in a State. Events (ii) and (v)
are new special filing events which
were added to instruct entities to re-file
with the Department so that it has the
most up-to-date information.
c. Reporting. The proposed rule adds
a definition of ‘‘reporting.’’ ‘‘Reporting’’
E:\FR\FM\06DEP2.SGM
06DEP2
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
or ‘‘to report’’ means to file the Form M–
1 as required pursuant to section 101(g)
of ERISA; § 2520.101–2; or the
instructions to the Form M–1. The term
‘‘reporting’’ is used in order to
correspond to the terminology of
§ 2560.502c–5 which uses the generic
term ‘‘report’’ to describe the Form M–
1 filing process, including the annual
report, registration, and origination
filings.
d. State. The proposed rule adds a
definition of ‘‘State’’ and defines the
term by reference to § 2590.701–2. This
definition was added because MEWAs
must register, and ECEs must make an
origination filing, prior to operating in
a State.
3. Persons Required To Report
Paragraph (c) of the proposed rule sets
forth the persons required to report
under the proposed rule. As under the
2003 final rule, the proposed rule
directs the administrator of a MEWA
that provides benefits consisting of
medical care, whether or not the MEWA
is a group health plan, to file the Form
M–1. It also requires filing by the
administrator of an ECE that offers or
provides coverage consisting of medical
care during the first three years after the
ECE is originated.
jlentini on DSK4TPTVN1PROD with PROPOSALS2
4. Information To Be Reported
Paragraph (d) of the proposed rule
clarifies that the reporting requirements
of § 2520.101–2 will only be satisfied by
filing a completed copy of the Form M–
1, including any additional statements
pursuant to the Form M–1 Instructions.
5. Reporting Requirements and Timing
Paragraph (e) of the proposed rule
retains from the 2003 final rule’s
standards that both MEWAs and ECEs
must file the Form M–1 annually, with
ECEs only having to file annually for the
first 3 years following an origination.
As mentioned previously, MEWAs
and ECEs are also subject to special
filings in certain circumstances. Special
filing events were included in the 2003
regulation, but have been relabeled and
expanded to implement statutory
language under the proposed rules. To
clarify the new section 101(g)
registration standard for MEWAs and
make parallel changes to the origination
events for ECEs, the proposed rule
contains five registration and
origination events for MEWAs and
ECEs, only one of which is new (a
second filing event existed in the 2003
rules but has been modified).
The 2003 regulation generally
requires a special filing when a MEWA
or ECE (1) Begins operating or providing
coverage for medical care to employees
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
of two or more employers; (2) begins
offering or providing coverage for
medical care to employees of two or
more employers after a merger with
another MEWA or ECE; or (3) increases
the number of employees receiving
medical care under the MEWA or ECE
by at least 50 percent over the number
of employees on the last day of the
previous calendar year. These filing
events are generally preserved in the
proposed rules. However, the first event
was modified to conform to the
statutory language under ERISA section
101(g) directing MEWAs to register with
the Secretary by filing a Form M–1 prior
to operating in any State. Additionally,
the proposed rule directs that a filing be
made in the event a MEWA or ECE
expands its operations into additional
States or experiences a material change
as defined in the Form M–1
instructions. This filing event was
added to direct an entity to update its
Form M–1 filing in the event that it
experiences changes in its financial or
custodial information. In the event an
entity experiences a material change,
the online filing system will allow them
to log on to the online filing system,
give them the option of importing data
from its most recent completed filing,
and make the necessary changes. The
Department is particularly interested in
receiving comments on this
requirement. Consistent with the 2003
regulations, while this rule directs
MEWAs to submit filings for the
duration of their existence, ECEs are
only required to file during the three
year period following an origination
event that is not a material change. ECEs
that experience a material change must
file during this period but are not
required to file beyond that three year
period.
The proposed rule also applies new
timing standards on MEWAs and ECEs
for these special filings. Under the 2003
regulations, MEWAs and ECEs file the
Form M–1 within 90 days of the
occurrence of a special filing event. The
proposed rule directs entities to file 30
days prior to or within 30 days of the
event, depending on the type. The
timing requirements implement section
6606 of the Affordable Care Act which
says that the filling must happen ‘‘prior
to operating in a State’’ and will also
facilitate the Department’s timely
receipt of information related to the
other special filing events described
above.
A provision is included in the
proposed rule to discourage ‘‘blanket
filings,’’ i.e., registration or origination
filings that cover multiple States, unless
the filer expects to begin operating in all
the named States in the near future.
PO 00000
Frm 00005
Fmt 4701
Sfmt 4702
76225
Blanket filings that list States where the
filer has no immediate intent to operate
could frustrate the law’s goal of
gathering and maintaining timely and
accurate information on MEWAs. Under
this provision, a filing is considered
lapsed with respect to a State if benefits
consisting of medical care are not
offered or provided in the State (or
States) during the calendar year
immediately following the filing. A new
filing would be submitted if the filer
intends to continue to operate in that
State.
To minimize the burden of
compliance, we propose to permit
MEWAs and ECEs to make a single
filing to satisfy multiple filing events so
long as the filing is timely for each
filing.
As in the 2003 rule, filing extensions
are available in this proposal. Any filing
deadline that is a Saturday, Sunday, or
federal holiday is automatically
extended to the next business day. A
more substantial extension is available
for MEWAs and ECEs that request such
an extension following the procedure
outlined in the Instructions to the Form
M–1.
6. Electronic Filing
Paragraph (f) of the proposed rule
eliminates the option to file a paper
copy of the completed Form M–1. As is
now the case for all Form 5500 Annual
Report filings, and consistent with the
goals of E-government, as recognized by
the Government Paperwork Elimination
Act 6 and the E-Government Act of
2002,7 we propose that the Form M–1 be
filed electronically. Electronic filing of
benefit plan information, among other
program strategies, would facilitate
EBSA’s achievement of its Strategic
Goal to ‘‘assure the security of the
retirement, health and other workplace
related benefits of American workers
and their families.’’ EBSA’s strategic
goal directly supports the Secretary of
Labor’s Strategic Goal to ‘‘secure health
benefits.’’ 8 A cornerstone of our
enforcement program is the collection,
analysis, and disclosure of benefit plan
information. Electronic filing will
minimize errors and provide faster
access to reported data, assisting EBSA
in its enforcement, oversight, and
disclosure roles and ultimately
enhancing the security of plan benefits.
Electronic filing of the M–1 would also
reduce the paperwork burden and costs
6 Title XVII, Public Law 105–277, 112 Stat. 2681
(Oct. 21, 1998).
7 Public Law 107–347, 116 Stat. 2899 (Dec. 17,
2002).
8 For further information on the Department of
Labor’s Strategic Plan and EBSA’s relationship to it,
see https://www.dol.gov/_sec/stratplan/.
E:\FR\FM\06DEP2.SGM
06DEP2
76226
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
related to printing and mailing forms
and, with the use of secure account
access, allow updating of previously
reported information to facilitate
simplified future reporting. Finally,
consistent with current practice, the
information would be available for
reference by participants, beneficiaries,
participating employers, and other
interested parties such as State
regulators.
jlentini on DSK4TPTVN1PROD with PROPOSALS2
7. Penalties
a. Civil penalties and procedures. The
proposed rule retains the references to
section 502(c)(5) of ERISA, 29 U.S.C.
1132(c)(5) and § 2560.502c–5 regarding
civil penalties and procedures.
b. Criminal penalties and procedures.
The Affordable Care Act section 6601
added ERISA section 519 which
prohibits a person from making false
statements or representations of fact in
connection with a MEWAs financial
condition, the benefits it provides, or its
regulatory status as it relates to
marketing or sale of a MEWA. The
Affordable Care Act also amended
ERISA section 501(b) to impose criminal
penalties on any person who is
convicted of violating the prohibition in
ERISA section 519. The proposed rule
adds a cross-reference to section 501(b)
and 519 of ERISA, 29 U.S.C. 1131 and
1149 for the purpose of implementing
these new rules as they relate to filing
a Form M–1 prior to operating in a State
or other registration and origination
filings.
c. Cease and desist and summary
seizure and procedures. Section 6605 of
the Affordable Care Act adds section
521 to ERISA, which authorizes the
Secretary to issue cease and desist
orders, without prior notice or a
hearing, when it appears to the
Secretary that the alleged conduct of a
MEWA is ‘‘fraudulent, or creates an
immediate danger to the public safety or
welfare, or is causing or can be
reasonably expected to cause
significant, imminent, and irreparable
public injury.’’ This section also allows
the Secretary to issue an order to seize
the assets of a MEWA that the Secretary
determines to be in a financially
hazardous condition. The regulation
providing guidance on the cease and
desist orders and summary seizure rules
published elsewhere in this Federal
Register also include regulatory
guidance on the procedural rules for
this process. A cease and desist order
containing a prohibition against
transacting business with any MEWA or
plan would prevent the MEWA or a
person from avoiding the cease and
desist order by shutting the MEWA
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
down and re-establishing it in a new
location or under a new identity.
As such, the proposed rule adds a
cross-reference to section 521 of ERISA
and § 2560.521 regarding the Secretary’s
authority to issue cease and desist and
summary seizure orders.
B. Proposed Amendment to Regulations
Under ERISA Section 104(a)(1), 29
U.S.C. 1024(a)(1)
Additional changes are being
proposed to further enhance the
Department’s ability to enforce
§ 2520.101–2. The primary change is the
addition of a new paragraph (f) to
§ 2520.103–1 regarding the content of
the annual report. As part of this
proposal, existing paragraph (f) of
§ 2520.103–1 would be redesignated
paragraph (g), but would be otherwise
unchanged. New § 2520.103–1(f) would
apply to all MEWAs that are ERISAcovered plans and that are subject to the
requirements of § 2520.101–2. This
change provides that all such MEWAs
must prove compliance with
§ 2520.101–2 (filing the Form M–1) in
order to satisfy the annual reporting
requirements of § 2520.103–1. Pursuant
to ERISA section 502(c)(2), 29 U.S.C.
1132(c)(2), a plan administrator who
fails to file a Form 5500 Annual Return/
Report with a proof of compliance with
§ 2520.101–2 may be subject to a civil
penalty of up to $1,100 a day (or higher
amount if adjusted pursuant to the
Federal Civil Penalties Inflation
Adjustment Act of 1990, as amended)
for each day a plan administrator fails
or refuses to file a complete report.
Although ERISA sections 505 and 734
give the Secretary the authority to
require MEWAs that are group health
plans to comply with the requirements
of § 2520.101–2, there is, however, no
corresponding ERISA civil penalty for a
failure to comply with those
requirements. These proposed changes
to the Form 5500 annual reporting
requirements for MEWAs that are group
health plans will enhance the
Department’s ability to enforce the Form
M–1 requirements and ensure that
MEWAs are subject to the same rules
under the law.
Conforming changes adding
references to new § 2520.103–1(f) are
proposed for §§ 2520.103–1(a)(2), (b), (c)
and § 2520.104–41. A corresponding
change is also proposed for § 2520.104–
20 to eliminate the limited filing
exemption for insured or unfunded,
fully insured, or combination unfunded/
fully insured plan MEWAs with fewer
than 100 participants. It is important to
note that while the addition of
§ 2520.103–1(f) and the change to
§ 2520.104–20 would eliminate the
PO 00000
Frm 00006
Fmt 4701
Sfmt 4702
annual reporting exemption for such
plan MEWAs with fewer than 100
participants, these plan MEWAs are
subject to the existing (and proposed)
standards of § 2520.101–2. Moreover,
the impact of satisfying the annual
reporting would be substantially less
burdensome because in addition to
being eligible for the simplified annual
reporting for small welfare plans, these
plan MEWAs would be exempt under
§ 2520.104–44 from completing
Schedule I (Financial Information).9
Thus, these changes give the Secretary
an important enforcement tool while
imposing minimal burden on plan
MEWAs. Because it is not clear that
there are any unfunded/fully insured
plan MEWAs with fewer than 100
participants, the Department does not
believe this is overly burdensome but
rather ensures that all MEWAs are
treated the same. Nonetheless, the
Department is particularly interested in
receiving comments regarding any
undue burden this elimination may
create.
III. Regulatory Impact Analysis
A. Executive Order 12866
Under Executive Order 12866, the
Department must determine whether a
regulatory action is ‘‘significant’’ and
therefore subject to the requirements of
the Executive Order and subject to
review by the Office of Management and
Budget (OMB). Under section 3(f) of the
Executive Order, a ‘‘significant
regulatory action’’ is an action that is
likely to result in a rule (1) Having an
annual effect on the economy of $100
million or more, or adversely and
materially affecting a sector of the
economy, productivity, competition,
jobs, the environment, public health or
safety, or State, local or tribal
governments or communities (also
referred to as ‘‘economically
significant’’); (2) creating serious
inconsistency or otherwise interfering
with an action taken or planned by
another agency; (3) materially altering
9 These plan MEWAs would only need to file
Form 5500 annual return/report and, if applicable,
Schedule A (Insurance Information) and Schedule
G, Part III (nonexempt transactions). They would
not be eligible to file the Form 5500–SF (Short Form
5500 Annual Return/Report of Small Employee
Benefit Plan) under § 2520.104–41 and § 2520.103–
1(c)(2)(ii). The Form 5500–SF does not include
Schedule A insurance information and the
Department believes that plan MEWAs subject to
this proposal that claim to provide insured benefits
should be required to complete the Schedule A so
that enforcement officials and the public have
information about the insurance policy and
insurance company through which the MEWA is
providing insurance coverage. In addition, an
unrelated technical correction to § 2520.104–41 is
being included in this rulemaking to add an express
reference to the Form 5500–SF.
E:\FR\FM\06DEP2.SGM
06DEP2
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
the budgetary impacts of entitlement
grants, user fees, or loan programs or the
rights and obligations of recipients
thereof; or (4) raising novel legal or
policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order. OMB has determined that this
action is not economically significant
within the meaning of section 3(f)(1) of
the Executive Order but is significant
under section 3(f)(4) of the Executive
Order, because it raises novel legal or
policy issues arising from the
President’s priorities.
The Department estimates that the
total cost of this proposed rule would be
approximately $124,300 in the first year,
or an average of approximately $272 for
each of the 457 entities expected to file
the Form M–1. These costs are all
associated with the information
collection request contained in this
proposal and, therefore, are discussed in
the Paperwork Reduction Act Section,
below.
1. Summary and Need for Regulatory
Action
jlentini on DSK4TPTVN1PROD with PROPOSALS2
As discussed earlier in this preamble,
section 6606 of the Affordable Care Act
amended section 101(g) of ERISA to
require the Secretary of Labor to
promulgate regulations requiring
MEWAs providing medical care benefits
(within the meaning of section 733(a)(2)
of ERISA) that are not ERISA-covered
group health plans (non-plan MEWAs)
to register with the Secretary before
operating in a State.
