[Federal Register Volume 65, Number 29 (Friday, February 11, 2000)]
[Rules and Regulations]
[Pages 7152-7180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2935]



[[Page 7151]]

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Part III





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Parts 2520, 2560, and 2570



Reporting by Multiple Employer Welfare Arrangements and Certain Other 
Entities That Offer or Provide Coverage for Medical Care to the 
Employees of Two or More Employers; Interim Final Rule



The Assessment of Civil Penalties Under Section 502(c)(5) of ERISA; 
Interim Final Rule



Governing Procedures for Administrative Hearings Regarding the 
Assessment of Civil Penalties Under Section 502(c)(5) of ERISA; Interim 
Final Rule

  Federal Register / Vol. 65, No. 29 / Friday, February 11, 2000 / 
Rules and Regulations  

[[Page 7152]]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA54


Interim Final Rule for Reporting by Multiple Employer Welfare 
Arrangements and Certain Other Entities That Offer or Provide Coverage 
for Medical Care to the Employees of Two or More Employers

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Interim final rule with request for comments.

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SUMMARY: This document contains an interim final rule governing certain 
reporting requirements under Title I of the Employee Retirement Income 
Security Act of 1974 for multiple employer welfare arrangements (MEWAs) 
and certain other entities that offer or provide coverage for medical 
care to the employees of two or more employers. The interim final rule 
requires the administrator of a MEWA, or other entity, to file a form 
with the Secretary of Labor for the purpose of determining whether the 
requirements of certain recent health care laws are being met.

DATES: Effective Date: This interim final rule is effective beginning 
April 11, 2000.
    Comment Date: Written comments concerning this interim rule are 
invited and must be received by the Department of Labor on or before 
March 13, 2000.
    Compliance Dates: Compliance dates are set forth in paragraph (i) 
of this section. In general, this paragraph states that reports filed 
pursuant to this interim rule are first due by May 1, 2000.

ADDRESSES:  Interested persons are invited to submit written comments 
(preferably with three copies) to: Pension and Welfare Benefits 
Administration, Room C-5331, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Washington, DC 20210. Attention: MEWA reporting. Written 
comments may also be sent by Internet to the following address: 
[email protected].
    All submissions will be open to public inspection and copying from 
8:30 a.m. to 4:30 p.m. in the Public Documents Room, Pension and 
Welfare Benefits Administration, U.S. Department of Labor, Room N-5638, 
200 Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Amy J. Turner, Pension and Welfare 
Benefits Administration, U.S. Department of Labor, Room C-5331, 200 
Constitution Avenue, NW., Washington, DC 20210 (telephone (202) 219-
7006). This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

    The Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191) (HIPAA), was enacted on August 21, 1996. HIPAA 
amended the Employee Retirement Income Security Act of 1974 (ERISA or 
the Act) to provide for, among other things, improved portability and 
continuity of health insurance coverage. The Mental Health Parity Act 
of 1996 (Pub. L. 104-204) (MHPA), was enacted on September 26, 1996. 
MHPA amended ERISA to provide parity in the application of annual and 
lifetime dollar limits for certain mental health benefits with such 
dollar limits on medical and surgical benefits. The Newborns' and 
Mothers' Health Protection Act of 1996 (Pub. L. 104-204) (Newborns' 
Act) also was enacted on September 26, 1996. The Newborns' Act amended 
ERISA to provide new protections for mothers and their newborn children 
with regard to the length of hospital stays in connection with 
childbirth. The Women's Health and Cancer Rights Act of 1998 (WHCRA) 
(Pub. L. 105-277) was enacted on October 21, 1998. WHCRA amended ERISA 
to provide individuals new rights for reconstructive surgery in 
connection with a mastectomy. All of the foregoing provisions are set 
forth in Part 7 of Subtitle B of Title I of ERISA.\1\ Section 734 of 
ERISA authorizes the Secretary to promulgate regulations as may be 
necessary or appropriate to carry out the provisions of Part 7 and to 
promulgate any interim final rules as the Secretary determines are 
appropriate to carry out Part 7.
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    \1\ Parallel HIPAA, MHPA, and Newborns' Act provisions are also 
contained in Chapter 100 of Subtitle K of the Internal Revenue Code 
(Code) and Title XXVII of the Public Health Service Act (PHS Act). 
In addition, parallel WHCRA provisions are also contained in the PHS 
Act. Accordingly, all references to ``Part 7'' in this document 
include the relevant parallel provisions of the Code and the PHS 
Act, unless otherwise specified.
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    HIPAA added a new section 101(g){h} to ERISA.\2\ This section 
provides that:

    \2\ Section 1421(d)(1) of the Small Business Job Protection Act 
of 1996 (Pub. L. 104-188) created a new section 101(g) of ERISA 
relating to Simple Retirement Accounts. Subsequently, section 
101(e)(1) of HIPAA also created a new section 101(g) of ERISA 
relating to MEWA reporting. Accordingly, when referring to section 
101(g) of ERISA relating to MEWA reporting, this document cites 
section 101(g){h} of ERISA.
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the Secretary [of Labor] may, by regulation, require multiple 
employer welfare arrangements providing benefits consisting of 
medical care (within the meaning of section 733(a)(2)) \3\ which are 
not group health plans \4\ to report, not more frequently than 
annually, in such form and such manner as the Secretary may require 
for the purpose of determining the extent to which the requirements 
of part 7 are being carried out in connection with such benefits. 
(Emphasis added.)
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    \3\ Section 733(a)(2) of ERISA defines medical care to mean:
    ``amounts paid for--
    (A) The diagnosis, cure, mitigation, treatment, or prevention of 
disease, or amounts paid for the purpose of affecting any structure 
or function of the body,
    (B) Amounts paid for transportation primarily for and essential 
to medical care referred to in subparagraph (A), and
    (C) Amounts paid for insurance covering medical care referred to 
in subparagraphs (A) and (B).''
    \4\ Section 733(a) of ERISA defines a group health plan to mean 
``an employee welfare benefit plan to the extent that the plan 
provides medical care * * * to employees or their dependents * * * 
directly or through insurance, reimbursement, or otherwise.'' 
(Emphasis added.)
    Section 3(1) of ERISA defines an employee welfare benefit plan 
to mean, in pertinent part:
    Any plan, fund, or program * * * established or maintained by an 
employer or by an employee organization, or by both, to the extent 
that such plan, fund, or program was established or is maintained 
for the purpose of providing for its participants or their 
beneficiaries, through the purchase of insurance or otherwise, * * * 
medical, surgical, or hospital care or benefits, or benefits in the 
event of sickness, accident, disability, death or unemployment, or 
vacation benefits, apprenticeship or other training programs, or day 
care centers, scholarship funds, or prepaid legal services. * * *''

    The term multiple employer welfare arrangement is defined in 
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section 3(40) of ERISA to mean, in pertinent part:

    (A) * * * 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 
[welfare plan 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--
    (i) Under or pursuant to one or more agreements which the 
Secretary [of Labor] finds to be collective bargaining agreements,
    (ii) By a rural electric cooperative, or
    (iii) By a rural telephone cooperative association.
    (B) For purposes of this paragraph--
    (i) 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,
    (ii) the term ``control group'' means a group of trades or 
businesses under common control,
    (iii) 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

[[Page 7153]]

determining whether employees of two or more trades or businesses 
are treated as employed by a single employer under section 4001(b), 
except that, for purposes of this paragraph, common control shall 
not be based on an interest of less than 25 percent. * * * \5\
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    \5\ 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 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), Pub. L. 97-473, 96 Stat. 2611, 
2613 (29 U.S.C. 1144(b)(6)).

