Plans Established or Maintained Pursuant to Collective Bargaining Agreements Under Section 3(40)(A)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2510

RIN 1210-AA48

Plans Established or Maintained Pursuant to Collective Bargaining

Agreements Under Section 3(40)(A)

AGENCY: Pension and Welfare Benefits Administration, Department of

Labor.

ACTION: Notice of intent to form a negotiated rulemaking advisory

committee.

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SUMMARY: The Department of Labor (Department) intends to form a

Negotiated Rulemaking Advisory Committee (Committee) in accordance with

the Negotiated Rulemaking Act of 1990 and the Federal Advisory

Committee Act. The Committee will negotiate the development of a

proposed rule implementing the Employee Retirement Income Security Act

of 1974, as amended, 29 U.S.C. 1001-1461 (ERISA). The purpose of the

proposed rule is to establish a process and criteria for a finding by

the Secretary of Labor that an agreement is a collective bargaining

agreement for purposes of section 3(40) of ERISA. The proposed rule

will also provide guidance for determining when an employee benefit

plan is established or maintained under or pursuant to such an

agreement. Employee benefit plans that are established or maintained

for the purpose of providing benefits to the employees of more than one

employer

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are ``multiple employer welfare arrangements'' under section 3(40) of

ERISA, and therefore are subject to certain state regulations, unless

they meet one of the exceptions set forth in section 3(40)(A). At issue

in this regulation is the exception for plans or arrangements that are

established or maintained under one or more agreements which the

Secretary finds to be collective bargaining agreements. If adopted, the

proposed rule would affect employee welfare benefit plans, their

sponsors, participants and beneficiaries, as well as service providers

to plans. It may also affect plan fiduciaries, unions, employer

organizations, the insurance industry, and state insurance regulators.

DATES: Written comments, applications for membership and nominations

for membership on the negotiated rulemaking committee must be received

at the address provided below on or before May 15, 1998.

The first meeting of the Committee will be held after the Committee

has been established under the Federal Advisory Committee Act (FACA).

The date, location and time for Committee meetings will be announced in

advance in the Federal Register.

ADDRESSES: Comments, applications for membership and nominations for

membership may be mailed to the following address: Office of the

Solicitor, Plan Benefits Security Division, Room N-4611, U.S.

Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.

Attention: Negotiated Rulemaking Advisory Committee for ERISA Section

3(40). In the alternative, comments may be hand-delivered between the

hours of 9 a.m. to 5 p.m. to the same address.

All submissions will be open to public inspection and copying in

the Public Documents Room, Pension and Welfare Benefits Administration,

U.S. Department of Labor, Room N-5638, 200 Constitution Avenue, NW,

Washington, DC from 8:30 a.m. to 5:30 p.m.

The Committee meetings will be held at U.S. Department of Labor,

200 Constitution Avenue, NW, Washington, DC 20210 at the convenience of

the Committee. The date, location and time for Committee meetings will

be announced in advance in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Patricia Arzuaga, Office of the

Solicitor, Plan Benefits Security Division, U.S. Department of Labor,

Room N-4611, 200 Constitution Avenue, NW, Washington, DC 20210

(telephone (202) 219-4600). This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

I. Regulatory Negotiation

The Department intends to use the negotiated rulemaking procedure

in accordance with the Negotiated Rulemaking Act of 1990, P.L. 101-648

(5 U.S.C. 561-569)(NRA). The Department will form an advisory committee

consisting of representatives of the affected interests and the

Department for the purpose of reaching consensus on the proposed rule.

The NRA establishes a framework for the conduct of a negotiated

rulemaking and encourages agencies to use negotiated rulemaking to

enhance the informal rulemaking process. Under the NRA, the head of an

agency must consider whether:

There is a need for the rule;

There are a limited number of identifiable interests that

will be significantly affected by the rule;

There is a reasonable likelihood that a Committee can be

convened with a balanced representation of persons who (1) can

adequately represent the interests identified; and (2) are willing to

negotiate in good faith to reach a consensus on the rulemaking;

There is a reasonable likelihood that a Committee will

reach a consensus on the rulemaking within a fixed period of time;

The negotiated rulemaking process will not unreasonably

delay the development and issuance of a final rule;

The agency has adequate resources and is willing to commit

such resources, including technical assistance, to the Committee; and

The agency, to the maximum extent possible consistent with

its legal obligations, will use the consensus of the Committee with

respect to developing the rule proposed by the agency for public notice

and comment.