Before this proposed amendment,
ERISA section 101(g) permitted the
Secretary to establish an annual
reporting requirement on non-plan
MEWAs that provide medical care
benefits to determine whether such
MEWAs comply with the requirements
of Part 7 of ERISA. The Secretary
exercised this authority by creating the
Form M–1 under a 2000 interim final
rule and 2003 final rule.10
The original MEWA reporting
requirement was enacted by Congress as
part of the Health Insurance Portability
and Accountability Act of 1996 in
response to a 1992 General Accounting
Office (GAO) recommendation
contained in a GAO report.11 As
discussed above, the GAO
recommended that the Department
10 65 FR 715 (02/11/2000) and 68 Fed. Reg. 17494
(04/09/2003). The Form M–1 has been updated and
is reissued each year in December by the
Department and modified periodically to address
changes to the statutory provisions in part 7 of
ERISA.
11 See, Employee Benefits: States Need Labor’s
Help Regulating Multiple Employer Welfare
Arrangements, March 1992, GAO/HRD–92–40.
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
develop a mechanism to help States
identify fraudulent and abusive
MEWAs. The HIPAA provision led to
the Department’s creation of the Form
M–1, which generally requires non-plan
and ERISA-covered MEWAs (and
certain other entities that offer or
provide group health benefits to the
employees of two or more employers) to
file Form M–1 annually with the
Secretary.
In addition to amending the
Department’s MEWA reporting
regulation to require MEWAs to register
with the Secretary before operating in a
State, these proposed rules also direct
Form M–1 filers to provide additional
information regarding the MEWA or
ECE and apply new timing standards for
the special filings that are made when
a MEWA’s or ECE’s status changes.
These amendments will aid the
Department in its oversight of MEWAs
consistent with its expanded authority
provided by the Affordable Care Act 12
and allow it to provide critical
information to State insurance
departments that coordinate their
investigations and enforcement actions
against fraudulent and abusive MEWAs
with the Department.
Over the last several years, the
Department has observed a downward
trend in the number of MEWAs that file
the Form M–1, raising concerns that
some existing MEWAs are not filing the
form. Under the 2003 regulations, the
Department has the ability to impose
penalties on ERISA-covered MEWAs
that fail to file the M–1 only in limited
circumstances and if a determination
regarding plan status were made by the
Secretary. To address this issue and
encourage compliance with the M–1
filing requirement, the Department also
is proposing as part of this regulatory
action to amend the Form 5500 annual
reporting standards by requiring all
ERISA-covered MEWAs, including
MEWAs with less than 100
participants,13 to file Form 5500 and
12 As part of the Affordable Care Act, Congress
also enacted ERISA section 521, which authorized
the Secretary to issue cease and desist orders,
without prior notice or a hearing, when it appears
to the Secretary that a MEWA’s alleged conduct is
fraudulent, creates an immediate danger to the
public safety or welfare, or causes or can reasonably
be expected to cause significant, imminent, and
irreparable public injury. Section 521 also
authorizes the Secretary to issue a summary order
to seize the assets of a MEWA that the Secretary
determines to be in financially hazardous
condition. The Department also is proposing rules
for these provisions, which are published elsewhere
in today’s Federal Register.
13 The proposal would remove the small welfare
plan filing exemption under § 2520.104–20.
Currently, under § 2520.104–20, small insured or
unfunded welfare benefit plans, including small
plan MEWAs, are exempt from certain reporting
PO 00000
Frm 00007
Fmt 4701
Sfmt 4702
76227
provide on the form proof of a timely
filed Form M–1 in order for the plan
administrator to avoid the Department’s
imposition of ERISA section 502(c)(2)
penalties.14
These proposed amendments to the
Department’s MEWA reporting
standards would provide a cost effective
means to implement the expanded
MEWA reporting as enacted in the
Affordable Care Act. As stated above,
the Department estimates that the
average cost for each entity that the
Department expects to file the revised
form would average approximately
$272.
2. Benefits of Proposed Rule
As discussed earlier in this preamble,
section 6606 of the Affordable Care Act
amended section 101(g) of ERISA
directing the Secretary of Labor to
promulgate regulations requiring
MEWAs providing medical care benefits
(within the meaning of section 733(a)(2)
of ERISA) that are not ERISA-covered
group health plans (non-plan MEWAs)
to register with the Secretary before
operating in a State. By implementing
this statutory amendment, the
Department would receive prior notice
of a MEWA’s intention to commence
operations in a State. Such notification
would help the Department and State
insurance commissioners to ensure that
MEWAs are being lawfully operated and
that sufficient insurance has been
purchased or adequate reserves
established to pay benefit claims before
the MEWAs begin operating 15 in a
State. The proposed rule would improve
MEWA compliance and deter fraudulent
and abusive MEWA practices, thereby
protecting and securing the benefits of
participants and beneficiaries by
ensuring that MEWA assets are
preserved and benefits timely paid.
These potential benefits have not been
and disclosure provisions, including the
requirement to file an annual Form 5500. By
removing this exemption, all plan MEWAs will now
be required to file a Form 5500 with a proof of filing
a timely Form M–1 filing in order to satisfy the
annual reporting requirements under ERISA
Sections 103 and 104. However, small insured and
unfunded plan MEWAs would be exempt under
§ 2520.104–44 from completing Schedule I
(Financial Information). As with other small welfare
benefit plans subject to the annual reporting
requirements, small plan MEWAs would be
required to complete Schedule A (Insurance
Information), if applicable.
14 If a MEWA fails to prove that it filed the
M–1 on its Form 5500, it could be subject to a civil
penalty of up to $1,000 a day for each day the plan
administrator fails or refuses to file a complete
report.
15 Section 2520.101–2(b)(8) of the proposed rule
provides that the term ‘‘operating’’ means any
activity including but not limited to marketing,
soliciting, providing, or offering to provide medical
care benefits.
E:\FR\FM\06DEP2.SGM
06DEP2
76228
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
quantified, but the Department expects
that they will more than justify their
costs.
3. Costs of Proposed Rule
The costs of the proposed rule are
associated with the amendments to the
Form M–1 and Form 5500 reporting
requirements and are therefore
discussed in the Paperwork Reduction
Act section, below.
B. Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department of Labor
conducts a preclearance consultation
program to provide the general public
and Federal agencies with an
opportunity to comment on proposed
and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps
to ensure that requested data can be
provided in the desired format,
reporting burden (time and financial
resources) is minimized, collection
instruments are clearly understood, and
the impact of collection requirements on
respondents can be properly assessed.
Currently, the Department is soliciting
comments concerning the proposed
information collection request (ICR)
included in this proposed rule. A copy
of the ICR may be obtained by
contacting the individual identified
below in this notice. The Department
has submitted a copy of the proposed
information collection to OMB in
accordance with 44 U.S.C. 3507(d) for
review of its information collections.
The Department and OMB are
particularly interested in comments
that:
• Evaluate whether the proposed
collection of information is necessary
for the proper performance of the
functions of the agency, including
whether the information will have
practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriated automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submission of
responses.
Comments should be sent to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10235, New Executive
Office Building, Washington, DC 20503;
Attention: Desk Officer for the Employee
Benefits Security Administration.
Although comments may be submitted
through February 6, 2012. Address
requests for copies of the ICR to G.
Christopher Cosby, Office of Policy and
Research, U.S. Department of Labor,
Employee Benefits Security
Administration, 200 Constitution
Avenue NW., Room N 5647,
Washington, DC 20210. Telephone (202)
219–8410; Fax: (202) 219–4745. These
are not toll free numbers.
Between 2006 and 2009, an average of
457 entities filed Form M–1 with the
Department (a high of 508 in 2006 and
a low of 397 in 2009). Of the total
filings, on average, 197 were submitted
via mail and 260 were submitted
electronically through the Form M–1
electronic filing system provided by the
Department via the Internet. The
fraction filing electronic returns has
been increasing and reached nearly 65
percent in 2009. This proposed rule will
require all filings to be submitted
electronically.
As discussed above and pursuant to
section 6606, the proposed rule would
amend the information required to be
disclosed on the Form M–1 by adding
new data elements. Therefore, the
Department assumes that all MEWA
plan administrators that file the Form
M–1 in-house (an estimated 10 percent
of filers) would spend two hours
familiarizing themselves with the
changes to the form that would be made
by the proposed regulation. This would
result in a total hour burden of 92 hours
(46 MEWAs * 2 hours). The Department
estimates that Part I of the Form (the
identifying information) would require
five minutes to complete. The time
required to complete Part II would vary
based on the number of States in which
the entity provides coverage, and the
Department estimates that this would
require 60 minutes for single-State filers
and 120 minutes for multi-State filers.
The Department expects the time
required to complete Part III would be
15 minutes for fully-insured filers and
30 minutes for self-insured filers. Table
1 below summarizes the estimates of
time required to complete each part of
the form. Based on the foregoing, the
Department estimates that the total hour
burden for MEWAs to file the Form
M–1 using in-house resources would be
178 hours in the first year with an
equivalent cost of $16,200 assuming all
work will be performed by an employee
benefits professional at $91.21 per
hour.16 The cost to submit electronic
filings would be negligible.
The Department estimates that the
annual hour burden for Form M–1
filings prepared in-house in subsequent
years would be approximately 94 hours
as summarized in Table 2.17 The
Department estimate is based on the
assumption that approximately 41 new
MEWAs 18 will file the Form M–1 each
year, and thus, approximately four new
MEWAs will prepare Form M–1 inhouse. The Department estimates that it
would take two hours for these
administrators, resulting in an hour
burden of eight hours. The Department
estimates that MEWAs preparing the
form in-house would spend four hours
completing part I, 68 hours completing
Part II, and 15 hours completing part III.
The equivalent cost of this annual hour
burden is estimated to be $8,600,
assuming a $91.21 hourly labor rate for
an employee benefits professional.
TABLE 1—TIME TO FILL OUT FORM
[Minutes]
jlentini on DSK4TPTVN1PROD with PROPOSALS2
Fully-insured
One State
New Filing .......................................................................................................................
Part I ................................................................................................................................
Part II ...............................................................................................................................
16 EBSA estimates of labor rates include wages,
other benefits, and overhead based on the National
Occupational Employment Survey (May 2009,
Bureau of Labor Statistics) and the Employment
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
Cost Index (October 2010, Bureau of Labor
Statistics).
17 These are rounded values. The totals may differ
slightly as a result.
PO 00000
Frm 00008
Fmt 4701
Sfmt 4702
Self-insured
Multi States
120
5
60
120
5
120
One State
120
5
60
Multi States
120
5
120
18 There were 46 MEWA originations in 2006, 52
originations in 2007 and 26 originations in 2008.
This averages to 41 originations per year.
E:\FR\FM\06DEP2.SGM
06DEP2
76229
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
TABLE 1—TIME TO FILL OUT FORM—Continued
[Minutes]
Fully-insured
One State
Part III ..............................................................................................................................
Self-insured
Multi States
15
One State
15
Multi States
30
30
TABLE 2—HOUR BURDEN TO PREPARE FORM M–1, IN-HOUSE PREPARATION
Fully-insured
Self-insured
Total
One State
Multi States
One State
Multi States
Number of MEWAs .................................................................................
Review: Year 1 ........................................................................................
New Filing: Subsequent Years ................................................................
Part I ........................................................................................................
Part II .......................................................................................................
Part III ......................................................................................................
16
32
3
1
16
4
17
34
3
1
33
4
8
16
1
1
8
4
5
10
1
0.5
11
3
46
92
8
4
68
15
Total Time: Year 1 ...........................................................................
Total Time: Subsequent Years ........................................................
53
24
73a
41
29
14
24
15
178
94
1. Cost Burden
The Department assumes that 90
percent of the 457 MEWAs (411
MEWAs) that will file the Form M–1
will use third-party service providers to
complete and submit the Form M–1.19
Because the Department is proposing to
add additional data elements to the
form, the Department assumes that in
the year of implementation, all service
providers would spend additional time
familiarizing themselves with the
changes. The Department estimates that
MEWAs that use third party service
providers would incur the cost of one
hour for service providers to review the
new rule as service providers likely will
provide this service for multiple
MEWAs and therefore spread this
burden across multiple MEWAs. This
results in a one-time cost burden of
$37,500 (411 MEWAs * 1 hour *
$91.21).
The total estimated cost burden for
preparing the form is arrived at by
multiplying the number of filers (found
in Table 3) by the amount of time
required to prepare the documents
(Table 1) and multiplying this result by
the hourly cost of an employee benefits
professional ($91.21 dollars an hour).
Based on the foregoing, the total cost
burden for MEWAs that use purchased
third-party resources to file the M–1
form is $108,100 hours in the first year
and $70,700 in later years. Table 3
summarizes the estimates of the cost
burden.
TABLE 3—COST BURDEN TO PREPARE FORM M–1, THIRD-PARTY PREPARATION
Fully-insured
Self-insured
Total
One State
Multi States
One State
Multi States
Number of MEWAs .................................................................................
Review: Year 1 ........................................................................................
New Filing: Subsequent Years ................................................................
Part I ........................................................................................................
Part II .......................................................................................................
Part III ......................................................................................................
140
$12,800
$0
$1,100
$12,800
$3,200
149
$13,600
$0
$1,100
$27,100
$3,400
73
$6,700
$0
$600
$6,600
$3,300
49
$4,500
$0
$400
$8,900
$2,200
411
$37,500
$0
$3,100
$55,400
$12,100
Total Time: Year 1 ...........................................................................
Total Time: Subsequent Years ........................................................
$29,800
$17,100
$45,200
$31,600
$17,200
$10,500
$15,900
$11,500
$108,100
$70,700
jlentini on DSK4TPTVN1PROD with PROPOSALS2
Note: The displayed numbers are rounded to the nearest hundred and therefore may not add up to the totals.
The proposed regulations direct an
ERISA-covered plan MEWA that is
subject to Form M–1 requirements to
include proof of filing the Form M–1 as
part of the Form 5500. Accordingly, the
Department is proposing to add a new
Part III to the Form 5500, which would
ask for information regarding whether
the employee welfare benefit plan is a
MEWA subject to the Form M–1
requirements, and if so, whether the
plan is currently in compliance with the
Form M–1 requirements under
§ 2520.101–2. Plan administrators that
indicate the plan is a MEWA subject to
the Form M–1 requirements also would
be required to enter the receipt
confirmation code for the most recent
Form M–1 filed with the Department.
Failure to answer the Form M–1
compliance questions will result in
rejection of the Form 5500 Annual
Return/Report as incomplete and civil
penalties may be assessed pursuant to
ERISA section 502(c)(2). The
Department believes that the burden
associated with this revision would be
19 This assumption is made in connection with
EBSA’s principal reporting form, the Form 5500,
and was validated through a filer survey.