    The purpose of this regulation is to provide the Department with 
information concerning compliance by MEWAs with the requirements of 
Part 7. In determining how best to obtain this information, the 
Department considered a number of alternatives, including requiring 
reporting only by MEWAs that are not ERISA-covered group health plans 
as described in section 101(g){h} of ERISA. For a number of reasons, 
explained more fully in the Economic Analysis section of this document, 
the Department determined that it was necessary to exercise various 
other regulatory authority in Title I of ERISA (see ``Statutory 
Authority'' section, below) to require annual reports from MEWAs that 
are group health plans and from entities that claim not to be MEWAs 
because they are established or maintained pursuant to a collective 
bargaining agreement. An important reason for requiring these groups to 
file is that the administrator of a MEWA may incorrectly determine that 
it is a group health plan or that it is established or maintained 
pursuant to a collective bargaining agreement. A reporting requirement 
limited only to MEWAs that are not group health plans may not result in 
reporting by many such MEWAs, thus greatly reducing the value of the 
data collected.
    The Department also believes that imposition of the reporting 
requirements on MEWAs that are group health plans is appropriate to 
carry out the provisions of Part 7 because such reporting will provide 
more complete data on the MEWA universe. Such additional data will 
support a thorough analysis of the market segment represented by MEWAs. 
Information regarding compliance by MEWAs with the provisions of Part 7 
is particularly important to the Department because it has been the 
Department's experience that compliance with ERISA by such 
arrangements, whether or not they claim to be group health plans, has 
been inconsistent. At the same time, in recent years MEWAs have become 
more attractive to small employers as a means to pool risks and obtain 
health benefits at a lower cost. The Department seeks to determine the 
extent of compliance with the requirements of Part 7 by this important 
sector of the employee health benefits market.
    The Department recognizes that multiemployer plans established by 
an association of employers and one or more labor organizations are 
structurally and operationally different from most MEWAs. The 
Department does not seek reporting by such plans except to the extent 
appropriate to assure that all MEWAs file a report. The Department is 
aware that administrators of some MEWAs have sought to avoid State 
insurance regulation by mischaracterizing their arrangements as being 
established or maintained pursuant to collective bargaining agreements. 
In many cases, such mischaracterized entities are not operated in a 
financially responsible manner and become unable to pay benefits within 
a short time. See GAO/HRD-92-40. Therefore, in order to obtain 
information on all entities that are MEWAs, the Department has 
determined that it is appropriate to require reporting by entities that 
claim the collective bargaining exception unless the entity has been in 
existence for at least three years.

B. Overview of the Interim Rule

Basis and Scope

    Paragraph (a) of the interim rule sets forth the basis and scope 
for this annual reporting requirement for MEWAs and certain other 
entities (referred to as Entities Claiming Exception or ECEs) that 
offer or provide coverage for medical care to the employees of two or 
more employers (including one or more self-employed individuals).

Definitions

    Paragraph (b) of the interim rule provides most of the definitions 
used in the interim rule. This definitions section includes both 
statutory definitions provided in ERISA, as amended by HIPAA, as well 
as certain other definitions used in the regulations. In particular, 
the terms ``group health plan,'' ``health insurance issuer,'' ``medical 
care,'' and ``MEWA'' are defined by reference to existing statutory and 
regulatory provisions. In addition, the term ``administrator'' is 
defined as the person specifically designated as the administrator by 
the terms of the instrument under which the MEWA or ECE is operated. 
However, if an administrator is not designated and the MEWA or ECE is a 
group health plan, the plan sponsor \6\ is the administrator. Moreover, 
if an administrator is not designated and a plan sponsor cannot be 
identified, the administrator is 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 directly by such person or 
persons or indirectly through an agent or trustee designated by such 
person or persons.\7\
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    \6\ The term plan sponsor is defined under section 3(16)(B) of 
ERISA as:
    (i) The employer in the case of an employee benefit plan 
established or maintained by a single employer, (ii) the employee 
organization in the case of a plan established or maintained by an 
employee organization, or (iii) in the case of a plan established or 
maintained by two or more employers or jointly by one or more 
employers and one or more employee organizations, the association, 
committee, joint board of trustees, or other similar group of 
representatives of the parties who establish or maintain the plan.
    \7\ In these circumstances, the Department has previously 
expressed its view that the person or persons with such 
responsibility is the administrator for purposes of section 3(16) of 
ERISA. See Advisory Opinion Letter 83-43 to Robert J. Tanguay, 
August 23, 1983.
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    The term ``entity claiming exception'' or ``ECE'' is defined as an 
entity that claims it is not a MEWA due to the exception in section 
3(40)(A)(i) of the Act. In general, this exception is for entities that 
are established or maintained under or pursuant to one or more 
agreements that the Secretary finds to be collective bargaining 
agreements. In connection with this exception, on August 1, 1995, the 
Department published a proposed rule for plans established or 
maintained pursuant to collective bargaining agreements under section 
3(40)(A)(i) of ERISA. 60 FR 39208. Subsequently, in September of 1998, 
the Secretary established the ERISA Section 3(40) Negotiated Rulemaking 
Advisory Committee. See 63 FR 50542. This Committee has negotiated a 
proposed rule establishing 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)(A)(i) of ERISA. Upon issuance 
of a final regulation relating to ERISA section 3(40)(A)(i), this 
regulation may be modified to reflect the scope of this exception.
    Finally, the term ``origination'' is defined to mean the occurrence 
of any

[[Page 7154]]

of the following events (and a MEWA or ECE will be considered to have 
been ``originated'' when any of these events occur):
    (1) The MEWA or ECE first begins offering or providing coverage for 
medical care to the employees of two or more employers (including one 
or more self-employed individuals);
    (2) The MEWA or ECE begins offering or providing coverage for 
medical care to the employees of two or more employers (including one 
or more self-employed individuals) after a merger with another MEWA or 
ECE (unless all MEWAs or ECEs participating in the merger were last 
originated at least 3 years before the merger); or
    (3) The number of employees receiving coverage for medical care 
under the MEWA or ECE is at least 50 percent greater than the number of 
such employees on the last day of the previous calendar year (unless 
such increase is due to a merger with another MEWA or ECE and all MEWAs 
and ECEs that participated in the merger were last originated at least 
three years before the merger).
    Whether a merger triggering a filing occurs is determined based on 
all the relevant facts and circumstances. However, in general, the 
addition of a new contributing employer to a MEWA or ECE would not 
constitute a merger that would trigger a filing. In addition, generally 
no merger triggering a filing occurs when participants represented by a 
local union that joins an existing MEWA or ECE begin receiving coverage 
under the MEWA or ECE.

Persons Required To Report

    Paragraph (c) of the interim rule sets forth the persons required 
to report under the interim rule. First, the administrator of a MEWA 
that provides benefits consisting of medical care is required to 
report, whether or not the MEWA is a group health plan. For the reasons 
discussed above, the Department determined that it was necessary and 
appropriate to exercise various other regulatory authority in Title I 
of ERISA (see Statutory Authority, below) to require all MEWAs to 
report, regardless of whether they are group health plans. In addition, 
the administrator of an ECE is required to file if the ECE was 
originated at any time within 3 years before the annual filing due 
date. (This due date is described in paragraph (e)(2)(i) of the interim 
rule).
    However, because a health insurance issuer, such as an insurance 
company, fits within the statutory definition of a MEWA, paragraph 
(c)(2) of the interim rule clarifies that nothing in the interim rule 
is to be construed to require reporting by the administrator of a MEWA 
or ECE if the MEWA or ECE is 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.
    Accordingly, subject to the exception described above for health 
insurance issuers, the administrator of a MEWA is required to file 
annually. By contrast, the administrator of an ECE is only required to 
file annually for the first three years following an origination. Under 
the interim rule, whether or not an entity is a MEWA or ECE is 
determined by the administrator acting in good faith. Therefore, if an 
administrator makes a good faith determination at the time that a 
filing would otherwise be due that the entity is maintained pursuant to 
one or more collective bargaining agreements, the entity is an ECE, and 
the ECE would not be required to file because its most recent 
origination was more than three years ago, then a filing is not 
required. Even if the entity is later determined to be a MEWA (for 
example, pursuant to regulations developed by the ERISA Section 3(40) 
Negotiated Rulemaking Advisory Committee), filings would not be 
required prior to the determination that the entity is a MEWA if at the 
time the filings were due, the administrator made a good faith 
determination that the entity was an ECE. However, filings would be 
required for years after the determination that the entity is a MEWA.
    This interim rule further provides that, while an administrator's 
good faith determination that an entity is an ECE may eliminate the 
requirement that the administrator of the entity file under this 
section for more than three years after the entity's origination date, 
the administrator's determination, nonetheless, does not affect the 
applicability of State law to the entity. Accordingly, incorrectly 
claiming the exception may eliminate the need to file under this 
section, if the exception is claimed in good faith. However, the 
claiming of the exception for ECEs under this filing requirement does 
not preclude States from applying State law to an entity that is later 
determined to be a MEWA. This is because the filing, or the failure to 
file, under this section does not in any way affect the application of 
State law to a MEWA.

Information To Be Reported.

    Paragraph (d) of the interim rule describes the information 
required to be filed under this interim rule. Specifically, the 
administrator is required to file a completed copy of the Form M-1.\8\ 
The substance of this form is published at the end of this document.
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    \8\ Section 505 of ERISA authorizes the Secretary to ``prescribe 
such regulations as he finds necessary or appropriate to carry out 
the provisions of [Title I of ERISA]. Among other things, such 
regulations may * * *  prescribe forms * * * ''
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    Also under paragraph (d), the Secretary may reject any filing that 
the Secretary determines to be incomplete, in accordance with 
Sec. 2560.502c-5 (published separately in this issue of the Federal 
Register). If the Secretary rejects a filing as incomplete and if the 
administrator fails to submit a revised filing within 45 days of the 
rejection, paragraph (c) provides that the administrator may be subject 
to a civil action for legal and equitable relief, including civil 
penalties of up to $1,000 per day under section 502(c)(5) of ERISA as 
amended by HIPAA. (See Sec. 2560.502c-5, published separately in this 
issue of the Federal Register for interim rules governing the 
assessment of civil penalties under section 502(c)(5) of ERISA.)