Negotiations are conducted by a Committee chartered under the

Federal Advisory Committee Act (FACA) (5 U.S.C. App. 2). The Committee

includes a Department representative and is assisted by a neutral

facilitator. The goal of the Committee is to reach consensus on the

language or issues involved in the rule. If consensus is reached, the

Department undertakes to use the consensus as the basis of the proposed

rule, to the extent consistent with its legal obligations. The

negotiated rulemaking process does not otherwise affect the

Department's obligations under FACA, the Administrative Procedures Act

and other statutes, including all economic, paperwork and other

required regulatory analyses.

The Department invites comments on the appropriateness of

regulatory negotiation for this proposed rule.

II. Subject and Scope of the Rule

A. Need for the Rule

The Department believes that regulatory guidance on the scope of

the ERISA 3(40) exception for plans or other arrangements established

or maintained pursuant to collective bargaining agreements is necessary

to ensure that (1) the Department and state insurance regulators can

identify and regulate MEWAs operating in their jurisdiction, and (2)

sponsors of employee health benefit programs may determine whether

their plans are established or maintained pursuant to collective

bargaining agreements for purposes of section 3(40)(A).

Section 3(40)(A) of ERISA defines the term multiple employer

welfare arrangement (MEWA) in pertinent part as follows:

The term ``multiple employer welfare arrangement'' means 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 any benefit

described in paragraph (1) [of section 3 of the Act] 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--

(i) Under or pursuant to one or more agreements which the

Secretary finds to be collective bargaining agreements * * *.

This provision was added to ERISA by the Multiple Employer Welfare

Arrangement Act of 1983, Sec. 302(b), Pub. L. 97-473, 96 Stat. 2611,

2612 (29 U.S.C. 1002(40)), which also amended section 514(b) of ERISA.

Section 514(a) of the Act provides that state laws which relate to

employee benefit plans are generally preempted by ERISA. Section 514(b)

sets forth 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 or not the MEWA is fully insured.

Sec. 302(b), Pub. L. 97-473, 96 Stat. 2611, 2613 (29 U.S.C.

1144(b)(6)).1

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\1\ The Multiple Employer Welfare Arrangement Act of 1983 added

section 514(b)(6), which provides a limited exception to ERISA's

preemption of state insurance laws. This exception allows states to

exercise regulatory authority over employee welfare benefit plans

that are MEWAs. Section 514(b) provides, in relevant part, that:

(6)(A) Notwithstanding any other provision of this section--

(i) in the case of an employee welfare benefit plan which is a

multiple employer welfare arrangement and is fully insured (or which

is a multiple employer welfare arrangement subject to an exemption

under subparagraph (B)), any law of any State which regulates

insurance may apply to such arrangement to the extent that such law

provides--

(I) standards, requiring the maintenance of specified levels of

reserves and specified levels of contributions, which any such plan,

or any trust established under such a plan, must meet in order to be

considered under such law able to pay benefits in full when due, and

(II) provisions to enforce such standards, and

(ii) in the case of any other employee welfare benefit plan

which is a multiple employer welfare arrangement, in addition to

this title, any law of any State which regulates insurance may apply

to the extent not inconsistent with the preceding sections of this

title.

Thus, an employee welfare benefit plan that is a MEWA remains

subject to state regulation to the extent provided in section

514(b)(6)(A). MEWAs which are not employee benefit plans are

unconditionally subject to state law.

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The Multiple Employer Welfare Arrangement Act was enacted to

counter abuse by the operators of bogus ``insurance trusts.'' Congress

was concerned that certain MEWA operators were successfully thwarting

timely investigations and enforcement activities of state agencies by

asserting that such entities were ERISA plans exempt from state

regulation by the terms of section 514 of ERISA. The goal of the law

was to remove legal obstacles which could hinder the ability of the

States to regulate multiple employer welfare arrangements to assure the

financial soundness and timely payment of benefits under these

arrangements. 128 Cong. Rec. E2407 (1982)(Statement of Congressman

Erlenborn).

As a result of the addition of section 514(b)(6) to ERISA, certain

state laws regulating insurance apply to employee benefit plans that

are MEWAs. However, the definition of a MEWA in section 3(40) provides

that an employee benefit plan is not a MEWA if it is established or

maintained pursuant to an agreement which the Secretary of Labor finds

to be a collective bargaining agreement. Such a plan is therefore not

subject to regulation under state insurance law under section

514(b)(6).

While the Multiple Employer Welfare Arrangement Act of 1983

significantly enhanced the states' ability to regulate MEWAs, problems

in this area continue to exist as a result of the exception for

collectively bargained plans contained in the 1983 amendments. This

exception is now being exploited by some MEWA operators who, through

the use of sham unions and collective bargaining agreements, market

fraudulent insurance schemes under the guise of collectively bargained

welfare plans exempt from state insurance regulation. Another issue in

this area involves the use of collectively bargained arrangements as

vehicles for marketing health care coverage nationwide to employees and

employers with no relationship to the bargaining process or the

underlying agreement. In addition, the Department has received requests

to make individual determinations concerning the status of particular

plans under section 3(40) of ERISA.