VerDate Mar<15>2010
18:13 Dec 05, 2011
Jkt 226001
PO 00000
Frm 00009
Fmt 4701
Sfmt 4702
E:\FR\FM\06DEP2.SGM
06DEP2
76230
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
jlentini on DSK4TPTVN1PROD with PROPOSALS2
de minimis, because plan administrators
would know whether the plan MEWA is
subject to and in compliance with the
Form M–1 requirements and they would
have the receipt confirmation code for
the most recent Form M–1 filing readily
available.
The proposed regulations also would
remove the exemption from filing the
Form 5500 for ERISA-covered MEWAs
that are unfunded or insured and have
fewer than 100 participants. Following
the methodology used to calculate the
burden in the Form 5500 regulations,
the Department estimates that small
ERISA-covered MEWAs filing a Form
5500 and completing Schedule A and
Part III of Schedule G would incur an
annual cost of $450 to engage a thirdparty service provider to prepare the
form and schedules for submission. The
Department does not have sufficient
data to determine the number of small,
ERISA-covered MEWAs that would be
required to file the Form 5500 under the
proposed rule, but believes that the
number of such MEWAs would be
small, because 90 percent of MEWAs
that file Form M–1 with the Department
cover more than 100 participants.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to
Federal rules that are subject to the
notice and comment requirements of
section 553(b) of the Administrative
Procedure Act (5 U.S.C. 551 et seq.) and
are likely to have a significant economic
impact on a substantial number of small
entities. Unless an agency certifies that
a rule will not have a significant
economic impact on a substantial
number of small entities, section 603 of
the RFA requires the agency to present
an initial regulatory flexibility analysis
at the time of the publication of the
notice of proposed rulemaking
describing the impact of the rule on
small entities. Small entities include
small businesses, organizations and
governmental jurisdictions.
The Department does not have data
regarding the total number of MEWAs
that currently exist. The best
information the Department has to
estimate the number of MEWAs is based
on filing of the Form M–1, which is an
annual report that MEWAs and certain
collectively bargained arrangements file
2. Cost to the Government
with the Department. Nearly 400
The Department estimates that the
MEWAs filed the Form M–1 with the
cost to the Federal government to
Department in 2009, the latest year for
process Form M–1s is approximately
which data is available.
$7,200. This includes the cost to process
The Small Business Administration
online submissions and maintain the
uses a size standard of less than
processing system, and was estimated
$7 million in average annual receipts as
by the offices within EBSA that are
the cut off for small business in the
responsible for overseeing these
finance and insurance sector.20 While
activities.
the Department does not collect revenue
information on the Form M–1, it does
TABLE 4—Cost of Federal
collect data regarding the number of
Government of Form M–1
participants covered by MEWAs that file
Form M–1 and can use participant data
Processing of M1 Forms:
and average premium data to determine
Online ..........................................
$2,200 the number of MEWAs that are small
Maintenance of System ..............
5,000
entities, because their revenues do not
Total .........................................
7,200 exceed the $7 million threshold. For
2009, the average single coverage annual
premium was $4,717 and the average
These paperwork burden estimates
annual family coverage premium was
are summarized as follows:
$12,696.21 Combining these premium
Type of Review: Revised collection.
Agency: Employee Benefits Security
estimates with estimates of the ratio of
Administration, Department of Labor.
policies to the covered population from
Title: MEWA Form M–1.
the Current Population Survey at
OMB Control Number: 1210–0116.
employers with less than 500 workers
Affected Public: Business or other for- (0.309 for single coverage and 0.217 for
profit; not-for-profit institutions.
family coverage), the Department
Estimated Number of Respondents:
457 (first year); 457 (three-year average).
20 U.S. Small Business Administration, ‘‘Table of
Estimated Number of Responses: 457
Small Business Size Standards Matched to North
(first year); 457 (three-year average).
American Industry Classification System Codes,’’
https://www.sba.gov/sites/default/files/
Frequency of Response: Annually.
Estimated Annual Burden Hours: 178 Size_Standards_Table.pdf.
21 Kaiser Family Foundation and Health Research
(first year); 122 (three-year average).
Educational Trust ‘‘Employer Health Benefits, 2009
Estimated Annual Burden Cost:
Annual Survey.’’ The reported numbers are from
$108,100 (first year); $83,200 (three-year Exhibit 1.2 and are for the category Annual, all
average).
Small Firms (3–199 workers).
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
PO 00000
Frm 00010
Fmt 4701
Sfmt 4702
estimates that 60 percent of MEWAs
(243 MEWAs) are small entities.
While this number is a relatively large
fraction of all MEWAs, it is about 7
percent when expressed as a fraction of
all participants covered by MEWAs. In
addition, the Department notes that the
reporting burden that would be imposed
on all MEWAs by the proposed rule is
estimated as an average cost of $272 for
each MEWA filing Form M–1. For all
but the smallest MEWAs (less than 15
participants), this represents less than
one-half of one percent of revenues.
The proposed regulations also would
remove the exemption from filing the
Form 5500 for ERISA-covered MEWAs
that are unfunded or insured, fully
insured, or combination unfunded/fully
insured covering fewer than 100
participants. As discussed in the PRA
section above, the Department estimates
that these small ERISA-covered MEWAs
would incur an annual cost of $450 to
engage a third-party service provider to
prepare the form and schedules for
submission. The Department does not
have sufficient data to determine the
number of small plan MEWAs that
would be required to file the Form 5500
under the proposed rule. About 10
percent (48) of MEWAs filing Form
M–1 in 2009 had less than 100
participants. However, the 2009 Form
M–1 lacks information on the source of
funding to determine which of these
small MEWAs would be subject to the
proposed rule.
Accordingly, the Department hereby
certifies that this proposed regulation
would not have a significant economic
impact on a substantial number of small
entities. The Department invites public
comments regarding this finding.
D. Unfunded Mandates Reform Act
For purposes of the Unfunded
Mandates Reform Act of 1995 (2 U.S.C.
1501 et seq.), as well as Executive Order
12875, this proposed rule does not
include any federal mandate that may
result in expenditures by State, local, or
tribal governments, or the private sector,
which may impose an annual burden of
$100 million.
E. Executive Order 13132
When an agency promulgates a
regulation that has federalism
implications, Executive Order 13132
(64 FR 43255, August 10, 1999), requires
the Agency to provide a federalism
summary impact statement. Pursuant to
section 6(c) of the Order, such a
statement must include a description of
the extent of the agency’s consultation
with State and local officials, a
summary of the nature of their concerns
and the agency’s position supporting the
E:\FR\FM\06DEP2.SGM
06DEP2
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
need to issue the regulation, and a
statement of the extent to which the
concerns of the State have been met.
This regulation has federalism
implications, because the States and the
Federal government share dual
jurisdiction over MEWAs that are
employee benefit plans or hold plan
assets. Generally, States are primarily
responsible for overseeing the financial
soundness and licensing of MEWAs
under State insurance laws. The
Department enforces ERISA’s fiduciary
responsibility provisions against
MEWAs that are ERISA plans or hold
plan assets.
Over the years, the Department and
State insurance departments have
worked closely and coordinated their
investigations and other actions against
fraudulent and abusive MEWAs. For
example, EBSA regional offices have
met with State officials in their regions
and supported their enforcement efforts
to shut down fraudulent and abusive
MEWAs. By requiring MEWAs to
register with Department before
operating in a State by filing Form M–
1 and to provide additional information,
this proposed rule would enhance the
State and Federal governments’ joint
mission to take enforcement action
against fraudulent and abusive MEWAs
and limit the losses suffered by
American workers, their families, and
businesses when abusive MEWAs
become insolvent and fail to reimburse
medical claims.
List of Subjects in 29 CFR Part 2520
Accounting, Employee benefit plans,
Pensions, Reporting and recordkeeping
requirements.
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Chapter XXV
For the reasons set out in the
preamble, part 2520 of Chapter XXV of
Title 29 of the Code of Federal
Regulations is amended as follows:
PART 2520—[AMENDED]
jlentini on DSK4TPTVN1PROD with PROPOSALS2
1. The authority for part 2520 is
revised to read:
Authority: 29 U.S.C. 1021–1024, 1027,
1029–31, 1059, 1134 and 1135; Secretary of
Labor’s Order 3–2010, 75 FR 55354
(September 10, 2010). Sec. 2520.101–2 also
issued under 29 U.S.C. 1181–1183, 1181
note, 1185, 1185a–d, and 1191–1191c. Sec.
2520.103–1 also issued under 26 U.S.C. 6058
note. Sec. 2520.101–6 also issued under
§ 502(a)(3), 120 Stat. 780, 940 (2006); Secs.
2520.102–3, 2520.104b–1 and 2520.104b–3
also issued under 29 U.S.C. 1003, 1181–1183,
1181 note, 1185, 1185a–d, 1191, and 1191a–
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
c. Secs. 2520.104b–1 and 2520.107 also
issued under 26 U.S.C. 401 note, 111 Stat.
788;
2. Section 2520.101–2 is revised to
read as follows:
§ 2520.101–2 Filing by Multiple Employer
Welfare Arrangements and Certain Other
Related Entities.
(a) Basis and scope. Section 101(g) of
the Employee Retirement Income
Security Act (ERISA), as amended by
the Patient Protection and Affordable
Care Act, requires the Secretary of Labor
(the Secretary) to establish, by
regulation, a requirement that multiple
employer welfare arrangements
(MEWAs) providing benefits that consist
of medical care (as described in
paragraph (b)(6), below), which are not
group health plans, register with the
Secretary prior to operating in a State.
Section 101(g) also permits the
Secretary to require, by regulation, such
MEWAs to report, not more frequently
than annually, in such form and manner
as the Secretary may require, for the
purpose of determining the extent to
which the requirements of part 7 of
subtitle B of title I of ERISA (part 7) are
being carried out in connection with
such benefits. Section 734 of ERISA
provides that the Secretary may
promulgate such regulations as may be
necessary or appropriate to carry out the
provisions of part 7. This section sets
out requirements for reporting by
MEWAs that provide benefits that
consist of medical care and by certain
entities that claim not to be a MEWA
solely due to the exception in section
3(40)(A)(i) of ERISA (referred to in this
section as Entities Claiming Exception
or ECEs). The reporting requirements
apply regardless of whether the MEWA
or ECE is a group health plan.
(b) Definitions. As used in this
section, the following definitions apply:
(1) Administrator means—(i) The
person specifically so designated by the
terms of the instrument under which the
MEWA or ECE is operated;
(ii) If the MEWA or ECE is a group
health plan and the administrator is not
so designated, the plan sponsor (as
defined in section 3(16)(B) of ERISA); or
(iii) In the case of a MEWA or ECE for
which an administrator is not
designated and a plan sponsor cannot be
identified, jointly and severally, the
person or persons actually responsible
(whether or not so designated under the
terms of the instrument under which the
MEWA or ECE is operated) for the
control, disposition, or management of
the cash or property received by or
contributed to the MEWA or ECE,
irrespective of whether such control,
disposition, or management is exercised
PO 00000
Frm 00011
Fmt 4701
Sfmt 4702
76231
directly by such person or persons or
indirectly through an agent, custodian,
or trustee designated by such person or
persons.
(2) Entity Claiming Exception (ECE)
means an entity that claims it is not a
MEWA on the basis that the entity is
established or maintained pursuant to
one or more agreements that the
Secretary finds to be collective
bargaining agreements within the
meaning of section 3(40)(A)(i) of ERISA
and § 2510.3–40.
(3) Excepted benefits means excepted
benefits within the meaning of section
733(c) of ERISA and § 2590.701–2.
(4) Group health plan means a group
health plan within the meaning of
section 733(a) of ERISA and § 2590.701–
2.
(5) Health insurance issuer means a
health insurance issuer within the
meaning of section 733(b)(2) of ERISA
and § 2590.701–2.
(6) Medical care means medical care
within the meaning of section 733(a)(2)
of ERISA and § 2590.701–2.
(7) Multiple employer welfare
arrangement (MEWA) means a multiple
employer welfare arrangement within
the meaning of section 3(40) of ERISA.
(8) Operating means any activity
including but not limited to marketing,
soliciting, providing, or offering to
provide benefits consisting of medical
care.
(9) Origination means the occurrence
of any of the following events (and an
ECE is considered to have been
originated when any of the following
events occurs)—
(i) The ECE begins operating with
regard to the employees of two or more
employers (including one or more selfemployed individuals);
(ii) The ECE, while required to report
pursuant to paragraph (c)(1)(ii) of this
section, begins operating in any
additional State;
(iii) The ECE begins operating
following a merger with another ECE
(unless all of the ECEs that participate
in the merger previously were last
originated at least three years prior to
the merger);
(iv) The number of employees
receiving coverage for medical care
under the ECE is at least 50 percent
greater than the number of such
employees on the last day of the
previous calendar year (unless the
increase is due to a merger with another
ECE under which all ECEs that
participate in the merger were last
originated at least three years prior to
the merger); or
(v) The ECE, during the three-year
period following an event described in
(b)(9)(i)–(iv) above, experiences a
E:\FR\FM\06DEP2.SGM
06DEP2
jlentini on DSK4TPTVN1PROD with PROPOSALS2
76232
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
material change as defined in the Form
M–1 instructions.
(10) Reporting or to report means to
file the Form M–1 as required pursuant
to sections 101(g); § 2520.101–2; or the
instructions to the Form M–1.
(11) State means State within the
meaning of § 2590.701–2.
(c) Persons required to report—(1)
General rule. Except as provided in
paragraph (c)(2) of this section, the
following persons are required to report
under this section:
(i) The administrator of a MEWA
regardless of whether the entity is a
group health plan; and
(ii) The administrator of an ECE
during the three year period following
an event described in (b)(9)(i)–(iv).
(2) Exceptions—(i) Nothing in this
paragraph (c) shall be construed to
require reporting under this section by
the administrator of a MEWA or ECE
described under this paragraph (c)(2)(i).
(A) A MEWA or ECE licensed or
authorized to operate as a health
insurance issuer in every State in which
it offers or provides coverage for
medical care to employees;
(B) A MEWA or ECE that provides
coverage that consists solely of excepted
benefits, which are not subject to part 7.
If the MEWA or ECE provides coverage
that consists of both excepted benefits
and other benefits for medical care that
are not excepted benefits, the
administrator of the MEWA or ECE is
required to report under this section;
(C) A MEWA or ECE that is a group
health plan not subject to ERISA,
including a governmental plan, church
plan, or a plan maintained solely for the
purpose of complying with workmen’s
compensation laws, within the meaning
of sections (4)(b)(1), 4(b)(2), or 4(b)(3) of
ERISA, respectively; or
(D) A MEWA or ECE that provides
coverage only through group health
plans that are not covered by ERISA,
including governmental plans, church
plans, or plans maintained solely for the
purpose of complying with workmen’s
compensation laws within the meaning
of sections 4(b)(1), 4(b)(2), or 4(b)(3) of
ERISA, respectively (or other
arrangements not covered by ERISA,
such as health insurance coverage
offered to individuals other than in
connection with a group health plan,
known as individual market coverage);
(ii) Nothing in this paragraph (c) shall
be construed to require reporting under
this section by the administrator of an
entity that would not constitute a
MEWA or ECE but for the following
circumstances under this paragraph
(c)(2)(ii).