Timing

    Paragraph (e) of the interim rule describes the timing rules 
applicable to a filing. Generally, a ``year to be reported'' is any 
calendar year in which the entity offered coverage. For an annual 
filing, the Form M-1 is generally required to be filed by the March 1 
following any ``year to be reported'' (unless March 1 is a Saturday, 
Sunday, or federal holiday, in which case the form must be filed no 
later than the next business day). For the year 1999 ``year to be 
reported,'' however, a transition rule makes clear that a completed 
copy of the Form M-1 is required to be filed no later than May 1, 2000.
    There is, under paragraph (e)(2)(iii), an additional, special 
filing requirement when a MEWA or ECE is originated. Under this special 
rule, in general, the administrator of a newly originated MEWA or ECE 
is required to file a completed copy of a Form M-1 within 90 days of 
the origination date (unless 90 days after the origination date is a 
Saturday, Sunday, or federal holiday, in which case the form must be 
filed no later than the next business day). (This report is referred to 
as a 90-Day Origination Report.) However, this special rule does not 
apply if the origination occurred between October 1 and December 31. 
Thus, for example, if a MEWA is originated on November 1, 2000, the 
administrator of the MEWA is not required to file an origination report 
in February of 2001. Instead, in the year 2001, the administrator is 
required to

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file only the annual report due March 1, 2001.
    In addition, the interim rule provides that no 90-day origination 
reports are required before May 1, 2000. Therefore, for an entity that 
is originated, for example, on January 1, 2000, no 90-day origination 
report is required. Nonetheless, for an entity originated, for example, 
on April 1, 2000, a 90-day origination report is required to be 
completed and filed no later than June 30, 2000.
    In any event, under paragraph (e)(2)(iv), an extension may be 
granted for filing reports if the administrator complies with the 
extension procedure prescribed in the Instructions to the Form M-1.

Filing Address

    Paragraph (f) provides that the address to be used for filings is 
set forth in the Instructions to the Form M-1.

Civil Penalties and Procedures; Transition Rule Creating Good Faith 
Safe Harbor Period

    Paragraph (g) contains a cross-reference for civil penalties and 
procedures. The penalty and procedure regulations are being published 
separately in this issue of the Federal Register.\9\ These regulations, 
and the instructions to the Form M-1 (also being published at the end 
of this document, make clear that the Department does not intend to 
assess penalties in cases where there has been a good faith effort to 
comply with a filing due in the year 2000. During this first year in 
particular, the Department is focused on educating administrators about 
this filing requirement and is committed to working with them to help 
them comply. In this regard, the Department has developed filers' 
guides which may be helpful in filing the Form M-1. These filers' 
guides will be made available on the Pension and Welfare Benefits 
Administration's website at www.dol.gov/dol/pwba and through their 
toll-free publication hotline at 1-800-998-7542. Also, the Pension and 
Welfare Benefits Administration's help desk (202-219-8818) is available 
in case administrators have questions or if they need any assistance in 
completing the Form M-1.
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    \9\ Moreover, other relevant criminal penalties may apply. See, 
e.g., 18 U.S.C. 1021 and 1035.
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Compliance Dates

    Paragraph (i) provides that reports filed pursuant to this 
reporting requirement are first due by May 1, 2000. (Therefore, on May 
1, 2000, filings are due with respect to MEWAs or ECEs that provided 
coverage in calendar year 1999.) However, no 90-Day Origination Reports 
(described in paragraph (e)(2)(ii) of this section) are due before May 
1, 2000. Therefore, for an entity that is originated, for example, on 
January 1, 2000, no 90-day origination report is required. Nonetheless, 
for an entity originated, for example, on April 1, 2000, a 90-day 
origination report is required to be completed and filed no later than 
June 30, 2000.

C. Interim Rule with Request for Comments

    The principal purpose of these regulations is to determine the 
extent of compliance by MEWAs with part 7 of ERISA. ERISA Section 734 
authorizes the Secretary to issue ``any interim final rules as the 
Secretary deems are appropriate to carry out the provisions of [Part 
7].'' Thus, the authority in ERISA section 734 to issue interim 
regulations applies to this rule. As explained below, the Secretary has 
determined that this regulation should be issued as an interim final 
rule with requests for comments.
    Part 7 was enacted as part of the Health Insurance Portability and 
Accountability Act of 1996. To implement certain requirements of part 
7, the Secretary promulgated interim final regulations in April, 1997. 
During the period following promulgation of the April, 1997 
regulations, the Department carried out an extensive educational 
campaign to assist all sectors of the regulated community to learn to 
apply the new requirements and received numerous comments on these 
regulations.
    The Department decided not to promulgate the instant regulations 
during this period of adapting to the new requirements. Now that the 
regulated community has had more than two years to become familiar with 
the part 7 requirements, it is now appropriate, in the Secretary's 
view, that the instant regulations become effective, on an interim 
basis, as quickly as possible.
    The Secretary believes that a period of interim effectiveness will 
provide a sound basis for developing a final rule. The Department is 
seeking comments from all those affected by these regulations and the 
Department will consider such comments, and will reevaluate these 
regulations following the comment period in the same way that it would 
if the regulation had been published as a non-final proposal. Based on 
such comments and other information obtained through the operation of 
this interim reporting requirement, the Department will make any 
necessary modifications to the reporting requirement when the 
regulation is issued in final.
    The Secretary believes that the purpose of the MEWA reporting 
requirement will be best served if these rules are made effective as 
quickly as possible, now that the regulated community has had time to 
familiarize itself with part 7 and the substantive interim regulations. 
Registration of MEWAs was first recommended in a 1992 Government 
Accounting Office Report (GAO/HRD-92-40). The problems pointed out in 
that report continue to this day. To date, the Department has initiated 
approximately 358 civil and 70 criminal investigations (with 45 
criminal convictions) affecting over 1.2 million participants and 
beneficiaries and involving over $83.6 million in unpaid claims. During 
each of the past 3 years, the Department has had an average of about 
100 MEWA cases under active investigation. Thus, the identification of 
problem MEWAs and correction of violations remains an important 
investigative priority and consumes substantial resources.
    Obtaining reimbursement for such losses is the greatest challenge 
the Department faces in pursuing these cases. Too often, when the 
Department discovers an unsound MEWA, it has already failed and there 
is no money to cover the participants' unpaid medical claims. In such 
cases discovered by the Department, where there has been a failure to 
pay claims, over 90% of the claims are likely to remain unpaid, unless 
the Department is able to intervene at an early stage of the problem. 
When the MEWA becomes unable to pay the health benefits it has 
promised, employees, employers and health care providers may suffer 
serious financial losses. The reporting requirements of these interim 
regulations are designed to allow earlier detection of unsound MEWAs 
and will reduce the risk of financial harm to these parties.

Economic Analysis Under 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,

[[Page 7156]]