The purpose of the negotiated rulemaking is to develop a proposed

rule that would facilitate determinations by the Department, employee

benefit plans and state insurance regulatory agencies as to whether a

particular agreement is a collective bargaining agreement, and whether

a particular plan is established or maintained under or pursuant to one

or more collective bargaining agreements.

Earlier Proposed Rule: In 1995, the Department published a Notice

of Proposed Rulemaking on Plans Established or Maintained Pursuant to

Collective Bargaining Agreements in the Federal Register. 60 FR 39209

(August 1, 1995) (NPRM). The Department proposed criteria and a process

for determining whether an employee benefit plan is established or

maintained under or pursuant to one or more agreements that the

Secretary finds to be collective bargaining agreements for purposes of

section 3(40) of ERISA. The proposed approach would not have required

individual findings by the Department. The Department received numerous

comments on the NPRM. Commenters expressed concerns about their ability

to comply with the standards set forth in the NPRM, or to obtain data

necessary to establish compliance with the criteria proposed by the

Department. Commenters also objected to having states determine whether

a particular agreement was a collective bargaining agreement.

B. Issues and Questions to be Resolved

The major issues the Department intends to address in this proposed

rule are the criteria and the process for determining whether an

employee benefit plan is established or maintained under or pursuant to

one or more agreements that the Secretary finds to be collective

bargaining agreements for purposes of section 3(40)(A) of ERISA.

A number of interests (including employers, service providers, and

participants) are likely to be affected by the new rule on the

definition of collective bargaining agreements under ERISA 3(40). The

effect of the rule is likely to vary, depending primarily on the size

of the multiemployer plans and the size and financial condition of the

employers contributing to these plans, and the extent to which plan

coverage encompasses non-bargaining unit employees.

III. Affected Interests and Potential Committee Membership

The following organizations have expressed an interest in

participating in this negotiated rulemaking. The Department believes

that these organizations, directly or through joint representation with

other organizations, reflect an appropriate mix of the interests

significantly affected by the proposed rulemaking. Committee membership

may change from the organizations listed below based on applications

for membership or nominations for membership that may be received in

response to this Notice.

Labor (employees covered by or seeking to be covered by CBAs)

AFL-CIO

Multiemployer Plans

National Coordinating Committee for Multiemployer Plans

Entertainment Industry Multiemployer Health Plans

States

National Association of Insurance Commissioners

Federal Government

Department of Labor:

Pension Welfare Benefits Administration: Elizabeth Goodman, DOL

Negotiator, Office of Regulations and Interpretations

The Department nominates Peter Swanson of the Federal Mediation and

Conciliation Service as facilitator. Mr. Swanson has extensive

experience in facilitating negotiating rulemaking meetings and in

mediating disputes.

The intent in establishing the Committee is that all significantly

affected interests are represented, not necessarily all parties. While

the Department believes the above participants represent the principal

interests associated with the rule to be negotiated, we invite comment

on this list of negotiation participants.

IV. Formation of the Negotiating Committee

A. Procedure for Establishing an Advisory Committee

As a general rule, an agency of the Federal Government is required

to comply with the requirements of FACA when it establishes or uses a

group that includes nonfederal members as a source of advice. Under

FACA, an advisory committee is established once a charter has been

approved by the

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Secretary of Labor. Negotiations will not begin until the charter has

been approved.

B. Participants

Under the NRA, the number of participants on the Committee should

not exceed 25. A number larger than this could make it difficult to

conduct effective negotiations. One purpose of this notice is to help

determine whether the proposed rule would significantly affect

interests not adequately represented by the proposed participants. The

NRA does not require that each potentially affected organization or

individual must necessarily have its own representative. However, each

interest must be adequately represented. Moreover, the Department must

be satisfied that the group as a whole reflects a proper balance and

mix of interests.

C. Requests for Representation

Persons who will be affected significantly by the planned proposed

rule on the definition of a collective bargaining agreement and who

believe that their interests will not be adequately represented by the

persons identified above may apply, or nominate another person, for

membership on the Committee to represent their interests. Each

application or nomination must include: (1) The name of the applicant

or nominee and a description of the interests the person will

represent; (2) evidence that the applicant or nominee is authorized to

represent parties related to the interests the person proposes to

represent; (3) a written commitment that the applicant or nominee will

actively participate in good faith in the development of the proposed

rule; and (4) the reasons the persons identified above do not

adequately represent the interests of the person submitting the

application or nomination.