(A) The entity provides coverage to
the employees of two or more trades or
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
businesses that share a common control
interest of at least 25 percent at any time
during the plan year, applying the
principles similar to the principles of
section 414(c) of the Internal Revenue
Code;
(B) The entity provides coverage to
the employees of two or more employers
due to a change in control of businesses
(such as a merger or acquisition) that
occurs for a purpose other than avoiding
Form M–1 filing and is temporary in
nature. For purposes of this paragraph,
‘‘temporary’’ means the MEWA or ECE
does not extend beyond the end of the
plan year following the plan year in
which the change in control occurs; or
(C) The entity provides coverage to
persons (excluding spouses and
dependents) who are not employees or
former employees of the plan sponsor,
such as non-employee members of the
board of directors or independent
contractors, and the number of such
persons who are not employees or
former employees does not exceed one
percent of the total number of
employees or former employees covered
under the arrangement, determined as of
the last day of the year to be reported
or, determined as of the 60th day
following the date the MEWA or ECE
began operating in a manner such that
a filing is required pursuant to
paragraph (e)(2)(ii), (iii), or (iv) of this
section.
(3) Examples. The rules of this
paragraph (c) are illustrated by the
following examples:
Example 1. (i) Facts. MEWA A begins
operating by offering coverage to the
employees of two or more employers on
January 1, 2012. MEWA A is licensed or
authorized to operate as a health insurance
issuer in every State in which it offers
coverage for medical care to employees.
(ii) Conclusion. In this Example 1, the
administrator of MEWA A is not required to
report via Form M–1. MEWA A meets the
exception to the filing requirement in
paragraph (c)(2)(i)(A) of this section because
it is licensed or authorized to operate as a
health insurance issuer in every State in
which it offers coverage for medical care to
employees.
Example 2. (i) Facts. Company B maintains
a group health plan that provides benefits for
medical care for its employees (and their
dependents). Company B establishes a joint
venture in which it has a 25 percent stock
ownership interest, determined by applying
the principles under section 414(c) of the
Internal Revenue Code, and transfers some of
its employees to the joint venture. Company
B continues to cover these transferred
employees under its group health plan.
(ii) Conclusion. In this Example 2, the
administrator is not required to file the Form
M–1 because Company B’s group health plan
meets the exception to the filing requirement
in paragraph (c)(2)(ii)(A) of this section. This
PO 00000
Frm 00012
Fmt 4701
Sfmt 4702
is because Company B’s group health plan
would not constitute a MEWA but for the fact
that it provides coverage to two or more
trades or businesses that share a common
control interest of at least 25 percent.
Example 3. (i) Facts. Company C maintains
a group health plan that provides benefits for
medical care for its employees. The plan year
of Company C’s group health plan is the
fiscal year for Company C, which is October
1st–September 30th. Therefore, October 1,
2012–September 30, 2013 is the 2013 plan
year. Company C decides to sell a portion of
its business, Division Z, to Company D.
Company C signs an agreement with
Company D under which Division Z will be
transferred to Company D, effective
September 30, 2013. The change in control of
Division Z therefore occurs on September 30,
2013. Under the terms of the agreement,
Company C agrees to continue covering all of
the employees that formerly worked for
Division Z under its group health plan until
Company D has established a new group
health plan to cover these employees. Under
the terms of the agreement, it is anticipated
that Company C will not be required to cover
the employees of Division Z under its group
health plan beyond the end of the 2014 plan
year, which is the plan year following the
plan year in which the change in control of
Division Z occurred.
(ii) Conclusion. In this Example 3, the
administrator of Company C’s group health
plan is not required to report via Form M–
1 on March 1, 2014 for fiscal year 2013
because it is subject to the exception to the
filing requirement in paragraph (c)(2)(ii)(B) of
this section for an entity that would not
constitute a MEWA but for the fact that it is
created by a change in control of businesses
that occurs for a purpose other than to avoid
filing the Form M–1 and is temporary in
nature. Under the exception, ‘‘temporary’’
means the MEWA does not extend beyond
the end of the plan year following the plan
year in which the change in control occurs.
The administrator is not required to file the
2013 Form M–1 because it is anticipated that
Company C will not be required to cover the
employees of Division Z under its group
health plan beyond the end of the 2014 plan
year, which is the plan year following the
plan year in which the change in control of
businesses occurred.
Example 4. (i) Facts. Company E maintains
a group health plan that provides benefits for
medical care for its employees (and their
dependents) as well as certain independent
contractors who are self-employed
individuals. The plan is therefore a MEWA.
The administrator of Company E’s group
health plan uses calendar year data to report
for purposes of the Form M–1. The
administrator of Company E’s group health
plan determines that the number of
independent contractors covered under the
group health plan as of the last day of
calendar year 2012 is less than one percent
of the total number of employees and former
employees covered under the plan
determined as of the last day of calendar year
2012.
(ii) Conclusion. In this Example 4, the
administrator of Company E’s group health
plan is not required to report via Form M–
E:\FR\FM\06DEP2.SGM
06DEP2
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
jlentini on DSK4TPTVN1PROD with PROPOSALS2
1 for calendar year 2012 (a filing that is
otherwise due by March 1, 2013) because it
is subject to the exception to the filing
requirement provided in paragraph
(c)(2)(ii)(C) of this section for entities that
cover a very small number of persons who
are not employees or former employees of the
plan sponsor.
(d) Information to be reported— (1)
Any reporting required by this section
shall consist of a completed copy of the
Form for Multiple Employer Welfare
Arrangements (MEWAs) and Certain
Entities Claiming Exception (ECEs)
(Form M–1) and any additional
statements required pursuant to the
Instructions to the Form M–1.
(2) Rejected filings.—The Secretary
may reject any filing under this section
if the Secretary determines that the
filing is incomplete, in accordance with
§ 2560.502c–5.
(3) If the Secretary rejects a filing
under paragraph (d)(2) of this section,
and if a revised filing satisfactory to the
Secretary is not submitted within 45
days after the notice of rejection, the
Secretary may bring a civil action for
such relief as may be appropriate
(including penalties under section
502(c)(5) of ERISA and § 2560.502c–5).
(e) Reporting requirements and
timing—(1) Period for which reporting is
required. A completed copy of the Form
M–1 is required to be filed for each
calendar year during all or part of which
the MEWA or ECE is operating.
(2) Filing deadline—(i)(A) General
March 1 filing due date for annual
filings. Except as provided in paragraph
(e)(2)(i)(B) of this section, a completed
copy of the Form M–1 is required to be
filed on or before each March 1 that
follows a period for which reporting is
required (as described in paragraph
(e)(1) of this section).
(B) Exception. Paragraph (e)(2)(i) of
this section does not apply to ECEs and
MEWAs if, between October 1 and
December 31, they experience an
origination or registration event and
make the subsequent, timely filing.
Thus, no annual report is due in March
if a MEWA has a registration event or
an ECE has an origination event
between October 1 and December 31.
However the exception applies only if
the MEWA or ECE makes a timely filing
pursuant to paragraph (e)(2)(ii), (iii), or
(iv) of this section.
(ii) Special rule requiring an
Origination Filing when an ECE is
originated—(A) In general. Except as
provided in paragraph (e)(2)(ii)(B) of
this section, when an ECE is originated,
the administrator of the ECE is also
required to file a completed copy of the
Form M–1 30 days prior to the
origination date.
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
76233
a single filing will satisfy this section so
(B) Exception. Paragraph (e)(2)(ii)(A)
of this section does not apply to ECEs
long as the filing is timely for each
that experience an origination as
required filing.
(vii) Extensions. (A) An extension
described in paragraphs (b)(9)(iii), (iv),
may be granted for filing a report
or (v) of this section. Such entities are
required by paragraph (e)(2)(i)(A) of this
required to file a completed copy of the
Form M–1 by the 30th day following the section, if the administrator complies
with the extension procedure prescribed
origination date.
(iii) Special rule requiring that a
in the Instructions to the Form M–1.
(B) If the filing deadline set forth in
MEWA register with the Secretary prior
this paragraph (e)(2) is a Saturday,
to operating in a State—(A) In general.
Sunday, or federal holiday, the form
Except as provided in paragraph
must be filed no later than the next
(e)(2)(iii)(B) of this section, the
business day.
administrator of the MEWA is required
(3) Examples. The rules of this
to register with the Secretary by filing a
paragraph (e) are illustrated by the
completed Form M–1 30 days prior to
following examples:
operating in any State.
(B) Exception. Paragraph (e)(2)(iii)(A)
Example 1. (i) Facts. MEWA A began
of this section does not apply to
offering coverage for medical care to the
MEWAs that, prior to the effective date
employees of two or more employers on July
1, 2003 (and continues to offer such
of this section, were already in
coverage). MEWA A has satisfied all filing
operation in a State (or States). Such
entities are required to submit an annual requirements to date.
(ii) Conclusion. In this Example 1, the
filing pursuant to annual reporting rules
administrator of MEWA A must continue to
described in paragraph (e)(2)(i) of this
file a completed Form M–1 each year by
section for that State (or those States).
March 1 but the administrator is not required
(iv) Special rule requiring MEWAs to
to register with the Secretary because MEWA
make additional registration filings.
A meets the exception to the registration
Subsequent to registering with the
requirement in paragraph (e)(2)(iii)(B) of this
section and has not experienced any event
Secretary pursuant to paragraph
described in paragraph (e)(2)(iv) that would
(e)(2)(iii)(A), the administrator of a
require registering with the Secretary.
MEWA shall make an additional
Example 2. (i) Facts. As of February 22,
registration filing:
2012, MEWA B is preparing to operate in
(A) 30 days prior to operating in any
States Y and Z. MEWA B is not licensed or
additional State or States that were not
authorized to operate as a health insurance
indicated on a previous report filed
issuer in any State and does not meet any of
pursuant to paragraph (e)(2)(i) or
the other exceptions set forth in paragraph
(e)(2)(iii)(A);
(c)(2) of this section.
(B) Within 30 days of the MEWA
(ii) Conclusion. In this Example 2, the
administrator of MEWA B is required to
operating with regard to the employees
register with the Secretary by filing a
of an additional employer (or
completed Form M–1 30 days prior to
employers, including one or more selfoperating in States Y or Z. The administrator
employed individuals) after a merger
of MEWA B must also report by filing the
with another MEWA;
Form M–1 annually by every March 1
(C) Within 30 days of the date the
thereafter.
number of employees receiving coverage
Example 3. (i) Facts. As of March 28, 2012,
for medical care under the MEWA is at
MEWA C is operating in States V and W.
least 50 percent greater than the number MEWA C has satisfied the requirements of
of such employees on the last day of the (e)(2)(iii) with respect to those States. MEWA
C is not licensed or authorized to operate as
previous calendar year; or
a health insurance issuer in any State and
(D) Within 30 days of experiencing a
does not meet any of the other exceptions set
material change as defined in the Form
forth in (c)(2) of this section. On April 1,
M–1 instructions.
(v) Anti-abuse rule. If a MEWA or ECE 2012 MEWA C begins operating in State X.
(ii) Conclusion. In this Example 3, the
neither offers nor provides benefits
administrator of MEWA C is required to
consisting of medical care within a State make an additional registration filing with
during the calendar year immediately
the Secretary 30 days prior to operating in
following the year in which an
State X. Additionally, the administrator of
origination filing is made by the ECE
MEWA C must continue to file the Form M–
1 annually by every March 1 thereafter.
pursuant to paragraph (e)(2)(ii) (due to
Example 4. (i) Facts. ECE A began offering
an event described in paragraph
coverage for medical care to the employees
(b)(9)(ii)) or a registration filing is made
of two or more employers on January 1, 2007
by the MEWA pursuant to (e)(2)(iii)(A)
and ECE A has not been involved in any
or (e)(2)(iv)(A), with respect to operating mergers or experienced any other origination
in such State, such filing will be
as described in paragraph (b)(9) of this
considered to have lapsed.
section.
(vi) Multiple filings not required in
(ii) Conclusion. In this Example 4, ECE A
certain circumstances. If multiple filings was originated on January 1, 2007 and has
are required under this paragraph (e)(2), not been originated since then. Therefore, the
PO 00000
Frm 00013
Fmt 4701
Sfmt 4702
E:\FR\FM\06DEP2.SGM
06DEP2
jlentini on DSK4TPTVN1PROD with PROPOSALS2
76234
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
administrator of ECE A is not required to file
a Form M–1 on March 1, 2012 because the
last time the ECE A was originated was
January 1, 2007 which is more than 3 years
prior to March 1, 2012. Further, the ECE has
satisfied its reporting requirements by
making 3 timely annual filings after its
origination.
Example 5. (i) Facts. ECE B wants to begin
offering coverage for medical care to the
employees of two or more employers on July
1, 2012.
(ii) Conclusion. In this Example 5, the
administrator of ECE B must file a completed
Form M–1 on or before June 1, 2012 (which
is 30 days prior to the origination date). In
addition, the administrator of ECE B must file
an updated copy of the Form M–1 by March
1, 2013 because the last date ECE B was
originated was June 1, 2012 (which is less
than 3 years prior to the March 1, 2013 due
date). Furthermore, the administrator of ECE
B must file the Form M–1 by March 1, 2014
and again by March 1, 2015 (because July 1,
2012 is less than three years prior to March
1, 2014 and March 1, 2015, respectively).
However, if ECE B is not involved in any
mergers and does not experience any other
origination as described in paragraph (b)(9) of
this section, there would not be a new
origination date and no Form M–1 is required
to be filed after March 1, 2015.
Example 6. (i) Facts. ECE D, which
currently operates in State A, is making
preparations to operate in State B on
November 1, 2012 and thus must make an
origination filing by October 2, 2012 (30 days
prior to the origination date). ECE D makes
this filing timely.
(ii) Conclusion. In this Example 6, ECE D
experiences an origination and makes a
timely filing on October 2, 2012. Thus ECE
D is exempt from the next annual filing due
March 1, 2013 pursuant to the filing deadline
exception under (e)(2)(i)(B) of this section.
However, the ECE must continue to file
annual reports for the subsequent years on
March 1, 2014 and March 1, 2015.
Example 7. (i) Facts. MEWA E begins
distributing marketing materials on August
31, 2012.
(ii) Conclusion. In this Example 7, because
MEWA E began operating on August 31,
2012, the administrator of MEWA E must
register with the Secretary by filing a
completed Form M–1 on or before August 1,
2012 (30 days prior to operating in any State).
In addition, the administrator of MEWA E
must file the Form M–1 annually by every
March 1 thereafter.
Example 8. (i) Facts. Same facts as
Example 7, but MEWA E registers on or
before August 1, 2012 by filing a Form M–
1 indicating it will begin operating in every
State. However, in the calendar year
immediately following the filing, MEWA E
only offered or provided benefits consisting
of medical care to participants in State Z.