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 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 
significant under section 3(f)(4) because it raises novel legal or 
policy issues arising from the President's priorities.
    The total cost of this interim final rule is estimated at $437,000 
per year, or an average of approximately $163 for each of the 2,678 
entities expected to be required to file the annual reporting form for 
MEWAs. HIPAA amended ERISA to add section 101(g){h}, which authorizes 
the Secretary of Labor to require reporting by MEWAs which are not 
group health plans for the purpose of determining the extent of their 
compliance with Part 7 of ERISA. The principal intent of Congress in 
enacting this provision was to ensure that all participants and 
beneficiaries of such arrangements receive the new health care 
protections incorporated into ERISA by HIPAA, MHPA, the Newborns' Act, 
and WHCRA.
    The reporting requirement implemented by this interim final rule 
provides the most cost effective means of facilitating compliance with 
Part 7, as well as with the full range of other federal and State 
requirements that may apply to MEWAs under ERISA, the Internal Revenue 
Code, the Public Health Service Act, and State insurance statutes. The 
data collected as a result of the filing requirement will serve as the 
only source of uniform and complete information identifying these 
arrangements that will allow federal and State regulators to evaluate 
their compliance with all applicable requirements. Evaluations of 
compliance based on the information reported will be significantly more 
cost effective for both governmental entities and MEWAs than the 
alternative of active intervention by compliance examiners.
    Increased compliance by these arrangements will be beneficial to 
participants and beneficiaries who are able to fully realize their 
rights under these new laws. A greater assurance of compliance by these 
arrangements will also be beneficial because, due at least in part to 
the interaction of federal and State requirements, their compliance 
with the various requirements which apply to them has been shown to be 
inconsistent. Although the provisions of Title I and IV of ERISA 
generally supercede State laws that relate to employee benefit plans, 
the regulation of MEWAs is a joint federal and State responsibility 
pursuant to ERISA section 514(b)(6). Section 514(b)(6) of ERISA 
provides, among other things, that State laws that regulate insurance 
may apply to fully insured MEWAs to the extent that these laws 
establish rating, solvency, and similar standards, and to other MEWAs 
to the extent that State insurance laws are not inconsistent with 
Sections 1 through 513 of ERISA. Knowledge of both federal and State 
requirements is therefore needed for an arrangement to make an 
appropriate determination concerning the requirements that apply to it.
    Because State insurance statutes are not uniform, an arrangement 
doing business in more than one State may be required to comply with a 
range of States' varying requirements. Other legal and factual issues, 
such as whether an entity is established pursuant to a collective 
bargaining agreement or whether an arrangement for a staff leasing 
organization is maintained by more than one employer, may contribute to 
uncertainty about applicability of regulatory requirements. 
Identification of these entities and determination of the applicability 
of State insurance law through this reporting requirement will help 
ensure that administrators of these arrangements are aware of the 
requirements that apply, and that the protections intended to be 
provided under federal and State laws are actually implemented for the 
benefit of employers and participants who obtain their group health 
coverage through these arrangements.
    Substantial ancillary benefits are expected to result from the 
public disclosure of this data. Participants with greater access to 
information about the arrangements through which they obtain group 
health coverage may better exercise their rights in the event of a 
dispute with the arrangement. The data collected will also enhance the 
capability to conduct analysis of the market segment represented by 
MEWAs, which will be useful to policy makers in evaluating the role of 
these entities in providing employment-based health benefits. The 
potential benefits of this interim final rule are, therefore, expected 
to outweigh its costs.

Paperwork Reduction Act

    The Department of Labor, as part of its continuing effort to reduce 
paperwork and respondent burden, 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 Pension and Welfare Benefits Administration is 
soliciting comments concerning the information collection request (ICR) 
included in this interim final rule, which would require reporting by 
MEWAs and certain other entities on a prescribed form. Respondents are 
not required to comply with the ICR incorporated in the form unless it 
displays a currently valid OMB control number. A copy of the ICR may be 
obtained by contacting the office of the Pension and Welfare Benefits 
Administration listed below.
    The Department has submitted the ICR included in this interim final 
rule, using emergency review procedures, to OMB for review and 
clearance in accordance with PRA 95. OMB approval has been requested by 
February 28, 2000. 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 proposed 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 appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments regarding the ICR should be sent to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 10235,

[[Page 7157]]

New Executive Office Building, Washington, DC 20503; Attention: Desk 
Officer for the Pension and Welfare Benefits Administration. Although 
comments may be submitted through April 11, 2000, OMB requests that 
comments be received within 30 days of publication of this interim 
final rule to ensure their consideration.
    Address requests for copies of the ICR to Gerald B. Lindrew, Office 
of Policy and Research, U.S. Department of Labor, Pension and Welfare 
Benefits Administration, 200 Constitution Avenue, NW, Room N-5647, 
Washington, D.C. 20210. Telephone: (202) 219-4782; Fax: (202) 219-4745. 
These are not toll-free numbers.
    The ICR implemented with this interim final rule will require 
administrators of MEWAs, as defined in section 3(40) of ERISA, and 
certain other multiple employer arrangements that seek to utilize the 
exception described in section 3(40)(A)(i) of ERISA (referred to in the 
interim final rule as ``Entities Claiming Exception'' (ECEs)), to file 
certain information with the Secretary of Labor. This filing is 
generally required to be made annually by March 1 for the calendar year 
just ended. In addition, expedited filing is required following 
origination of an entity required to file. However, an ECE is required 
to file for only the first three years following its origination. A 
form has been prescribed for this filing, the substance of which is 
published at the end of this document.
    The information to be filed includes basic identifying information 
(names and addresses, telephone numbers, employer identification 
numbers), and the date of origination of the arrangement. The filer 
will also be required to identify the States in which the arrangement 
provides coverage, whether it is licensed as an insurer or otherwise 
authorized to operate in those States (with the corresponding license 
or registration numbers), and whether the arrangement, if not licensed, 
is fully insured by a health insurance issuer in each State. The filer 
must also state the number of participants in the arrangement and the 
number of States in which at least 20 percent of the arrangement's 
business (based on number of participants) is conducted.
    The form poses specific questions concerning compliance with Part 7 
of ERISA, including yes/no questions about litigation involving Part 7 
of ERISA or corresponding provisions of the Internal Revenue Code or 
Public Health Service Act (with specific additional information to be 
provided, if there was litigation), and about compliance with 
provisions of Part 7 and implementing regulations with respect to 
HIPAA, MHPA, Newborns' Act, and WHCRA. The form must also be signed and 
dated.
    Detailed instructions are supplied with the form, as are compliance 
worksheets, which are intended to provide filers with convenient 
summaries of the requirements of the HIPAA, MHPA, Newborns' Act, and 
WHCRA provisions of Part 7 of ERISA, and references to the statutory 
requirements. These worksheets are not required to be filed.
    The information collected in connection with this filing 
requirement will be useful to the Department, other federal agencies, 
and the States, in determining the extent of compliance by MEWAs and 
ECEs with Part 7 of ERISA and parallel provisions of the Internal 
Revenue Code and the Public Health Service Act.
    The information will be useful to federal and State authorities 
with oversight responsibilities for these arrangements, and to the 
public for a variety of reasons. The enforcement activities of the 
Department and the States have shown that, due at least in part to the 
complex interaction of State and federal regulatory requirements for 
multiple employer arrangements providing group health coverage, 
compliance with all the applicable State and federal rules has been 
inconsistent. For example, the March, 1992 General Accounting Office 
(GAO) Report entitled, ``EMPLOYEE BENEFITS--States Need Labor's Help 
Regulating Multiple Employer Welfare Arrangements'' (GAO/HRD-92-40) 
states that ``MEWAs have proven to be a source of regulatory confusion, 
enforcement problems, and in some instances, fraud.'' This is supported 
by results of GAO's 1991 survey in which 46 States reported non-
compliance by MEWAs with applicable reporting, disclosure, funding, 
licensing and registration requirements.
    MEWAs doing business in several States may be required to comply 
with licensing and solvency requirements of each State, which often 
differ significantly. Although ERISA was amended in 1983 to clarify the 
role of the States in the regulation of MEWAs \10\ these arrangements 
must still make judgments with respect to a number of relatively 
complex legal and factual issues in order to determine which 
requirements are applicable. The absence of uniform information as to 
the identity and location of these entities often prevents both federal 
and State regulators from taking a proactive approach to ensuring 
compliance by these arrangements with the full range of requirements 
imposed upon them.
---------------------------------------------------------------------------

    \10\ See note 5.
---------------------------------------------------------------------------

    Although MEWAs which are group health plans under ERISA, and 
multiemployer group health plans established pursuant to a collective 
bargaining agreement are generally required to file Form 5500 in 
accordance with ERISA sections 101(b) and 104(a), these entities will 
also be required to file the annual report for MEWAs under this interim 
final rule. This is in part because Form 5500 does not require 
duplicate reporting with respect to compliance with Part 7. An 
important reason for requiring these groups to file is to collect 
uniform information on MEWAs that does not rely on the arrangements' 
assessments of their status as group health plans or their entitlement 
to claim an exception based on the existence of a collective bargaining 
agreement. Arrangements which might mischaracterize themselves as group 
health plans under ERISA or as multiemployer collectively bargained 
plans (and thus not MEWAs), or in any number of other ways, would 
otherwise be omitted from the data that would be available to the 
Department and the States to assess compliance by these arrangements. 
At the same time, the Department did not wish to require reporting by 
well established multiemployer plans that have been in operation for 
several years. As noted earlier, this interim final rule may be 
modified in the future if changes are needed as a result of the 
issuance of further guidance with respect to establishing criteria and 
a process for a finding by the Secretary that an agreement is a 
collective bargaining agreement for purposes of section 3(40)(A)(i) of 
ERISA. \11\ At present, however, the Department considers it important 
to obtain complete data on all entities which may be considered MEWAs, 
including newly originated multiemployer collectively bargained group 
health plans in their first years of operation.
---------------------------------------------------------------------------

    \11\ See note 6.
---------------------------------------------------------------------------

    An ancillary benefit of the availability of complete data on the 
multiple employer health plan universe will be a significantly enhanced 
capability to conduct more thorough analysis of the market segment 
represented by MEWAs. Risk pooling by groups of employers has been 
considered to offer potential advantages in the purchase of health care 
coverage by small employers. Timely and complete information on these 
entities will be of significant utility in evaluating the effectiveness 
of existing arrangements in providing

[[Page 7158]]

employment-based health benefits. Greater access to information for 
participants may assist them in exercising their rights under these 
arrangements in the event of a dispute.
    Estimates of the burdens associated with this filing requirement 
are based on the number of annual filers and the time assumed to be 
required to complete the form.

