In a prior article, we have covered what it means to be a controlled group. Essentially, if a group of entities is a controlled group, it is treated as a single employer for most benefits purposes. However, what if a group of entities doesn’t fit that mold? And what if they want to sponsor a plan together?

Multiple Employer Welfare Arrangements, or MEWAs

A MEWA is a group health plan sponsored by employers that do not meet the common ownership percentage required for a controlled group (80% ownership, or in some cases, 50% under the brother-sister rules, as described in our prior article). Additionally, MEWAs that have less than 25% common control must file a Form M-1 with the federal government, indicating which states they are operating in and other details about how the MEWA is run. The M-1 filing requirements must be watched carefully, since they arise at different times:

  • When the MEWA first begins to operate
  • When the plan membership increases by more than 50%
  • When they begin operating in a new state
  • When there is any material change in the MEWA
  • Annually, by March 1

For the first one, a registration M-1 is required 30 days before beginning operations.  For the next 3, a filing is required within 30 days of the event (i.e. following the event). The M-1 filings are not only monitored by the DOL, but also by the states the M-1 shows the MEWA is operating in.

Group health plans that are MEWAs are subject to state laws. As a result, it is also necessary to determine if the individual states require a MEWA registration and what state laws apply. Some require registration of all MEWAs or only self-insured MEWAs. Others do not permit self-insured MEWAs at all. MEWAs with more than 25% control do not need to file a federal M-1, but they may still be required to file at the state level. When a MEWA first forms or if an employer is approached to participate in a MEWA, it is important to look into the current laws of each state in this regard so they can follow the states’ requirements.

A Note About MEWA Promoters

While this piece focuses on groups of related employers sponsoring a plan together, we must mention that often times promoters approach employers offering self-funded MEWAs. We have detailed the concerns with such arrangements in this prior article. It is one thing to attempt to sponsor a plan together with other entities that have some preexisting relationship. While that may be a MEWA, it is a group of known entities. It is entirely another to join a plan with several unrelated employers that are largely unknown to you. In many cases, existing MEWA promoters have not done a full vetting of applicable state laws.

Affiliated Service Groups (ASGs)

Affiliated Service Groups, or ASGs, are another creature of the tax laws. ASGs are designed to capture groups of entities that have some common ownership, but not enough to be a controlled group, and still work very closely together. This could happen in a variety of circumstances, such as:

  • an organization that regularly performs services for another entity that is its partial owner
  • an organization that is regularly associated with its partial owner in performing services to others
  • an organization that performs services to one of the first two above and is owned at least 10 percent by highly compensated employees of the partial owner, or
  • an organization that provides management services exclusively to one other organization

Most groups that fit into this category provide professional services such as doctors, lawyers, architects, engineers, accountants, consulting firms, etc.

The bottom line is that ASGs may exist where there is either (1) a partial ownership interest and an extremely close working relationship between two or more entities (2) an exclusive relationship where one entity provides management functions (like back-office services) to another. The details of ASGs are complex, and competent tax or benefits counsel should be consulted to determine if you are a part of one. The goal of the ASG rules is to prevent entities that effectively act like controlled groups from providing less rich plans to one of the entities involved.

From a benefits perspective, ASGs create additional complexity.  Due to a difference between the controlled group definitions used in the tax code and in ERISA, ASGs are treated like controlled groups for some benefits purposes, but not all. If an ASG sponsors a common group health plan for its members, that plan is almost always a MEWA. Whether or not it has a Form M-1 filing obligation will depend on the percentage of total common control. 

By contrast, ASGs are treated as a single employer to determine if the entity is an Applicable Large Employer under the Affordable Care Act (“ACA”) employer mandate and reporting rules. ASGs are also treated as a single employer for determining if the employer is subject to COBRA continuation and, if applicable, may be able to file a single Form 5500 with the Department of Labor depending on the structure of the plan.

For purposes of carrier rating, carriers vary on how they treat ASGs. Sometimes they treat them as a single employer (allowing the ASG, if large enough, to be treated as a large group). Other times, they treat each entity as a separate employer. In that case, carriers may be reluctant to write a single plan for all members of the ASG.

How to Sort Through All This

When considering funding options for a group of employers there is a hierarchy of questions to consider:

  1. Does the group meet controlled group definition? If so, this is by far the easiest path since they are treated as a single employer. All options available (fully-insured, level funded, self-insured).
  2. If group does not meet controlled group definition, they are a MEWA. If so:
  • Is there less than 25% common ownership? - If so, a Form M-1 filing is required, and a form 5500 is required, regardless of group size.
  • What state law rules apply?
  • Does the plan have to register?
  • If the plan is self-insured, can it even function in that state?
  1. Does the group meet affiliated service group rules?
  • If yes, the participating employers will be treated as a single employer for ACA and COBRA, but not necessarily other ERISA rules.
  • If the group seeks to be fully insured, provide this information to the carrier as it may make it easier to be treated as a single employer for the carrier’s rating purposes.
  • If the group prefers self-funding (including level-funding), it may have to adopt mirror plans (plans that are separate, but identical in terms to one another).
    • This avoids Form M-1 filing requirements.
    • However, it will require individual Form 5500s, if applicable.

Determinations regarding controlled group, affiliated service group, and/or MEWA status can be rather complicated and will depend on many factors.  HUB therefore recommends that groups fitting these descriptions seek the opinion of a qualified ERISA attorney familiar with these rules.  Having a legal analysis in hand when seeking benefits coverage can increase options, make the process run smoothly, and ensure compliance.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory,

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.