(ii) Conclusion. In this Example 8, the
registration for all States (other than State Z)
have lapsed under (e)(2)(v) because MEWA E
only offered or provided benefits consisting
of medical care to participants in State Z in
the calendar year immediately following the
filing. If subsequently, MEWA E begins
offering or providing benefits consisting of
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
medical care to participants in any additional
State (or States), it must make a new
registration filing pursuant to (e)(2)(iv)(A) of
this section.
(f) Electronic Filing. A completed
Form M–1 is filed with the Secretary by
submitting it electronically as
prescribed in the Instructions to the
Form M–1.
(g) Penalties—(1) Civil penalties and
procedures. For information on civil
penalties under section 502(c)(5) of
ERISA for persons who fail to file the
information required under this section,
see § 2560.502c–5. For information
relating to administrative hearings and
appeals in connection with the
assessment of civil penalties under
section 502(c)(5) of ERISA, see
§§ 2570.90 through 2570.101.
(2) Criminal penalties and
procedures. For information on criminal
penalties under section 519 of ERISA for
persons who knowingly make false
statements or false representation of fact
with regards to the information required
under this section, see section 501(b) of
ERISA.
(3) Cease and desist and summary
seizure orders. For information on the
Secretary’s authority to issue a cease
and desist or summary seizure order
under section 521 of ERISA, see
§ 2560.521.
3. Section 2520.103–1 is amended by:
a. Revising paragraphs (a)
introductory text, (a)(2), (b) introductory
text and (c)(1),
b. Amending paragraph (c)(2)(ii)(C) by
removing the reference ‘‘and’’ at the end
of the paragraph,
c. Removing the period at the end of
paragraph (c)(2)(ii)(D) and adding the
reference ‘‘and’’ at the end of paragraph,
d. Adding a new paragraph
(c)(2)(ii)(E),
e. Redesignating paragraph (f) as
paragraph (g) and add a new paragraph
(f).
The revisions and additions read as
follows:
§ 2520.103–1
report.
Contents of the annual
(a) In general. The administrator of a
plan required to file an annual report in
accordance with section 104(a)(1) of the
Act shall include with the annual report
the information prescribed in paragraph
(a)(1) of this section or in the simplified
report, limited exemption or alternative
method of compliance described in
paragraph (a)(2) of this section.
*
*
*
*
*
(2) Under the authority of subsections
104(a)(2), 104(a)(3) and 110 of the Act,
and section 1103(b) of the Pension
Protection Act of 2006, a simplified
report, limited exemption or alternative
PO 00000
Frm 00014
Fmt 4701
Sfmt 4702
method of compliance is prescribed for
employee welfare and pension benefit
plans, as applicable. A plan filing a
simplified report or electing the limited
exemption or alternative method of
compliance shall file an annual report
containing the information prescribed in
paragraph (b), paragraph (c), or
paragraph (f) of this section, as
applicable, and shall furnish a summary
annual report as prescribed in
§ 2520.104b–10.
(b) Contents of the annual report for
plans with 100 or more participants
electing the limited exemption or
alternative method of compliance.
Except as provided in paragraphs (d)
and (f) of this section and in
§§ 2520.103–2 and 2520.104–44 the
annual report of an employee benefit
plan covering 100 or more participants
at the beginning of the plan year which
elects the limited exemption or
alternative method of compliance
described in paragraph (a)(2) of this
section shall include:
*
*
*
*
*
(c) * * *
(1) Except as provided in paragraph
(c)(2), (d) and (f) of this section, and in
§§ 2520.104–43 and 2520.104a–6, the
annual report of an employee benefit
plan that covers fewer than 100
participants at the beginning of the plan
year shall include a Form 5500 ‘‘Annual
Return/Report of Employee Benefit
Plan’’ and any statements or schedules
required to be attached to the form,
completed in accordance with the
instructions for the form, including
Schedule A (Insurance Information),
Schedule SB (Single Employer Defined
Benefit Plan Actuarial Information),
Schedule MB (Multiemployer Defined
Benefit Plan and Certain Money
Purchase Plan Actuarial Information),
Schedule D (DFE/Participating Plan
Information), Schedule I (Financial
Information—Small Plan), and Schedule
R (Retirement Plan Information). See the
instructions for this form.
(2) * * *
(ii) * * *
(E) Is not a multiple employer welfare
arrangement subject to the filing
requirements under § 2520.101–2.
*
*
*
*
*
(f) Plans which are multiple employer
welfare arrangements. The annual
report of an employee welfare benefit
plan that is a multiple employer welfare
arrangement subject to the filing
requirements under § 2520.101–2 shall
include:
(1)(i) For a plan with 100 or more
participants, the information prescribed
in paragraph (b) of this section; or
(ii) For a plan with fewer than 100
participants, except as provided in
E:\FR\FM\06DEP2.SGM
06DEP2
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 / Proposed Rules
§ 2520.104–44, the information
prescribed in paragraph (c) of this
section; and
(2) Any statements or information
required by the instructions to the Form
5500 relating to multiple employer
welfare arrangements, including
information regarding compliance with
the filing requirements under
§ 2520.101–2.
*
*
*
*
*
4. Section 2520.104–20 is amended by
removing the reference ‘‘and’’ in
paragraph (b)(2)(iii), removing the
period at the end of the sentence and
adding the reference ‘‘and’’ to the end
of the sentence in paragraph (b)(3)(ii),
and adding a new paragraph (b)(4) to
read as follows:
§ 2520.104–20 Limited exemption for
certain small welfare plans.
*
*
*
*
*
(b)(4) Which are not multiple
employer welfare arrangements subject
to the filing requirements under
§ 2520.101–2.
*
*
*
*
*
5. In § 2520.104–41, revise paragraph
(c) to read as follows:
§ 2520.104–41 Simplified annual reporting
requirements for plans with fewer than 100
participants.
*
*
*
*
(c) Contents. The administrator of an
employee pension or welfare benefit
plan described in paragraph (b) of this
section shall file, in the manner
described in § 2520.104a–5, a completed
Form 5500 ‘‘Annual Return/Report of
Employee Benefit Plan’’ or, to the extent
eligible, a completed Form 5500–SF
‘‘Short Form Annual Return/Report of
Small Employee Benefit Plan,’’ and any
required schedules or statements
prescribed by the instructions to the
applicable form, including, if
applicable, the information described in
§ 2520.103–1(f)(2), and, unless waived
by § 2520.104–44 or § 2520.104–46, a
report of an independent qualified
public accountant meeting the
requirements of § 2520.103–1(b).
jlentini on DSK4TPTVN1PROD with PROPOSALS2
*
Signed this 28th day of November 2011.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits
Security Administration, Department of
Labor.
[FR Doc. 2011–30918 Filed 12–5–11; 8:45 am]
BILLING CODE 4510–29–P
VerDate Mar<15>2010
17:37 Dec 05, 2011
Jkt 226001
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Parts 2560 and 2571
RIN 1210–AB48
Ex Parte Cease and Desist and
Summary Seizure Orders—Multiple
Employer Welfare Arrangements
Employee Benefits Security
Administration, Department of Labor.
ACTION: Proposed rules.
AGENCY:
This document contains two
proposed rules under the Employee
Retirement Income Security Act of 1974
(ERISA) to facilitate implementation of
new enforcement authority provided to
the Secretary of Labor by the Patient
Protection and Affordable Care Act
(Affordable Care Act). The Affordable
Care Act authorizes the Secretary to
issue a cease and desist order, ex parte
(i.e. without prior notice or hearing),
when it appears that the alleged conduct
of a multiple employer welfare
arrangement (MEWA) is fraudulent,
creates an immediate danger to the
public safety or welfare, or is causing or
can be reasonably expected to cause
significant, imminent, and irreparable
public injury. The Secretary may also
issue a summary seizure order when it
appears that a MEWA is in a financially
hazardous condition. The first proposed
regulation establishes the procedures for
the Secretary to issue ex parte cease and
desist orders and summary seizure
orders with respect to fraudulent or
insolvent MEWAs. The second
proposed regulation establishes the
procedures for use by administrative
law judges (ALJs) and the Secretary
when a MEWA or other person
challenges a temporary cease and desist
order.
DATES: Written comments on the
proposed regulations should be
submitted to the Department of Labor
on or before March 5, 2012.
FOR FURTHER INFORMATION CONTACT:
Stephanie Lewis, Plan Benefits Security
Division, Office of the Solicitor,
Department of Labor, at (202) 693–5588
or Suzanne Bach, Employee Benefits
Security Administration, Department of
Labor, at (202) 693–8335. These are not
toll-free numbers.
ADDRESSES: Written comments may be
submitted to the address specified
below. All comments will be made
available to the public. Warning: Do not
include any personally identifiable
information (such as name, address, or
other contact information) or
SUMMARY:
PO 00000
Frm 00015
Fmt 4701
Sfmt 4702
76235
confidential business information that
you do not want publicly disclosed. All
comments may be posted on the Internet
and can be retrieved by most Internet
search engines. Comments may be
submitted anonymously.
Department of Labor. Comments may
be submitted to the Department of
Labor, identified by RIN 1210–AB48, by
one of the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: E-OHPSCA521Orders.
EBSA@dol.gov.
• Mail or Hand Delivery: Office of
Health Plan Standards and Compliance
Assistance, Employee Benefits Security
Administration, Room N–5653, U.S.
Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210,
Attention: RIN 1210–AB48; Section 521
Orders Proposed Regulations.
Comments received by the
Department of Labor will be posted
without change to https://www.
regulations.gov and https://www.dol.gov/
ebsa, and made available for public
inspection at the Public Disclosure
Room, N–1513, Employee Benefits
Security Administration, 200
Constitution Avenue NW., Washington,
DC 20210.
SUPPLEMENTARY INFORMATION:
I. Background
Section 6605 of the Patient Protection
and Affordable Care Act (Affordable
Care Act), Public Law No. 111–148, 124
Stat. 119 adds section 521 to ERISA,
which gives the Secretary of Labor new
enforcement authority with respect to
MEWAs.1 124 Stat. 780. This section
authorizes the Secretary to issue ex
parte cease and desist orders when it
appears to the Secretary that the alleged
conduct of a MEWA is ‘‘fraudulent, or
creates an immediate danger to the
public safety or welfare, or is causing or
can be reasonably expected to cause
significant, imminent, and irreparable
public injury.’’ 29 U.S.C. 1151(a). A
person that is adversely affected by the
issuance of a cease and desist order may
request an administrative hearing
regarding the order. 29 U.S.C. 1151(b).
This section also allows the Secretary to
issue an order to seize the assets of a
MEWA that the Secretary determines to
be in a financially hazardous condition.
29 U.S.C. 1151(e).
ERISA section 521 gives the Secretary
legal remedies to address fraudulent and
1 The term ‘‘multiple employer welfare
arrangement’’ is defined at ERISA § 3(40), 29 U.S.C.
1002(40).
E:\FR\FM\06DEP2.SGM
06DEP2
]]>Agencies
[Federal Register Volume 76, Number 234 (Tuesday, December 6, 2011)]
[Proposed Rules]
[Pages 76222-76235]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30918]
[[Page 76221]]
Vol. 76
Tuesday,
No. 234
December 6, 2011
Part II
Department of Labor
-----------------------------------------------------------------------
Employee Benefits Security Administration
-----------------------------------------------------------------------
29 CFR Parts 2520, and 2977
Proposed Revision of the Form M-1; Proposed Revision of Annual
Information Return/Reports; Filings Required of Multiple Employer
Welfare Arrangements and Certain Other Related Entities; Ex parte Cease
and Desist and Summary Seizure Orders--Multiple Employer Welfare
Arrangements; Proposed Rules and Notices
Federal Register / Vol. 76, No. 234 / Tuesday, December 6, 2011 /
Proposed Rules
[[Page 76222]]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB51
Filings Required of Multiple Employer Welfare Arrangements and
Certain Other Related Entities
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This document contains a proposed rule under title I of the
Employee Retirement Income Security Act (ERISA) that, upon adoption,
would implement reporting requirements for multiple employer welfare
arrangements (MEWAs) and certain other entities that offer or provide
health benefits for employees of two or more employers. The proposal
amends existing reporting rules to incorporate new provisions enacted
as part of the Patient Protection and Affordable Care Act (Affordable
Care Act) to more clearly address the reporting obligations of MEWAs
that are ERISA plans. This regulation is designed to impose the minimal
amount of burden on legally compliant MEWAs and entities claiming
exception (ECEs) while implementing the Secretary's authority to take
enforcement action against fraudulent or abusive MEWAs included in the
Affordable Care Act and working to protect health benefits for
businesses and their employees. This proposed rule implements the new
provisions while preserving the filing structure and provisions of the
2003 regulations which direct plan MEWAs and non-plan MEWAs to report
annually and file upon registration or origination.
Elsewhere in this edition of the Federal Register, the Employee
Benefits Security Administration (EBSA) is publishing a Notice of
Proposed Rulemaking related to the Secretary's new enforcement
authority with respect to MEWAs and Notices of proposed revisions of
the Form M-1 and the Form 5500.
DATES: Written comments on the proposed regulations should be submitted
to the Department of Labor on or before March 5, 2012.
FOR FURTHER INFORMATION CONTACT: Suzanne Bach or Kevin Horahan,
Employee Benefits Security Administration, Department of Labor, at
(202) 693-8335. This is not a toll-free number.
ADDRESSES: Written comments may be submitted to the address specified
below. All comments will be made available to the public. Warning: Do
not include any personally identifiable information (such as name,
address, or other contact information) or confidential business
information that you do not want publicly disclosed. All comments may
be posted on the Internet and can be retrieved by most Internet search
engines. Comments may be submitted anonymously.
Department of Labor. Comments to the Department of Labor,
identified by RIN 1210-AB51, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: E-HPSCAMEWARegistration.EBSA@dol.gov.
Mail or Hand Delivery: Office of Health Plan Standards and
Compliance Assistance, Employee Benefits Security Administration, Room
N-5653, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, Attention: RIN 1210-AB51; MEWA Registration
Proposed Regulation.
Comments received by the Department of Labor will be posted without
change to https://www.regulations.gov and https://www.dol.gov/ebsa, and
made available for public inspection at the Public Disclosure Room, N-
1513, Employee Benefits Security Administration, 200 Constitution
Avenue NW., Washington, DC 20210.