The Filer Universe

    The entities that will be required to file the annual reporting 
form will include multiemployer collectively bargained group health 
plans (entities claiming exception, or ECEs) originated within three 
years of the filing date, MEWAs which are group health plans under 
ERISA, and MEWAs which are not group health plans under ERISA. A 
description of the Department's methods of estimating the number and 
characteristics of filers in each group follows.

Multiemployer Collectively Bargained Plans

    These plans are generally required to file Form 5500, and as such, 
information is available concerning the number of such plans originated 
from year to year. For the purpose of estimating the number of 
potential filers, the Department reviewed the data collected from Form 
5500 filings for the 1991 through 1995 plan years for collectively 
bargained multiemployer welfare plans which provided medical benefits. 
A period of longer than three years was examined in order to determine 
whether the numbers were reasonably consistent from year to year, and 
whether the data indicated a trend over this period. Individual records 
in this group were examined and adjusted for the purpose of this count 
for possible errors in filers' characterization of their filing entity 
(which is selected from a number of codes in the Form 5500 
instructions). The resulting number of such plans originated since 1991 
was 41, which amounts to an average of about 8 plans per year. The 
number of participants in those 41 plans was 78,702. This represents 
about 2% of the total of all multiemployer collectively bargained group 
health plan filers in 1995 (2,180 plans with 5,957,946 participants).
    Examination of origination in each individual year shows that the 
number of plans established was reasonably similar from year to year. 
The Department considers a reasonable estimate of the number of new 
plans that are originated each year is 12, which is the greatest number 
originated in any single year during the period examined. This would 
result in approximately 36 filers in this category for each annual 
filing cycle, assuming that 12 plans are originated each year, and 12 
plans will no longer be required to file the form. The average number 
of participants per plan in the 41 plans originated since 1990 was 
1,900, while the greatest average number per plan in a single year was 
3,200. Based on these averages, it could be assumed that participation 
would total between 23,000 and 38,000 for the 12 plans assumed to 
originate in any year. For purposes of estimating the number of 
participants in the affected plans in this category, a midpoint of 
30,600 per year (2,550 participants per plan) for the 12 new plans, and 
91,800 for all 36 filers has been used.
    Certain characteristics of this group may also be estimated, based 
on the characteristics of both the 1995 filers originated since 1990 
and all 1995 multiemployer health plan filers. In both groups, no more 
than 11 percent of plans had fewer than 100 participants, while less 
than 1 percent of total participants were covered by plans with fewer 
than 100 participants.
    The methods of funding indicated by the filers on Form 5500 differ 
somewhat between the groups. The funding method categories are defined 
in the Form 5500 instructions. ``Trust only'' is generally used 
interchangeably with the more commonly understood terms ``self-funded'' 
or ``self-insured.'' ``Insured'' is considered to mean fully insured. 
Where ``Trust and Insurance'' is indicated, it is generally not 
possible to determine without examination of individual records whether 
the plan is essentially self-funded with stop-loss insurance, or 
whether the plan is entirely self-funded except to the extent that it 
includes specific insured benefits such as life or long term disability 
insurance. Consequently, this category will include a range of funding 
methods. For purposes of estimates of the burden of the filing 
requirement, a distinction is made between fully insured arrangements 
and all other arrangements. While estimates of the number of fully 
self-funded arrangements may also be of interest, only fully insured 
arrangements are segregated for purposes of estimates ultimately 
developed, due to a difference in form completion time for these 
entities.
    The plan funding methods reported on Form 5500 for the 2,180 
multiemployer collectively bargained group health plans (with 5,957,946 
participants) filing in 1995 were compared with those for the 41 
multiemployer collectively bargained group health plans (with 78,702 
participants) established since 1990. The comparison showed that about 
63 percent of the 41 plans, and 51 percent of the 2,180 plans reported 
being fully self-funded. Between 2 and 4 percent of both groups of 
plans reported being fully insured. The remainder (24 percent of the 41 
plans, and 41 percent of the 2,180 plans reported funding through a 
combination of insurance and self-funding. It is assumed that the newly 
originated multiemployer collectively bargained group health plans will 
more closely resemble the group of 41 plans originated since 1990.

Multiple Employer Welfare Arrangements Which Are Group Health Plans 
Under ERISA

    The number of filers in this category may be estimated in a manner 
similar to that used for estimating the ECE count. In general, most 
ERISA-covered welfare plans which provide medical benefits are required 
under the statute and regulations to file a Form 5500 annually unless 
the plan covers fewer than 100 participants and is either unfunded or 
fully insured. While data from Form 5500 filings will not include 
information on small plans due to this exemption from filing 
requirements, multiple employer plans are considered less likely to be 
excluded on this basis because the affiliation of at least two 
employers for the formation of a plan increases the likelihood that 
participation will exceed 100. However, because plans with fewer than 
100 participants will be required to file the annual report for MEWAs, 
an adjustment would need to be made to account for the excluded plans.
    Data from Form 5500 filings for 1995 plan years were reviewed with 
respect to plans indicating they provided medical benefits that were 
designated as multiemployer collectively bargained plans, multiple 
employer non-collectively bargained plans, and group insurance 
arrangements. Because the Department has been made aware of some 
multiple employer plan filers' uncertainty as to the appropriate entry 
for this element of the form, the source data in these categories were 
also examined. While it is not possible to determine the nature of a 
filing entity with certainty without reference to the facts and 
circumstances related to its establishment, a number of plans appeared 
to have been coded in such a way as to limit the usefulness of this 
data for the purpose of estimating the number of potential filers. For 
purposes of this estimate, therefore, entity codes were adjusted where 
a more appropriate choice was apparent. The resulting data, after 
exclusion of plans that appeared to

[[Page 7159]]

be single employer plans or collectively bargained plans, and inclusion 
of plans originally categorized as group insurance arrangements, were 
summarized to arrive at the initial estimate of the number and 
characteristics of filers. On this basis (and without yet adjusting for 
small plans exempted from Form 5500 filing requirements), 642 plans in 
this category covering approximately 1,913,000 participants would be 
expected to file the MEWA annual reporting form. The average number of 
participants per plan among this group is approximately 3,000. About 14 
percent of these plans report self-funding only, while 31 percent 
report being fully insured. About 49 percent of these plans report a 
combination of insurance and self-funding.
    Although the number of MEWA report filers which are multiple 
employer group health plans could be estimated by adjusting the number 
of Form 5500 filers to allow for plans exempted from Form 5500 filing 
requirements, the Department is unaware of an appropriate basis for 
such an adjustment. Instead, these exempt filers have been estimated in 
conjunction with the estimate of MEWA report filers which are not 
employee benefit plans under ERISA, as explained below.

Multiple Employer Welfare Arrangements Which Are Not Group Health Plans 
Under ERISA

    The potential number of filers in this category is significantly 
more difficult to estimate because there is no single source of data on 
such arrangements. The Department therefore relied on three different 
data sources to develop an estimate of the number of potential filers. 
Data reported in the previously cited March, 1992 GAO report (GAO/HRD-
92-40) were collected in GAO's survey of State insurance officials 
conducted in 1991. These data showed 1,034 MEWAs which were 
headquartered in the State in which the information was collected, and 
2,213 MEWAs operating in States in which they were not 
headquartered.\12\ Of the 1,034 MEWAs, 264 (25.5 percent) were 
characterized as ``fully insured'' and 770 (74.5 percent) were ``not 
fully insured.'' It was also reported that there were 2,581,438 
participants and beneficiaries covered by the 1,034 MEWAs in the 
respondent States.
---------------------------------------------------------------------------

    \12\ According to GAO, comparison of these totals may give an 
indication of the number of MEWAs operating across State lines. GAO 
indicates that the numbers should not be added, because MEWAs 
operating in more than one State may have been counted in each State 
of operation.
---------------------------------------------------------------------------