The Department will decide whether the applicant or nominee should

be permitted to represent an interest or member of the Committee. The

decision is based on whether the individual or interest (1) would be

significantly affected by the rule; and (2) is already adequately

represented on the Committee.

D. Notice of Establishment of Committee

After reviewing any comments on this Notice of Intent and any

requests for representation, the Department will issue a notice

announcing the establishment of a negotiated rulemaking advisory

committee, unless the Department decides, based on comments and other

relevant considerations, that establishment of the Committee is

inappropriate. All meeting notices will be published in the Federal

Register.

V. Negotiation Procedures

When the Committee is formed, the following procedures and

guidelines will apply, unless they are modified as a result of comments

received on this notice or during the negotiation process--

A. Facilitator

The Committee will use a neutral facilitator. The facilitator will

not be involved with the substantive development of the regulation. The

facilitator's role is to chair the negotiating sessions; help the

negotiation process run smoothly; maintain the meeting minutes as

required under FACA; and help the Committee define and reach consensus.

B. Good Faith Negotiations

Participants must be willing to negotiate in good faith and be

authorized to do so.

C. Committee Expenses and Administrative Support

In most cases, Committee members are responsible for their own

expenses of participation. The Department may pay for certain expenses,

in accordance with Section 7(d) of the Federal Advisory Committee Act,

if (1) a member certifies a lack of adequate financial resources to

participate in the Committee; and (2) the Department determines that

such member's participation in the Committee is necessary to assure

adequate representation of the member's interest.

The Department will provide logistical, administrative, and

management support to the Committee. If deemed necessary, the

Department will provide technical support to the Committee in gathering

and analyzing data or information.

D. Schedule for Negotiation/Meetings

The Department has set a deadline of approximately five to six

months beginning with the date of the first meeting for the Committee

to complete work on development of the proposed rule. We intend to

terminate the activities of the Committee if it does not appear likely

to reach consensus within this time period.

Once the Committee has been established under the FACA, the

Department will publish a notice of the first Committee meeting in the

Federal Register. The purpose of the first meeting will be to discuss

in detail how the negotiations will proceed and how the Committee will

function. The Committee will:

Agree to ground rules for Committee operation;

Determine how best to address the principal issues; and

If time permits, begin to address those issues.

The date, location, time and agenda for all Committee meetings will

be announced in advance in the Federal Register. These subsequent

Committee meetings will be held approximately every three weeks. Unless

announced otherwise, meetings are open to the public.

E. Committee Procedures

Under the general guidelines and direction of the facilitator, and

subject to any applicable legal requirements, members of the Committee

will establish the detailed procedures for Committee meetings that they

consider most appropriate.

F. Defining Consensus

The goal of the negotiating process is consensus. Under the NRA,

consensus means that each interest represented on the Committee concurs

in the result, unless the Committee (1) agrees to define ``consensus''

to mean general but not unanimous concurrence, or (2) agrees upon

another specified definition. The Department expects the Committee

participants to fashion their working definition of this term.

G. Failure of the Advisory Committee to Reach Consensus

If the Committee is unable to reach consensus, the Department will

proceed independently to develop a proposed rule. Parties to the

negotiation may withdraw at any time. If this occurs, the Department

and the remaining participants on the Committee will evaluate whether

the Committee should continue.

H. Record of Meetings

In accordance with FACA's requirements, minutes of all Committee

meetings will be kept. The minutes will be placed in the public

rulemaking record.

I. Other Information

In accordance with the provisions of Executive Order 12866, this

notice was reviewed by the Office of Management and Budget.

VI. Authority

This document was prepared under the direction of Olena Berg,

Assistant Secretary of Labor for Pension and Welfare Benefits, U.S.

Department of

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Labor, 200 Constitution Avenue, NW, Washington, DC 20210, pursuant to

Section 3 of the Negotiated Rulemaking Act of 1990, 104 Stat. 4969,

Title 5 U.S.C. 561 et seq.; and section 3(40) of ERISA (Pub. L. 97-473,

96 Stat. 2611, 2612, 29 U.S.C. 1002(40)) and section 505 (Pub. L. 93-

406, 88 Stat. 892, 894, 29 U.S.C. 1135) of ERISA, and under Secretary

of Labor's Order No. 1-87, 52 FR 13139, April 21, 1987.

Signed at Washington, DC, this 9th day of April 1998.

Olena Berg,

Assistant Secretary, Pension and Welfare Benefits Administration.

[FR Doc. 98-9952 Filed 4-14-98; 8:45 am]

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