SUPPLEMENTARY INFORMATION:
I. Background
The Health Insurance Portability and Accountability Act of 1996
(Pub. L. 104-191, 110 Stat. 1936) (1996)) (HIPAA) amended ERISA to
provide for, among other things, improved portability and continuity of
health insurance coverage. HIPAA also added section 101(g) to ERISA, 29
U.S.C. 1021(g), providing the Secretary with the authority to require,
by regulation, annual reporting by MEWAs that are not ERISA-covered
plans. Section 6606 of the Patient Protection and Affordable Care Act
(Affordable Care Act), Pub. L. 111-148, 124 Stat. 119 (2010), amended
section 101(g) of ERISA to require that such MEWAs register with the
Department prior to operating in a State. Specifically, this section
now provides that multiple employer welfare arrangements providing
benefits consisting of medical care (within the meaning of section
733(a)(2) of ERISA, 29 U.S.C. 1191b(a)(2)) which are not ERISA-covered
group health plans must register with the Secretary prior to operating
in a State. The Secretary may also, by regulation, direct such multiple
employer welfare arrangements to report, not more frequently than
annually, in such form and such manner as the Secretary specifies for
the purpose of determining the extent to which the requirements of part
7 of subtitle B of title I of ERISA are being carried out in connection
with such benefits.
The term ``multiple employer welfare arrangement'' is defined in
section 3(40) of ERISA, 29 U.S.C. 1002(40) in pertinent part, as an
employee welfare benefit plan, or any other arrangement (other than an
employee welfare benefit plan), which is established or maintained for
the purpose of offering or providing medical benefits to the employees
of two or more employers (including one or more self-employed
individuals), or to their beneficiaries, except that such term does not
include any such plan or other arrangement which is established or
maintained under or pursuant to one or more agreements which the
Secretary finds to be collective bargaining agreements, by a rural
electric cooperative, or by a rural telephone cooperative association.
For purposes of this definition, two or more trades or businesses,
whether or not incorporated, shall be deemed a single employer if such
trades or businesses are within the same control group. The term
``control group'' means a group of trades or businesses under common
control, and the determination of whether a trade or business is under
``common control'' with another trade or business shall be determined
under regulations of the Secretary applying principles similar to the
principles applied in determining whether employees of two or more
trades or businesses are treated as employed by a single employer under
section 4001(b) of ERISA, 29 U.S.C. 1301(b), except that, for purposes
of this paragraph, common control shall not be based on an interest of
less than 25 percent.\1\
---------------------------------------------------------------------------
\1\ This provision was added to ERISA by section 302(b) of the
Multiple Employer Welfare Arrangement Act of 1983, Public Law 97-
473, 96 Stat. 2611, 2612 which also amended section 514(b) of ERISA,
29 U.S.C. 1144(a). Section 514(a) of ERISA provides that State laws
that relate to employee benefit plans are generally preempted by
ERISA. Section 514(b) sets forth several exceptions to the general
rule of section 514(a) and subjects employee benefit plans that are
MEWAs to various levels of State regulation depending on whether the
MEWA is fully insured. Sec. 302(b), Public Law 97-473, 96 Stat.
2611, 2613 (29 U.S.C. 1144(b)(6)).
---------------------------------------------------------------------------
The original MEWA reporting requirement created under HIPAA was
enacted in response to a 1992 General
[[Page 76223]]
Accounting Office (GAO) report.\2\ In the report, the GAO detailed a
history of MEWA fraud and abuse.\3\ The GAO recommended that the
Department develop a mechanism to help States identify MEWAs. The
Secretary exercised the authority under the HIPAA provision by creating
the Form M-1 under a 2000 interim final rule and 2003 final rule,\4\
which generally require non-plan and ERISA-covered MEWAs (and certain
other entities that offer or provide group health benefits to the
employees of two or more employers) to file the Form M-1 annually with
the Secretary. The final rule generally directed the administrator of a
MEWA, whether or not an ERISA-covered group health plan, (and certain
other entities that offer or provide health benefits to the employees
of two or more employers) to file the Form M-1 with the Secretary. The
purpose of this form is to allow the Department to determine whether
the requirements of part 7 are being met. Part 7 of ERISA includes
statutory amendments made by HIPAA and other statutes for which MEWAs
must annually report compliance. These include, but are not limited to,
the Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-
148, 124 Stat. 119), and the Health Care and Education Reconciliation
Act (Pub. L. 111-152, 124 Stat. 1029) (these are collectively known as
the ``Affordable Care Act''), the Paul Wellstone and Pete Domenici
Mental Health Parity and Addiction Equity Act of 2008 (Div. C, title V,
Subtitle B of Pub. L. 110-343, 122 Stat. 3881), and the Genetic
Information Nondiscrimination Act of 2008 (Pub. L. 110-233, 122 Stat.
881).
---------------------------------------------------------------------------
\2\ See, Employee Benefits: States Need Labor's Help Regulating
Multiple Employer Welfare Arrangements, March 1992, GAO/HRD-92-40.
\3\ For example, the 1992 GAO report indicated that between 1988
and 1991, MEWAs left at least 398,000 participants and beneficiaries
with over $123 million in unpaid claims. Meanwhile more than 600
MEWAs failed to comply with State insurance laws. See supra note 2.
\4\ 65 FR 715 (02/11/2000) and 68 FR 17494 (04/09/2003). The
Form M-1 has been updated and is reissued each year in December by
the Department and modified periodically to address changes to the
statutory provisions in part 7 of ERISA.
---------------------------------------------------------------------------
Despite the reporting rules, many of the MEWA abuses discussed in
the GAO report persist today. MEWAs frequently are marketed by
unlicensed entities that avoid State insurance reserve, contribution,
and consumer protection requirements. By avoiding these requirements,
such entities often are able to market insurance coverage at rates
substantially lower than licensed insurers, making them particularly
attractive to some small employers that find it difficult to obtain
affordable health insurance for their employees. Unfortunately, due to
insufficient funding and inadequate reserves, and in some situations,
excessive administrative fees and fraud, some MEWAs have become
insolvent and unable to pay medical benefit claims. Therefore, affected
employees and their dependents have become financially responsible for
paying medical claims they presumed were covered by insurance after
paying health insurance premiums to MEWAs that become insolvent. The
unfortunate reality is that currently, the Department often does not
find out about insolvent or fraudulent MEWAs until significant harm has
occurred to employers and participants. Furthermore, while the
Department--often working with State insurance departments--has had
some success with both civil and criminal cases against MEWA operators,
the monetary judgments are often uncollectible leaving the employers
and/or individual participants without coverage for claims that are
sometimes very large. This proposal implements the statutory
requirements in a way that limits the burden on legitimate MEWAs but
gives the Secretary, employers, and the participants and beneficiaries
of the plans those employers sponsor additional information about these
entities and a stronger enforcement scheme. Having this information
will aid the enforcement and prevention of fraudulent and insolvent
MEWAs.\5\
---------------------------------------------------------------------------
\5\ See, United States v. Edwards, plea agreement, 1:05CR 265
(M.D.N.C. 2006) (In 2005, a MEWA operator, whom the Department
showed collected over 36 million dollars in healthcare insurance
premiums and failed to obtain health insurance coverage for its
employer clients which resulted in thousands of uncovered employees
and approximately $8 million in unpaid claims) see also Solis v.
W.I.N. Ass'n, L.L.C., et. al., slip op. 4:11-cv-00616 (S.D. Tex.
2011) (the Department investigated a MEWA which failed to make
payments on health care claims, charged excessive fees, engaged in
self-dealing, and failed to disclose fees to the client employers in
the plan. The Department obtained a Consent Judgment and Order
against the MEWA operators for leaving hundreds of participants
without coverage and permanently enjoining them from acting as
fiduciaries in the future. Also, the court authorized the Secretary
to bring a collection action for the plan losses against one of the
MEWA operators relative to his ability to restore those plan
losses.)
---------------------------------------------------------------------------
Pursuant to the Affordable Care Act's change to section 101(g) of
ERISA, this proposed rule would amend the 2003 final rule, as well as
the rules related to annual reports required of MEWAs that are group
health plans, and solicit comments regarding the restructured reporting
requirements. Specifically, the Affordable Care Act amended section
101(g) of ERISA to require MEWAs that provide benefits consisting of
medical care (within the meaning of section 733(a)(2) of ERISA) which
are not group health plans to register with the Secretary prior to
their operating in a State, in addition to reporting annually regarding
their compliance with part 7 of ERISA including the Public Health
Service Act (PHS Act) market reforms incorporated by reference in
section 715 of ERISA. These proposed regulations implement the 101(g)
MEWA registration provision which directs MEWAs to report compliance
with the part 7 rules including the PHS Act sections 2701 through 2728.
By requiring MEWAs to register with the Department before operating in
a State by filing the Form M-1 to provide additional information, this
proposed rule would enhance the State and Federal governments' joint
mission to prevent and take enforcement action against fraudulent and
abusive MEWAs and limit the losses suffered by American workers, their
families, and businesses in instances when abusive MEWAs become
insolvent and fail to reimburse medical claims.
The Affordable Care Act reorganizes, amends, and adds to the
provisions in part A of title XXVII of the PHS Act, 42 U.S.C. 300gg-1
et seq., relating to group health plans and health insurance issuers in
the group and individual markets. The term ``group health plan'' is
defined in title XXVII of the PHS Act, part 7 of ERISA, and chapter 100
of the Code and includes both insured and self-insured group health
plans. The Affordable Care Act adds section 715(a)(1) to ERISA, 29
U.S.C. 1185d(a)(1), and section 9815(a)(1) to the Internal Revenue Code
(the Code), 26 U.S.C. 9815(a)(1), to incorporate the provisions of part
A of title XXVII of the PHS Act into ERISA and the Code, and make them
applicable to group health plans, and health insurance issuers
providing health insurance coverage in connection with group health
plans. The PHS Act sections incorporated by this reference are sections
2701 through 2728. PHS Act sections 2701 through 2719A are
substantially new, though they incorporate some provisions of prior
law. PHS Act sections 2722 through 2728 are sections of prior law
renumbered, with some, mostly minor, changes. Section 1251 of the
Affordable Care Act, as modified by section 10103 of the Affordable
Care Act and section 2301 of the Reconciliation Act, 42 U.S.C. 18011,
specifies that certain plans or coverage existing as of the date of
enactment (i.e., grandfathered health plans) are only subject to
certain provisions.
[[Page 76224]]
II. Overview of Proposal
A. Proposed Amendment to 29 CFR Sec. 2520.101-2 Under ERISA Section
101(g)
These proposed rules would amend existing filing rules for MEWAs
and ECEs in order to implement changes made to ERISA section 101(g) in
the Affordable Care Act. Like the 2003 regulations, ECEs and MEWAs are
treated largely the same for filing purposes. The main distinction in
filing requirements is that ECEs are only subject to annual M-1 filings
for the first three years following an origination event. We preserved
this special rule included in the 2003 regulations for ECEs as well as
e the special filing events applicable to MEWAs. In keeping with this
structure, we propose to extend the new filing events prescribed by the
Affordable Care Act provision to MEWAs and ECEs alike.
Paragraph (a) of the proposal sets forth section 101(g) of ERISA
that directs MEWAs that provide benefits consisting of medical care
(within the meaning of section 733(a)(2) of ERISA) to register with the
Secretary prior to operating in a State, and to report annually
regarding compliance with part 7 of ERISA. While the language in
section 101(g) of ERISA only applies to MEWAs that are not group health
plans (``non-plan MEWAs''), the proposal preserves the structure
promulgated as part of the final 2003 regulations, which required both
MEWAs that are group health plans (``plan MEWAs'') and non-plan MEWAs
to file the Form M-1, based on authority found in sections 505 and 734
of ERISA. 29 U.S.C. 1135 and 1191c. Section 505 of ERISA states that
the Secretary may prescribe such regulations as she finds necessary or
appropriate to carry out the provisions of Title I of ERISA. Section
734 of ERISA allows the Secretary to promulgate such regulations as may
be necessary or appropriate to carry out the provisions of part 7 of
ERISA.
Paragraph (b) defines the terms used in the proposal, with some
additions and modifications from the 2003 final rule. Amended paragraph
(c) sets forth the requirement that, with certain exceptions, all MEWAs
and certain entities that claim not to be a MEWA solely due to the
exception in section 3(40)(A)(i) of ERISA (referred to as Entities
Claiming Exception or ECEs) file reports with the Department.
Paragraph (d) describes how MEWAs and ECEs will comply with the
proposed rule by filing the Form M-1, and the conditions under which
the Secretary may reject a filing.
Paragraph (e) sets forth the times when MEWAs and ECEs will file
the Form M-1. Paragraph (f) directs that the Form M-1 be filed
electronically. In addition to minimizing errors and providing faster
access to reported data, electronic filing will also be less burdensome
on the filer. Once information about the MEWA or ECE is entered into
the system, filers will have the option of allowing the system to copy
information provided on a past filing into a new filing. This transfer
of past information provides filers an easy way to update or verify
information. The information provided through Form M-1 filings will
then be accessible by the public and other interested parties such as
State regulators.
Paragraph (g) explains the civil penalties that may result from a
failure to comply with the proposed rule. Civil penalties for failure
to file a report required by ERISA section 101(g) or Sec. 2520.101-2
have been applicable for non-plan MEWAs under ERISA section 502(c)(5)
since May 1, 2000. Under these proposed regulations, the Department has
extended similar civil penalties for a failure to file an annual report
by plan MEWAs under ERISA section 502(c)(2).
Also, new criminal penalties were added by the Affordable Care Act
under ERISA section 519 for any person who knowingly submits false
statements or false representations of fact in filing reports required
under the proposal. See paragraph 2 below for these changes that are
being proposed to Sec. Sec. 2520.103-1, 104-20, and 104-41 to further
enhance the Department's ability to enforce these provisions with
regard to MEWAs that are group health plans.
1. Basis and Scope
These proposed regulations set forth rules implementing section
101(g) of ERISA, as amended by section 6606 of the Affordable Care Act,
which directs MEWAs that are not group health plans to register with
the Secretary prior to operating in a State. These proposed regulations
also update the existing requirement in section 101(g) of ERISA that
MEWAs, which are group health plans, and certain other entities
claiming an exception, file the Form M-1 upon the occurrence of
specified events as well as annually.
2. Definitions
a. Operating. Paragraph (b)(8) of the proposed rule adds a
definition of ``operating,'' and defines it as any activity including
but not limited to marketing, soliciting, providing, or offering to
provide benefits consisting of medical care. This definition, which
includes marketing and administrative activities, governs registration
and origination filing events for the Form M-1 filing for MEWAs and
ECEs.
b. Origination. In order to implement the Affordable Care Act
amendment to ERISA section 101(g), the Department amended the 2003
filing rules. The rule is meant to apply equally to MEWAs and ECEs. The
2003 rules treated MEWAs and ECEs equally for purposes of special
filings by having a combined rule for both of these entities to
determine if special filings were necessary which relied on the
origination definition. The Department concluded it to be more
responsive to the change in the section 101(g) statutory language to
now refer to special filings by MEWAs as a registration. The effect of
this is that MEWAs and ECEs are no longer collectively referencing the
term origination, but now have separate origination and registration
terms--albeit subject to the same special filing events.