    The figures may be somewhat understated due to the lack of survey 
data from a number of large States which reported data for another 
aspect of the survey indicating that participants has sustained losses 
as a result of MEWAs' failure to pay claims in the State. The number of 
these entities may also be expected to have changed during the period 
since the survey due to small group reforms in the States, the 
enactment of HIPAA, and a period of relative stability in health care 
costs that generally reduces economic pressures on employers seeking 
affordable coverage. It is generally believed that these factors have 
served to reduce the number of entities that obtain group health 
coverage through risk pooling arrangements such as MEWAs.
    Furthermore, it is unclear whether the survey respondents would 
have distinguished between MEWAs which are group health plans and those 
which are not group health plans. Consequently, it is not possible to 
determine whether the number of MEWAs headquartered in the States may 
overlap to any degree with the estimate of the number of MEWAs which 
are ERISA-covered plans. The Department contacted the National 
Association of Insurance Commissioners and certain State 
representatives to whom it was subsequently referred to determine 
whether comparable and more current data were available, and concluded 
on the basis of these contacts that while several States might maintain 
certain current data elements, no comparable data set is available to 
support the updating or refinement of the GAO estimates.
    Other more recent sources may serve to shed light on the usefulness 
of the GAO data in developing a current estimate of potential non-ERISA 
plan MEWA filers. The Department examined reports published by W.F. 
Morneau & Associates and the American Society of Association Executives 
\13\ (ASAE) concerning membership surveys conducted in 1992 and 1997. 
The survey respondents were those associations which reported 
sponsoring health care plans for their members. The respondents would 
apparently include sponsors of plans covered by ERISA as well as 
arrangements not covered by ERISA. Respondents also included 
professional/individual associations, which would not typically be 
sponsors of ERISA-covered plans due to lack of an employment basis. 
Coverage sponsored by these types of associations may, however, be 
considered non-plan MEWAs based on the facts and circumstances 
surrounding the establishment and maintenance of the arrangement. The 
report also states that because the response rate to the 1997 survey 
was somewhat low (974 of 7,169 surveys distributed were returned), it 
would be conservative to assume that the survey represents no more than 
50 percent of the total number of association health plans. On the 
basis of the 283 plans reported, then, it could be assumed that the 
number of association sponsored plans could be estimated at 566. The 
1992 data were somewhat different, with 2,648 responses to 6,341 
surveys distributed, resulting in 799 association sponsored plans being 
reported. However, the report on the 1997 survey offers many reasons 
for a decline in the number of plans sponsored, which supports the 
credibility of the observed decrease.
---------------------------------------------------------------------------

    \13\ ``Survey of Association Member Health Plans,'' W.F. Morneau 
& Associates/ American Society of Association Executives, 1993 and 
1997.
---------------------------------------------------------------------------

    A different approach may also be taken to estimating the number of 
non-respondents which sponsor health plans, which results in a somewhat 
larger estimate of association plans. If it is assumed that the rate of 
sponsorship of plans among non-respondents is one-half the rate of 
sponsorship among respondents, it may be estimated that there are 
approximately 1,200 association sponsored plans. As noted, this 
estimate would likely include arrangements that would be considered to 
be plans under ERISA, as well as those that would not. This estimate 
would also include both trade/corporate association plans and 
professional/individual association plans. Other data presented in the 
Morneau/ASAE report indicate that 66 percent of association health 
plans are sponsored by trade/corporate associations. While this would 
tend to support reducing the estimate of association plans which might 
file the annual reporting form, the degree of imprecision already 
introduced may not support further refinement of this estimate.
    If it is assumed, then, that there are 1,200 association plans to 
be considered among the universe of potential filers, an assumption 
concerning the funding mechanisms used is also needed. Assuming 75 
percent of these plans are fully insured, as indicated by the 1997 
report, 900 plans would be fully insured and 300 would not be fully 
insured.
    Findings of an analysis conducted by the RAND Corporation of data 
from the 1997 Robert Wood Johnson Foundation

[[Page 7160]]

Employer Health Insurance Survey \14\ offer another basis for the 
development of an estimate of the number of MEWAs. The findings address 
the prevalence of pooled purchasing among employer health plans through 
analysis of survey respondents' assessments of whether their 
establishment purchases insurance through (1) a purchasing cooperative 
or alliance, (2) a business coalition, (3) a multiple employer trust 
(MET) or multiple employer welfare arrangement (MEWA), or (4) a trade 
or professional association or other membership organization. The 
report concludes that about 25 percent of establishments participate in 
pooled purchasing in at least one of the forms described.
---------------------------------------------------------------------------

    \14\ ``Pooled Purchasing: Who Are the Players?'' Stephen H. Long 
and M. Susan Marquis, ``Health Affairs,'' July--August 1999.
---------------------------------------------------------------------------

    The survey data as weighted for purposes of the analysis indicate 
that a total of 394,000 establishments covering 5.7 million employees 
report offering insurance through a MEWA/MET or a trade association/
membership organization. This includes 118,000 establishments which 
were pooled through a MEWA/MET and 276,000 establishments pooled 
through a trade association or membership organization. Employees 
reported to be covered through a MEWA/MET total 3.3 million, while 
those reported as covered through an association or membership 
organization total 2.4 million.
    The MEWA/MET and trade association/membership association 
categories appear to include many of the arrangements that would be 
required to file the MEWA annual reporting form, including collectively 
bargained arrangements, without regard to whether the arrangement 
constitutes a plan for purposes of ERISA. It is also likely that 
potential filers will be found among the establishments reporting 
purchase through a purchasing alliance or business coalition. The total 
number of establishments which report purchasing through pooled 
purchasing arrangements, including business coalitions and purchasing 
alliances, but excluding known purchasing alliances, is 836,000. 
Employees of these establishments number 12 million. Known purchasing 
alliances are excluded because these are not considered likely to be 
MEWAs. Because these data are collected and presented on an 
establishment rather than plan basis, other adjustments are required in 
order to compare them with data reported in other sources.
    One possible approach to imputing a estimated number of different 
arrangements from the employee counts reported in the pooled 
arrangements would be to simply divide the number of employees by the 
average number of participants in the multiple employer group health 
plans which file Form 5500 (between 2,500 and 3,000). Dividing the 12 
million employees in this way results in an estimate of 4,000 to 4,800 
separate arrangements. When applied to the trade association segment 
alone, the imputed number of separate arrangements would be between 800 
and 1,000. This analysis, although imprecise, appears to support the 
comparability of the Morneau/ASAE data and the RAND analysis of the 
1997 Robert Wood Johnson Foundation Employer Health Insurance Survey 
data.
    Because a total based on all pooling arrangements will include 
collectively bargained multiemployer group health plans and multiple 
employer non-collectively bargained group health plans, the estimate 
must be reduced to avoid duplication. Reducing the estimated total of 
4,800 arrangements by multiemployer and multiple employer group health 
plans counts results in a total of 2,200 MEWAs not previously counted, 
which cover an estimated 4 million employees.
    The universe of filers, therefore, can be variously estimated as 
follows:
     642 non-collectively bargained multiple employer group 
health plans which file Form 5500 plus 36 newly originated 
multiemployer collectively bargained group health plans (ECEs) covering 
a total of 1,943,551 participants (excludes non-plan MEWAs and small 
fully insured/unfunded plans exempt from filing) (1995 Form 5500 data);
     1,034 MEWAs including plans and non-plans covering 
2,581,438 participants (likely excludes some arrangements the States 
would recognize as ERISA covered plans) (1992 GAO report);
     1,200 association plans including ERISA plans and non-
ERISA plans (likely excludes both arrangements which are MEWAs not 
sponsored by associations and collectively bargained multiemployer 
plans) (1997 Morneau/ASAE survey); and
     4,000 to 4,800 multiple employer association plans, 
collectively bargained plans, and MEWAs covering 12,000,000 
participants (or 2,000 non-ERISA plan MEWAs covering 4,100,000 
employees, after adjustment for multiemployer collectively bargained 
group health plans and multiple employer non-collectively bargained 
group health plans) (1997 RWJF Health Insurance Survey).
    On the basis of these estimates, the Department believes a 
conservative assumption as to the number of MEWAs and entities claiming 
exception that will be required to file the annual reporting form in 
any year is 2,678. The method of developing the estimate of filers 
accounts for some arrangements which would be considered group health 
plans under ERISA but which are exempt from Form 5500 filing 
requirements, although their number is not separately identified.
    Estimating the proportion of these arrangements which are fully 
insured, funded through a trust, or a combination of these methods is 
more problematic. The RAND analysis does not provide specific 
information on the funding method of the pooled arrangements, and the 
information reported in the other sources varies significantly. For 
example, 73 percent of the recently originated multiemployer 
collectively bargained plans were funded through a trust only, while 
only 4 percent were fully insured. Of the multiple employer non-
collectively bargained ERISA plans which filed Form 5500, 14 percent 
were self-funded and 31 percent were fully insured. Of the MEWAs 
reported by the States in the GAO study, 25 percent were fully insured, 
while 75 percent of the association plans in the Morneau/ASAE survey 
reported being fully insured.
    The funding status of the filers that reported their funding method 
on Form 5500 has been included as reported. In the absence of 
additional information as to the funding status of the 2,000 non-plan 
filers, the Department believes it is reasonable to assume that 50 
percent (the midpoint between the 25 percent reported by GAO and the 75 
percent reported by Morneau/ASAE) are fully insured. Although this 
assumption is somewhat arbitrary, it is relied on for purposes of the 
estimates of annual report filer burden only for estimating a variation 
in the burden expected in completing the form. The Department welcomes 
comments on the data and assumptions used in developing these 
estimates.
    The resulting breakdown of arrangements between fully insured and 
not fully insured is shown below:

------------------------------------------------------------------------
                                                                   Not
                                                 Total   Fully    fully
                                                        insured  insured
------------------------------------------------------------------------
Total.........................................   2,678    1,202    1,476
------------------------------------------------------------------------
Multiemployer ECE.............................      36        1       35
Multiple employer non-collectively bargained       642      201      441
 ERISA plans..................................
Other MEWA....................................   2,000    1,000    1,000
------------------------------------------------------------------------


[[Page 7161]]

Completing the MEWA Annual Reporting Form

    Completion of this two-page form is expected to require between 2 
hours and 50 minutes to 3 hours and 35 minutes. This estimate assumes 
that all filers will require an average of two hours to familiarize 
themselves with the form and read the instructions, particularly in the 
first years following implementation of the filing requirement. The 
identifying information in Parts I and II of the form and the signature 
block would be expected to require a limited amount of time to 
complete.
    The most variable portion of the form is expected to be Part III, 
which includes information concerning the locations in which the 
arrangement does business, and its funding arrangements and licensing 
status in those locations. The amount of information to be entered here 
will vary directly with the number of States in which an entity 
operates. The degree of this variation is expected to be great, as some 
of the arrangements which will file are known to be State-specific, 
while others are national in scope.
    Time required to complete this segment of the form is also expected 
to vary with the funding arrangement of the entity in any given State, 
and with the State's licensing requirements. Entities which are fully 
insured in the States in which they operate would be expected to 
require little time to complete the section because those entities are 
believed to be least likely to require licensure by a State. Those 
entities which are either partially or fully self-funded and which 
operate in States in which they are required to be licensed are 
expected to require the greatest amount of time to complete this 
section. The range of completion time assumed for this segment (from 30 
minutes to an hour) is intended to allow for this variation.
    The Department is aware that the States have implemented a range of 
regulatory requirements for both MEWAs and health plans sponsored by 
associations which are self-funded and conducting business in their 
jurisdictions. These requirements range from registration to full 
compliance with all of the solvency, rating, and other requirements of 
the State insurance code. The information that could be provided by the 
States, if collected directly from them, would include only those 
arrangements which are aware of the requirements in the State or States 
in which they do business, and which have elected to comply with those 
requirements. From time to time States still report being unaware of 
MEWAs operating within their jurisdictions, or in neighboring States 
but covering consumers in their jurisdictions, until problems are 
reported.
    With respect to Part IV of the form, the Department assumed a 15 to 
30 minute completion time depending again on whether or not an 
arrangement is fully insured. Fully insured arrangements are expected 
to be readily aware of their compliance with the specified aspects of 
Part 7 of ERISA because their insurance contracts will in most cases 
have been amended to bring them into compliance. Those arrangements 
which may not have considered the status of their compliance with these 
requirements may require additional time to answer the questions. No 
estimate of the time to respond to the question concerning litigation 
or enforcement proceedings is made because rate of litigation among all 
plans in general is believed to be low. While positive responses to 
this question are expected to be useful in assessing compliance with 
Part 7, the frequency of positive responses among the small group of 
filers is expected to be very low.
    Based upon its experience with many types of multiple employer 
group health plans and other arrangements, the Department has assumed 
for its estimates of burden under the Paperwork Reduction Act that 90 
percent of plans and arrangements will purchase services to meet the 
filing requirement rather than complete the form in-house. Because 
these arrangements by definition include at least two employers which 
are unrelated by ownership and which may or may not be related by trade 
or industry, an entity which is separate from the arrangement typically 
handles administrative duties for the arrangement. This may be the 
association or subsidiary of the association in the case of a plan 
sponsored by a trade association, or a third party administrator. This 
entity is commonly compensated for services such as billing employers, 
processing claims, or marketing the arrangement to other employers, by 
the plan or by the participating employers, through an assessment to 
the premium or other contribution collected from the employers. It is 
believed that the filing would be completed by this separate entity and 
that the entity would be compensated for this service. This assumption 
has no implication with respect to the person or entity obligated to 
file the form. The assumption is intended to provide an estimate of the 
cost of filing based on the entity expected as a practical matter to 
perform the tasks required by the form.
    In developing the cost of preparation of the form, the Department 
has assumed a professional rate for a financial manager of 
approximately $50 per hour. Copying and mailing is estimated to require 
1 minute at a clerical rate of $15 per hour plus $0.38 for mailing and 
materials. Electronic filing of the form is under consideration, but 
has not been reflected in these estimates. The Department requests 
comments on the assumptions used in this analysis.
    In the Department's view, the filing requirement will not require 
the maintenance of records which were not already maintained by the 
MEWA in the ordinary course of its business.
    Type of Review: New.
    Agency: U.S. Department of Labor, Pension and Welfare Benefits 
Administration.
    Titles: Annual Report for Multiple Employer Welfare Arrangements 
and Entities Claiming Exception (Form M-1).
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    OMB Number: 1210-NEW.
    Frequency of Response: Annually.
    Respondents: 2,678.
    Responses: 2,678.
    Estimated Burden Hours: 874.
    Estimated Annual Cost (Operating and Maintenance): $ 394,300.
    Comments submitted with respect to this information collection 
request will be summarized and/or included in the request for OMB 
approval of the information collection request; they will also become a 
matter of public record.

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 likely to have 
a significant economic impact on a substantial number of small 
entities. If an agency determines that a proposed rule is likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires that the agency 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 and seeking public comment on such impact. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
    Because these rules are being issued as interim final rules and not 
as a notice

[[Page 7162]]

of proposed rulemaking, the RFA does not apply and the Department is 
not required to either certify that the rule will not have a 
significant impact on a substantial number of small businesses or 
conduct a regulatory flexibility analysis. Nevertheless, the Department 
has considered the likely impact of this interim rule on small 
entities, and believes the rule will not have a significant impact on a 
substantial number of small entities. The reasons for this conclusion 
are explained in the discussion which follows.
    For purposes of this discussion, the Department has deemed a small 
entity to be an employee benefit plan with fewer than 100 participants. 
The basis of this definition is found in section 104(a)(2) of ERISA, 
which permits the Secretary of Labor to prescribe simplified annual 
reports for pension plans which cover fewer than 100 participants. For 
this purpose, it is assumed that arrangements with fewer than 100 
participants and which are (1) multiemployer collectively bargained 
group health plans originated within the last three years, (2) non-
collectively bargained multiple employer group health plans, or (3) 
other multiple employer arrangements which provide medical benefits, 
are small plans.
    PWBA believes that assessing the impact of this proposed rule on 
small plans is an appropriate substitute for evaluating the effect on 
small entities as that term is defined in the RFA. As explained 
earlier, it is estimated that 2,678 plans and arrangements will file 
the MEWA annual reporting form. Of the total number of Form 5500 filers 
included in this total, the number of plans with fewer than 100 
participants is estimated at 257, or about 11 percent. This number may 
be slightly understated because data from Form 5500 filings were used 
to develop the estimate of multiple employer group health plans which 
fall within the definition of a ``welfare plan'' for purposes of ERISA. 
That data generally excludes welfare plans with fewer than 100 
participants which are either unfunded or fully insured due to this 
group's exemption from filing requirements.
    Consideration of the number of small plans affected by this filing 
requirement is more meaningful in the context of the total number of 
small private group health plans estimated to exist. Based on the 
health coverage reported in the Employee Benefits Supplement to the 
1993 Current Population Survey, and a 1993 Small Business 
Administration survey of retirement and other benefit coverages in 
small firms, it is estimated that there are approximately 2.6 million 
private group health plans with fewer than 100 participants. As such, 
even if all of the potential filers of this form were small plans, only 
one-tenth of one percent of small group health plans would be affected 
by this requirement.
    It is expected, however, that a very small number of these 
arrangements will have fewer than 100 participants. By their nature, 
the affected arrangements must involve at least two employers, which 
decreases the likelihood of coverage of fewer than 100 participants. 
Also, underlying goals of the formation of these arrangements, such as 
gaining purchasing and negotiating power through economies of scale, 
improving administrative efficiencies, and gaining access to additional 
benefit design features, are not as readily accomplished if the group 
of covered lives remains small. Finally, although an average provides 
no insight into the number of arrangements which have fewer than 100 
participants, it may still be noted that the average number of 
participants per arrangement in the data examined to estimate the 
number of potential filers appeared to be between 2,500 and 3,000.
    It is known, however, that the employers typically involved in 
these arrangements are small (that is, have fewer than 500 employees, 
which is generally consistent with the definition of small entity found 
in regulations issued by the Small Business Administration (13 CFR 
Sec. 121.201)). For example, RWJF data referenced earlier show that 12 
million employees at 836,000 establishments indicated they obtained 
coverage through pooled purchasing arrangements. This averages just 
over 14 employees per establishment. Further, while some employers of 
500 or more employees may be included in multiple employer arrangements 
providing health benefits, groups of this size are typically considered 
large enough to realize the advantages of economies of scale on their 
own. It can generally be assumed, therefore, that nearly all employers 
participating in these arrangements are small. The number of small 
employers assumed to be affected is 836,000.
    The total annual cost of the filing requirement is estimated at 
$437,400. The filing requirement applies to the administrator of the 
estimated 2,678 plans or arrangements, and is expected to cost an 
average of about $164 per plan or arrangement. If this amount were 
passed on directly to the employers assumed to participate in these 
arrangements, their additional cost would amount to about $0.50 per 
year on average.
    It is expected that this requirement will be satisfied by 
professional staff of an entity that provides administrative services 
to the group health plan or arrangement under an existing agreement. 
Entities with expertise in management, accounting, and benefits 
administration are often either formed by the group of employers for 
the purpose of managing a group health plan, or are responsible for 
establishing the plan or arrangement and making it available to the 
employers.
    No federal rules have been identified that duplicate, overlap, or 
conflict with this interim final rule. The Department has considered a 
number of reporting formats, and has proposed a form intended to 
collect only the information necessary to assess compliance with Part 7 
of ERISA as simply as possible, given the complexities of these 
arrangements and the regulatory framework in which they operate. The 
design of the form, which requires reporting by arrangements rather 
than employers participating in the arrangements, limits the number of 
filers which will be required to comply with the requirement. 
Compliance guides have been made part of the report package for the 
purpose of lessening the time required to assess compliance, and 
assisting the arrangements in achieving compliance where additional 
action is required.