The proposed rule first indicates events which require a special
filing in the definition of origination. A special filing is required
when (in the case of an ECE):
``(i) The ECE first begins operating (within the meaning of (b)(8)
of this section) with regard to the employees of two or more employers
(including one or more self-employed individuals); (ii) The ECE, while
required to report pursuant to paragraph (c)(1)(ii) of this section,
begins operating in any additional State; (iii) The ECE begins
operating following a merger with another ECE (unless all of the ECEs
that participate in the merger previously were last originated at least
three years prior to the merger); (iv) The number of employees
receiving coverage for medical care under the ECE is at least 50
percent greater than the number of such employees on the last day of
the previous calendar year (unless the increase is due to a merger with
another ECE under which all ECEs that participate in the merger were
last originated at least three years prior to the merger); or (v) The
ECE experiences a material change in the information reported on the
most recently filed Form M-1 as defined by the Form M-1 instructions.
Event (i) Was modified to comply with the new statutory requirement
that filings be made prior to operating in a State. Events (ii) and (v)
are new special filing events which were added to instruct entities to
re-file with the Department so that it has the most up-to-date
information.
c. Reporting. The proposed rule adds a definition of ``reporting.''
``Reporting''
[[Page 76225]]
or ``to report'' means to file the Form M-1 as required pursuant to
section 101(g) of ERISA; Sec. 2520.101-2; or the instructions to the
Form M-1. The term ``reporting'' is used in order to correspond to the
terminology of Sec. 2560.502c-5 which uses the generic term ``report''
to describe the Form M-1 filing process, including the annual report,
registration, and origination filings.
d. State. The proposed rule adds a definition of ``State'' and
defines the term by reference to Sec. 2590.701-2. This definition was
added because MEWAs must register, and ECEs must make an origination
filing, prior to operating in a State.
3. Persons Required To Report
Paragraph (c) of the proposed rule sets forth the persons required
to report under the proposed rule. As under the 2003 final rule, the
proposed rule directs the administrator of a MEWA that provides
benefits consisting of medical care, whether or not the MEWA is a group
health plan, to file the Form M-1. It also requires filing by the
administrator of an ECE that offers or provides coverage consisting of
medical care during the first three years after the ECE is originated.
4. Information To Be Reported
Paragraph (d) of the proposed rule clarifies that the reporting
requirements of Sec. 2520.101-2 will only be satisfied by filing a
completed copy of the Form M-1, including any additional statements
pursuant to the Form M-1 Instructions.
5. Reporting Requirements and Timing
Paragraph (e) of the proposed rule retains from the 2003 final
rule's standards that both MEWAs and ECEs must file the Form M-1
annually, with ECEs only having to file annually for the first 3 years
following an origination.
As mentioned previously, MEWAs and ECEs are also subject to special
filings in certain circumstances. Special filing events were included
in the 2003 regulation, but have been relabeled and expanded to
implement statutory language under the proposed rules. To clarify the
new section 101(g) registration standard for MEWAs and make parallel
changes to the origination events for ECEs, the proposed rule contains
five registration and origination events for MEWAs and ECEs, only one
of which is new (a second filing event existed in the 2003 rules but
has been modified).
The 2003 regulation generally requires a special filing when a MEWA
or ECE (1) Begins operating or providing coverage for medical care to
employees of two or more employers; (2) begins offering or providing
coverage for medical care to employees of two or more employers after a
merger with another MEWA or ECE; or (3) increases the number of
employees receiving medical care under the MEWA or ECE by at least 50
percent over the number of employees on the last day of the previous
calendar year. These filing events are generally preserved in the
proposed rules. However, the first event was modified to conform to the
statutory language under ERISA section 101(g) directing MEWAs to
register with the Secretary by filing a Form M-1 prior to operating in
any State. Additionally, the proposed rule directs that a filing be
made in the event a MEWA or ECE expands its operations into additional
States or experiences a material change as defined in the Form M-1
instructions. This filing event was added to direct an entity to update
its Form M-1 filing in the event that it experiences changes in its
financial or custodial information. In the event an entity experiences
a material change, the online filing system will allow them to log on
to the online filing system, give them the option of importing data
from its most recent completed filing, and make the necessary changes.
The Department is particularly interested in receiving comments on this
requirement. Consistent with the 2003 regulations, while this rule
directs MEWAs to submit filings for the duration of their existence,
ECEs are only required to file during the three year period following
an origination event that is not a material change. ECEs that
experience a material change must file during this period but are not
required to file beyond that three year period.
The proposed rule also applies new timing standards on MEWAs and
ECEs for these special filings. Under the 2003 regulations, MEWAs and
ECEs file the Form M-1 within 90 days of the occurrence of a special
filing event. The proposed rule directs entities to file 30 days prior
to or within 30 days of the event, depending on the type. The timing
requirements implement section 6606 of the Affordable Care Act which
says that the filling must happen ``prior to operating in a State'' and
will also facilitate the Department's timely receipt of information
related to the other special filing events described above.
A provision is included in the proposed rule to discourage
``blanket filings,'' i.e., registration or origination filings that
cover multiple States, unless the filer expects to begin operating in
all the named States in the near future. Blanket filings that list
States where the filer has no immediate intent to operate could
frustrate the law's goal of gathering and maintaining timely and
accurate information on MEWAs. Under this provision, a filing is
considered lapsed with respect to a State if benefits consisting of
medical care are not offered or provided in the State (or States)
during the calendar year immediately following the filing. A new filing
would be submitted if the filer intends to continue to operate in that
State.
To minimize the burden of compliance, we propose to permit MEWAs
and ECEs to make a single filing to satisfy multiple filing events so
long as the filing is timely for each filing.
As in the 2003 rule, filing extensions are available in this
proposal. Any filing deadline that is a Saturday, Sunday, or federal
holiday is automatically extended to the next business day. A more
substantial extension is available for MEWAs and ECEs that request such
an extension following the procedure outlined in the Instructions to
the Form M-1.
6. Electronic Filing
Paragraph (f) of the proposed rule eliminates the option to file a
paper copy of the completed Form M-1. As is now the case for all Form
5500 Annual Report filings, and consistent with the goals of E-
government, as recognized by the Government Paperwork Elimination Act
\6\ and the E-Government Act of 2002,\7\ we propose that the Form M-1
be filed electronically. Electronic filing of benefit plan information,
among other program strategies, would facilitate EBSA's achievement of
its Strategic Goal to ``assure the security of the retirement, health
and other workplace related benefits of American workers and their
families.'' EBSA's strategic goal directly supports the Secretary of
Labor's Strategic Goal to ``secure health benefits.'' \8\ A cornerstone
of our enforcement program is the collection, analysis, and disclosure
of benefit plan information. Electronic filing will minimize errors and
provide faster access to reported data, assisting EBSA in its
enforcement, oversight, and disclosure roles and ultimately enhancing
the security of plan benefits. Electronic filing of the M-1 would also
reduce the paperwork burden and costs
[[Page 76226]]
related to printing and mailing forms and, with the use of secure
account access, allow updating of previously reported information to
facilitate simplified future reporting. Finally, consistent with
current practice, the information would be available for reference by
participants, beneficiaries, participating employers, and other
interested parties such as State regulators.
---------------------------------------------------------------------------
\6\ Title XVII, Public Law 105-277, 112 Stat. 2681 (Oct. 21,
1998).
\7\ Public Law 107-347, 116 Stat. 2899 (Dec. 17, 2002).
\8\ For further information on the Department of Labor's
Strategic Plan and EBSA's relationship to it, see https://www.dol.gov/_sec/stratplan/.
---------------------------------------------------------------------------
7. Penalties
a. Civil penalties and procedures. The proposed rule retains the
references to section 502(c)(5) of ERISA, 29 U.S.C. 1132(c)(5) and
Sec. 2560.502c-5 regarding civil penalties and procedures.
b. Criminal penalties and procedures. The Affordable Care Act
section 6601 added ERISA section 519 which prohibits a person from
making false statements or representations of fact in connection with a
MEWAs financial condition, the benefits it provides, or its regulatory
status as it relates to marketing or sale of a MEWA. The Affordable
Care Act also amended ERISA section 501(b) to impose criminal penalties
on any person who is convicted of violating the prohibition in ERISA
section 519. The proposed rule adds a cross-reference to section 501(b)
and 519 of ERISA, 29 U.S.C. 1131 and 1149 for the purpose of
implementing these new rules as they relate to filing a Form M-1 prior
to operating in a State or other registration and origination filings.
c. Cease and desist and summary seizure and procedures. Section
6605 of the Affordable Care Act adds section 521 to ERISA, which
authorizes the Secretary to issue cease and desist orders, without
prior notice or a hearing, when it appears to the Secretary that the
alleged conduct of a MEWA is ``fraudulent, or creates an immediate
danger to the public safety or welfare, or is causing or can be
reasonably expected to cause significant, imminent, and irreparable
public injury.'' This section also allows the Secretary to issue an
order to seize the assets of a MEWA that the Secretary determines to be
in a financially hazardous condition. The regulation providing guidance
on the cease and desist orders and summary seizure rules published
elsewhere in this Federal Register also include regulatory guidance on
the procedural rules for this process. A cease and desist order
containing a prohibition against transacting business with any MEWA or
plan would prevent the MEWA or a person from avoiding the cease and
desist order by shutting the MEWA down and re-establishing it in a new
location or under a new identity.
As such, the proposed rule adds a cross-reference to section 521 of
ERISA and Sec. 2560.521 regarding the Secretary's authority to issue
cease and desist and summary seizure orders.
B. Proposed Amendment to Regulations Under ERISA Section 104(a)(1), 29
U.S.C. 1024(a)(1)
Additional changes are being proposed to further enhance the
Department's ability to enforce Sec. 2520.101-2. The primary change is
the addition of a new paragraph (f) to Sec. 2520.103-1 regarding the
content of the annual report. As part of this proposal, existing
paragraph (f) of Sec. 2520.103-1 would be redesignated paragraph (g),
but would be otherwise unchanged. New Sec. 2520.103-1(f) would apply
to all MEWAs that are ERISA-covered plans and that are subject to the
requirements of Sec. 2520.101-2. This change provides that all such
MEWAs must prove compliance with Sec. 2520.101-2 (filing the Form M-1)
in order to satisfy the annual reporting requirements of Sec.
2520.103-1. Pursuant to ERISA section 502(c)(2), 29 U.S.C. 1132(c)(2),
a plan administrator who fails to file a Form 5500 Annual Return/Report
with a proof of compliance with Sec. 2520.101-2 may be subject to a
civil penalty of up to $1,100 a day (or higher amount if adjusted
pursuant to the Federal Civil Penalties Inflation Adjustment Act of
1990, as amended) for each day a plan administrator fails or refuses to
file a complete report. Although ERISA sections 505 and 734 give the
Secretary the authority to require MEWAs that are group health plans to
comply with the requirements of Sec. 2520.101-2, there is, however, no
corresponding ERISA civil penalty for a failure to comply with those
requirements. These proposed changes to the Form 5500 annual reporting
requirements for MEWAs that are group health plans will enhance the
Department's ability to enforce the Form M-1 requirements and ensure
that MEWAs are subject to the same rules under the law.
Conforming changes adding references to new Sec. 2520.103-1(f) are
proposed for Sec. Sec. 2520.103-1(a)(2), (b), (c) and Sec. 2520.104-
41. A corresponding change is also proposed for Sec. 2520.104-20 to
eliminate the limited filing exemption for insured or unfunded, fully
insured, or combination unfunded/fully insured plan MEWAs with fewer
than 100 participants. It is important to note that while the addition
of Sec. 2520.103-1(f) and the change to Sec. 2520.104-20 would
eliminate the annual reporting exemption for such plan MEWAs with fewer
than 100 participants, these plan MEWAs are subject to the existing
(and proposed) standards of Sec. 2520.101-2. Moreover, the impact of
satisfying the annual reporting would be substantially less burdensome
because in addition to being eligible for the simplified annual
reporting for small welfare plans, these plan MEWAs would be exempt
under Sec. 2520.104-44 from completing Schedule I (Financial
Information).\9\ Thus, these changes give the Secretary an important
enforcement tool while imposing minimal burden on plan MEWAs. Because
it is not clear that there are any unfunded/fully insured plan MEWAs
with fewer than 100 participants, the Department does not believe this
is overly burdensome but rather ensures that all MEWAs are treated the
same. Nonetheless, the Department is particularly interested in
receiving comments regarding any undue burden this elimination may
create.
---------------------------------------------------------------------------
\9\ These plan MEWAs would only need to file Form 5500 annual
return/report and, if applicable, Schedule A (Insurance Information)
and Schedule G, Part III (nonexempt transactions). They would not be
eligible to file the Form 5500-SF (Short Form 5500 Annual Return/
Report of Small Employee Benefit Plan) under Sec. 2520.104-41 and
Sec. 2520.103-1(c)(2)(ii). The Form 5500-SF does not include
Schedule A insurance information and the Department believes that
plan MEWAs subject to this proposal that claim to provide insured
benefits should be required to complete the Schedule A so that
enforcement officials and the public have information about the
insurance policy and insurance company through which the MEWA is
providing insurance coverage. In addition, an unrelated technical
correction to Sec. 2520.104-41 is being included in this rulemaking
to add an express reference to the Form 5500-SF.
---------------------------------------------------------------------------
III. Regulatory Impact Analysis
A. Executive Order 12866
Under Executive Order 12866, the Department must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f) of the Executive
Order, a ``significant regulatory action'' is an action that is likely
to result in a rule (1) Having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering
[[Page 76227]]
the budgetary impacts of entitlement grants, user fees, or loan
programs or the rights and obligations of recipients thereof; or (4)
raising novel legal or policy issues arising out of legal mandates, the
President's priorities, or the principles set forth in the Executive
Order. OMB has determined that this action is not economically
significant within the meaning of section 3(f)(1) of the Executive
Order but is significant under section 3(f)(4) of the Executive Order,
because it raises novel legal or policy issues arising from the
President's priorities.
The Department estimates that the total cost of this proposed rule
would be approximately $124,300 in the first year, or an average of
approximately $272 for each of the 457 entities expected to file the
Form M-1. These costs are all associated with the information
collection request contained in this proposal and, therefore, are
discussed in the Paperwork Reduction Act Section, below.
1. Summary and Need for Regulatory Action
As discussed earlier in this preamble, section 6606 of the
Affordable Care Act amended section 101(g) of ERISA to require the
Secretary of Labor to promulgate regulations requiring MEWAs providing
medical care benefits (within the meaning of section 733(a)(2) of
ERISA) that are not ERISA-covered group health plans (non-plan MEWAs)
to register with the Secretary before operating in a State.
Before this proposed amendment, ERISA section 101(g) permitted the
Secretary to establish an annual reporting requirement on non-plan
MEWAs that provide medical care benefits to determine whether such
MEWAs comply with the requirements of Part 7 of ERISA. The Secretary
exercised this authority by creating the Form M-1 under a 2000 interim
final rule and 2003 final rule.\10\
---------------------------------------------------------------------------
\10\ 65 FR 715 (02/11/2000) and 68 Fed. Reg. 17494 (04/09/2003).
The Form M-1 has been updated and is reissued each year in December
by the Department and modified periodically to address changes to
the statutory provisions in part 7 of ERISA.
---------------------------------------------------------------------------
The original MEWA reporting requirement was enacted by Congress as
part of the Health Insurance Portability and Accountability Act of 1996
in response to a 1992 General Accounting Office (GAO) recommendation
contained in a GAO report.\11\ As discussed above, the GAO recommended
that the Department develop a mechanism to help States identify
fraudulent and abusive MEWAs. The HIPAA provision led to the
Department's creation of the Form M-1, which generally requires non-
plan and ERISA-covered MEWAs (and certain other entities that offer or
provide group health benefits to the employees of two or more
employers) to file Form M-1 annually with the Secretary.
---------------------------------------------------------------------------
\11\ See, Employee Benefits: States Need Labor's Help Regulating
Multiple Employer Welfare Arrangements, March 1992, GAO/HRD-92-40.
---------------------------------------------------------------------------
In addition to amending the Department's MEWA reporting regulation
to require MEWAs to register with the Secretary before operating in a
State, these proposed rules also direct Form M-1 filers to provide
additional information regarding the MEWA or ECE and apply new timing
standards for the special filings that are made when a MEWA's or ECE's
status changes. These amendments will aid the Department in its
oversight of MEWAs consistent with its expanded authority provided by
the Affordable Care Act \12\ and allow it to provide critical
information to State insurance departments that coordinate their
investigations and enforcement actions against fraudulent and abusive
MEWAs with the Department.
---------------------------------------------------------------------------
\12\ As part of the Affordable Care Act, Congress also enacted
ERISA section 521, which authorized the Secretary to issue cease and
desist orders, without prior notice or a hearing, when it appears to
the Secretary that a MEWA's alleged conduct is fraudulent, creates
an immediate danger to the public safety or welfare, or causes or
can reasonably be expected to cause significant, imminent, and
irreparable public injury. Section 521 also authorizes the Secretary
to issue a summary order to seize the assets of a MEWA that the
Secretary determines to be in financially hazardous condition. The
Department also is proposing rules for these provisions, which are
published elsewhere in today's Federal Register.
---------------------------------------------------------------------------
Over the last several years, the Department has observed a downward
trend in the number of MEWAs that file the Form M-1, raising concerns
that some existing MEWAs are not filing the form. Under the 2003
regulations, the Department has the ability to impose penalties on
ERISA-covered MEWAs that fail to file the M-1 only in limited
circumstances and if a determination regarding plan status were made by
the Secretary. To address this issue and encourage compliance with the
M-1 filing requirement, the Department also is proposing as part of
this regulatory action to amend the Form 5500 annual reporting
standards by requiring all ERISA-covered MEWAs, including MEWAs with
less than 100 participants,\13\ to file Form 5500 and provide on the
form proof of a timely filed Form M-1 in order for the plan
administrator to avoid the Department's imposition of ERISA section
502(c)(2) penalties.\14\
---------------------------------------------------------------------------
\13\ The proposal would remove the small welfare plan filing
exemption under Sec. 2520.104-20. Currently, under Sec. 2520.104-
20, small insured or unfunded welfare benefit plans, including small
plan MEWAs, are exempt from certain reporting and disclosure
provisions, including the requirement to file an annual Form 5500.
By removing this exemption, all plan MEWAs will now be required to
file a Form 5500 with a proof of filing a timely Form M-1 filing in
order to satisfy the annual reporting requirements under ERISA
Sections 103 and 104. However, small insured and unfunded plan MEWAs
would be exempt under Sec. 2520.104-44 from completing Schedule I
(Financial Information). As with other small welfare benefit plans
subject to the annual reporting requirements, small plan MEWAs would
be required to complete Schedule A (Insurance Information), if
applicable.
\14\ If a MEWA fails to prove that it filed the M-1 on its Form
5500, it could be subject to a civil penalty of up to $1,000 a day
for each day the plan administrator fails or refuses to file a
complete report.
---------------------------------------------------------------------------
These proposed amendments to the Department's MEWA reporting
standards would provide a cost effective means to implement the
expanded MEWA reporting as enacted in the Affordable Care Act. As
stated above, the Department estimates that the average cost for each
entity that the Department expects to file the revised form would
average approximately $272.
2. Benefits of Proposed Rule
As discussed earlier in this preamble, section 6606 of the
Affordable Care Act amended section 101(g) of ERISA directing the
Secretary of Labor to promulgate regulations requiring MEWAs providing
medical care benefits (within the meaning of section 733(a)(2) of
ERISA) that are not ERISA-covered group health plans (non-plan MEWAs)
to register with the Secretary before operating in a State. By
implementing this statutory amendment, the Department would receive
prior notice of a MEWA's intention to commence operations in a State.
Such notification would help the Department and State insurance
commissioners to ensure that MEWAs are being lawfully operated and that
sufficient insurance has been purchased or adequate reserves
established to pay benefit claims before the MEWAs begin operating \15\
in a State. The proposed rule would improve MEWA compliance and deter
fraudulent and abusive MEWA practices, thereby protecting and securing
the benefits of participants and beneficiaries by ensuring that MEWA
assets are preserved and benefits timely paid. These potential benefits
have not been
[[Page 76228]]
quantified, but the Department expects that they will more than justify
their costs.
---------------------------------------------------------------------------
\15\ Section 2520.101-2(b)(8) of the proposed rule provides that
the term ``operating'' means any activity including but not limited
to marketing, soliciting, providing, or offering to provide medical
care benefits.
---------------------------------------------------------------------------
3. Costs of Proposed Rule
The costs of the proposed rule are associated with the amendments
to the Form M-1 and Form 5500 reporting requirements and are therefore
discussed in the Paperwork Reduction Act section, below.
B. Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed. Currently, the Department is soliciting
comments concerning the proposed information collection request (ICR)
included in this proposed rule. A copy of the ICR may be obtained by
contacting the individual identified below in this notice. The
Department has submitted a copy of the proposed information collection
to OMB in accordance with 44 U.S.C. 3507(d) for review of its
information collections. The Department and OMB are particularly
interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriated
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Employee Benefits Security Administration. Although comments may be
submitted through February 6, 2012. Address requests for copies of the
ICR to G. Christopher Cosby, Office of Policy and Research, U.S.
Department of Labor, Employee Benefits Security Administration, 200
Constitution Avenue NW., Room N 5647, Washington, DC 20210. Telephone
(202) 219-8410; Fax: (202) 219-4745. These are not toll free numbers.
Between 2006 and 2009, an average of 457 entities filed Form M-1
with the Department (a high of 508 in 2006 and a low of 397 in 2009).
Of the total filings, on average, 197 were submitted via mail and 260
were submitted electronically through the Form M-1 electronic filing
system provided by the Department via the Internet. The fraction filing
electronic returns has been increasing and reached nearly 65 percent in
2009. This proposed rule will require all filings to be submitted
electronically.
As discussed above and pursuant to section 6606, the proposed rule
would amend the information required to be disclosed on the Form M-1 by
adding new data elements. Therefore, the Department assumes that all
MEWA plan administrators that file the Form M-1 in-house (an estimated
10 percent of filers) would spend two hours familiarizing themselves
with the changes to the form that would be made by the proposed
regulation. This would result in a total hour burden of 92 hours (46
MEWAs * 2 hours). The Department estimates that Part I of the Form (the
identifying information) would require five minutes to complete. The
time required to complete Part II would vary based on the number of
States in which the entity provides coverage, and the Department
estimates that this would require 60 minutes for single-State filers
and 120 minutes for multi-State filers. The Department expects the time
required to complete Part III would be 15 minutes for fully-insured
filers and 30 minutes for self-insured filers. Table 1 below summarizes
the estimates of time required to complete each part of the form. Based
on the foregoing, the Department estimates that the total hour burden
for MEWAs to file the Form M-1 using in-house resources would be 178
hours in the first year with an equivalent cost of $16,200 assuming all
work will be performed by an employee benefits professional at $91.21
per hour.\16\ The cost to submit electronic filings would be
negligible.
---------------------------------------------------------------------------
\16\ EBSA estimates of labor rates include wages, other
benefits, and overhead based on the National Occupational Employment
Survey (May 2009, Bureau of Labor Statistics) and the Employment
Cost Index (October 2010, Bureau of Labor Statistics).
---------------------------------------------------------------------------
The Department estimates that the annual hour burden for Form M-1
filings prepared in-house in subsequent years would be approximately 94
hours as summarized in Table 2.\17\ The Department estimate is based on
the assumption that approximately 41 new MEWAs \18\ will file the Form
M-1 each year, and thus, approximately four new MEWAs will prepare Form
M-1 in-house. The Department estimates that it would take two hours for
these administrators, resulting in an hour burden of eight hours. The
Department estimates that MEWAs preparing the form in-house would spend
four hours completing part I, 68 hours completing Part II, and 15 hours
completing part III. The equivalent cost of this annual hour burden is
estimated to be $8,600, assuming a $91.21 hourly labor rate for an
employee benefits professional.
---------------------------------------------------------------------------
\17\ These are rounded values. The totals may differ slightly as
a result.
\18\ There were 46 MEWA originations in 2006, 52 originations in
2007 and 26 originations in 2008. This averages to 41 originations
per year.
Table 1--Time To Fill Out Form
[Minutes]
----------------------------------------------------------------------------------------------------------------
Fully-insured Self-insured
----------------------------------------------------------------------------------------------------------------
Multi
One State Multi States One State States
----------------------------------------------------------------------------------------------------------------
New Filing................................................. 120 120 120 120
Part I..................................................... 5 5 5 5
Part II.................................................... 60 120 60 120
[[Page 76229]]
Part III................................................... 15 15 30 30
----------------------------------------------------------------------------------------------------------------
Table 2--Hour Burden To Prepare Form M-1, In-House Preparation
----------------------------------------------------------------------------------------------------------------
Fully-insured Self-insured
-----------------------------------------------------
Multi Total
One State Multi States One State States
----------------------------------------------------------------------------------------------------------------
Number of MEWAs............................... 16 17 8 5 46
Review: Year 1................................ 32 34 16 10 92
New Filing: Subsequent Years.................. 3 3 1 1 8
Part I........................................ 1 1 1 0.5 4
Part II....................................... 16 33 8 11 68
Part III...................................... 4 4 4 3 15
-----------------------------------------------------------------
Total Time: Year 1........................ 53 73a 29 24 178
Total Time: Subsequent Years.............. 24 41 14 15 94
----------------------------------------------------------------------------------------------------------------
1. Cost Burden
The Department assumes that 90 percent of the 457 MEWAs (411 MEWAs)
that will file the Form M-1 will use third-party service providers to
complete and submit the Form M-1.\19\ Because the Department is
proposing to add additional data elements to the form, the Department
assumes that in the year of implementation, all service providers would
spend additional time familiarizing themselves with the changes. The
Department estimates that MEWAs that use third party service providers
would incur the cost of one hour for service providers to review the
new rule as service providers likely will provide this service for
multiple MEWAs and therefore spread this burden across multiple MEWAs.
This results in a one-time cost burden of $37,500 (411 MEWAs * 1 hour *
$91.21).
---------------------------------------------------------------------------
\19\ This assumption is made in connection with EBSA's principal
reporting form, the Form 5500, and was validated through a filer
survey.
---------------------------------------------------------------------------
The total estimated cost burden for preparing the form is arrived
at by multiplying the number of filers (found in Table 3) by the amount
of time required to prepare the documents (Table 1) and multiplying
this result by the hourly cost of an employee benefits professional
($91.21 dollars an hour). Based on the foregoing, the total cost burden
for MEWAs that use purchased third-party resources to file the M-1 form
is $108,100 hours in the first year and $70,700 in later years. Table 3
summarizes the estimates of the cost burden.
Table 3--Cost Burden To Prepare Form M-1, Third-Party Preparation
----------------------------------------------------------------------------------------------------------------
Fully-insured Self-insured
-----------------------------------------------------
Multi Total
One State Multi States One State States
----------------------------------------------------------------------------------------------------------------
Number of MEWAs............................... 140 149 73 49 411
Review: Year 1................................ $12,800 $13,600 $6,700 $4,500 $37,500
New Filing: Subsequent Years.................. $0 $0 $0 $0 $0
Part I........................................ $1,100 $1,100 $600 $400 $3,100
Part II....................................... $12,800 $27,100 $6,600 $8,900 $55,400
Part III...................................... $3,200 $3,400 $3,300 $2,200 $12,100
-----------------------------------------------------------------
Total Time: Year 1........................ $29,800 $45,200 $17,200 $15,900 $108,100
Total Time: Subsequent Years.............. $17,100 $31,600 $10,500 $11,500 $70,700
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers are rounded to the nearest hundred and therefore may not add up to the totals.
The proposed regulations direct an ERISA-covered plan MEWA that is
subject to Form M-1 requirements to include proof of filing the Form M-
1 as part of the Form 5500. Accordingly, the Department is proposing to
add a new Part III to the Form 5500, which would ask for information
regarding whether the employee welfare benefit plan is a MEWA subject
to the Form M-1 requirements, and if so, whether the plan is currently
in compliance with the Form M-1 requirements under Sec. 2520.101-2.
Plan administrators that indicate the plan is a MEWA subject to the
Form M-1 requirements also would be required to enter the receipt
confirmation code for the most recent Form M-1 filed with the
Department. Failure to answer the Form M-1 compliance questions will
result in rejection of the Form 5500 Annual Return/Report as incomplete
and civil penalties may be assessed pursuant to ERISA section
502(c)(2). The Department believes that the burden associated with this
revision would be
[[Page 76230]]
de minimis, because plan administrators would know whether the plan
MEWA is subject to and in compliance with the Form M-1 requirements and
they would have the receipt confirmation code for the most recent Form
M-1 filing readily available.
The proposed regulations also would remove the exemption from
filing the Form 5500 for ERISA-covered MEWAs that are unfunded or
insured and have fewer than 100 participants. Following the methodology
used to calculate the burden in the Form 5500 regulations, the
Department estimates that small ERISA-covered MEWAs filing a Form 5500
and completing Schedule A and Part III of Schedule G would incur an
annual cost of $450 to engage a third-party service provider to prepare
the form and schedules for submission. The Department does not have
sufficient data to determine the number of small, ERISA-covered MEWAs
that would be required to file the Form 5500 under the proposed rule,
but believes that the number of such MEWAs would be small, because 90
percent of MEWAs that file Form M-1 with the Department cover more than
100 participants.
2. Cost to the Government
The Department estimates that the cost to the Federal government to
process Form M-1s is approximately $7,200. This includes the cost to
process online submissions and maintain the processing system, and was
estimated by the offices within EBSA that are responsible for
overseeing these activities.
Table 4--Cost of Federal Government of Form M-1
------------------------------------------------------------------------
------------------------------------------------------------------------
Processing of M1 Forms:
Online...................................................... $2,200
Maintenance of System....................................... 5,000
---------
Total.................................