Small Business Regulatory Enforcement Fairness Act

    The interim final rule being issued here is subject to the 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and has been transmitted to Congress and 
the Comptroller General for review.

Unfunded Mandates Reform Act

    Because these rules are issued as interim final rules and not as a 
notice of proposed rulemaking, the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4) does not apply. However, consistent with the policy 
embodied in the Unfunded Mandates Reform Act, this interim final 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.

Statutory Authority

    Sec. 29 U.S.C. 1024, 1027, 1059, 1132(c)(5), 1135, 1171-1173, 
1181-1183, 1191-1194; Sec. 101, Pub. L. 104-191, 101 Stat. 1936 (29 
U.S.C. 1181); Secretary of Labor's Order No. 1-87, 52 FR 13139, 
April 21, 1987.

[[Page 7163]]

List of Subjects in 29 CFR Part 2510

    Employee benefit plans, Employee Retirement Income Security Act, 
Multiple Employer Welfare Arrangements, Pension and Welfare Benefit 
Administration, Reporting and recordkeeping requirements.

    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]

    1. The authority for Part 2520 is revised to read:

    Authority:  Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2), 
111(c), 502(c)(5), 505, 701-703, 711-713, 731-734 Pub. L. 93-406, 88 
Stat. 840-852 and 894 (29 U.S.C. 1021-1025, 1029-1031, 1135, 1171-
1173, 1181-1183, 1191-1194), as amended by Pub. L. 104-191, 101 
Stat. 1936 and Pub. L. 104-204, 101 Stat. 2944; Secretary of Labor's 
Order No. 27-74, 13-76, 1-87, and Labor Management Services 
Administration Order 2-6.
    Sections 2520.102-3, 2520.104b-1 and 2520.104b-3 are also issued 
under sec. 101(a), (c) and (g)(4) of Pub. L. 104-191, 110 Stat. 1936, 
1939, 1951 and 1955 and sec. 603 of Pub. L. 104-204, 110 Stat. 2935 (29 
U.S.C. 1185 and 1191c).


    2. Part 2520 is amended by adding Sec. 2520.101-2 to read:


Sec. 2520.101-2  Annual reporting by multiple employer welfare 
arrangements and certain other entities offering or providing coverage 
for medical care to the employees of two or more employers.

    (a) Basis and scope. Section 101(g){h} \1\ of the Act permits the 
Secretary of Labor to require, by regulation, multiple employer welfare 
arrangements (MEWAs) providing benefits that consist of medical care 
(within the meaning of section 733(a)(2) of the Act), and that are not 
group health plans, 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 the Act 
are being carried out in connection with such benefits. Section 734 of 
the Act provides that the Secretary may promulgate such regulations as 
may be necessary or appropriate to carry out the provisions of part 7 
of the Act. This section sets out requirements for annual 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 the Act (Entities Claiming Exception or ECEs). 
These requirements apply regardless of whether the MEWA or ECE is a 
group health plan.
---------------------------------------------------------------------------

    \1\ Section 1421(d)(1) of the Small Business Job Protection Act 
of 1996 (Pub. L. 104-188) created a new section 101(g) of ERISA 
relating to Simple Retirement Accounts. Subsequently, section 
101(e)(1) of HIPAA also created a new section 101(g) of ERISA 
relating to MEWA reporting. Accordingly, when referring to section 
101(g) of ERISA relating to MEWA reporting, this document cites 
section 101(g){h} of ERISA.
---------------------------------------------------------------------------

    (b) Definitions. As used in this section, the following definitions 
apply:
    Administrator means--
    (1) The person specifically so designated by the terms of the 
instrument under which the MEWA or ECE is operated;
    (2) 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 the Act); or
    (3) In the case of a MEWA or ECE for which an administrator is not 
designated and a plan sponsor cannot be identified, 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 directly by such 
person or persons or indirectly through an agent, custodian, or trustee 
designated by such person or persons.
    Entity Claiming Exception (ECE) means an entity that claims it is 
not a MEWA due to the exception in section 3(40)(A)(i) of the Act. (In 
general, this exception is for entities that are established and 
maintained under or pursuant to one or more agreements that the 
Secretary finds to be collective bargaining agreements).
    Group health plan means a group health plan within the meaning of 
section 733(a) of the Act and Sec. 2590.701-2.
    Health insurance issuer means a health insurance issuer within the 
meaning of section 733(b)(2) of the Act and Sec. 2590.701-2.
    Medical care means medical care within the meaning of section 
733(a)(2) of the Act and Sec. 2590.701-2.
    Multiple employer welfare arrangement (MEWA) means a multiple 
employer welfare arrangement within the meaning of section 3(40) of the 
Act.
    Origination means the occurrence of any of the following three 
events (and a MEWA or ECE is considered to have been originated when 
any of the following three events occurs)--
    (1) The MEWA or ECE first begins offering or providing coverage for 
medical care to the employees of two or more employers (including one 
or more self-employed individuals);
    (2) The MEWA or ECE begins offering or providing coverage for 
medical care to the employees of two or more employers (including one 
or more self-employed individuals) after a merger with another MEWA or 
ECE (unless all of the MEWAs or ECEs that participate in the merger 
previously were last originated at least three years prior to the 
merger); or
    (3) The number of employees receiving coverage for medical care 
under the MEWA or 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 MEWA or ECE under which 
all MEWAs and ECEs that participate in the merger were last originated 
at least three years prior to the merger).
    (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 that offers or provides benefits 
consisting of medical care, regardless of whether the entity is a group 
health plan; and
    (ii) The administrator of an ECE that offers or provides benefits 
consisting of medical care during the first three years after the ECE 
is originated.
    (2) Exception. Nothing in this paragraph (c) shall be construed to 
require reporting under this section by the administrator of a MEWA or 
ECE if the MEWA or ECE is 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.
    (3) Construction. For purposes of this section, the following rules 
of construction apply--
    (i) Whether or not an entity is a MEWA or ECE is determined by the 
administrator acting in good faith. Therefore, if an administrator 
makes a good faith determination at the time when a filing under this 
section would otherwise be required that the entity is maintained 
pursuant to one or more collective bargaining agreements, the entity is 
an ECE, and the administrator of the ECE is not required to file if its 
most recent origination was more than three years. Even if the entity 
is later determined to be a MEWA, filings are not required prior to the 
determination that the entity is a MEWA if at the time the filings were 
otherwise due, the administrator made a good faith determination that 
the entity was an ECE. However, filings are required for

[[Page 7164]]

years after the determination that the entity is a MEWA.
    (ii) In contrast, while an administrator's good faith determination 
that an entity is an ECE may eliminate the requirement that the 
administrator of the entity file under this section for more than three 
years after the entity's origination date, the administrator's 
determination, nonetheless, does not affect the applicability of State 
law to the entity. Accordingly, incorrectly claiming the exception may 
eliminate the need to file under this section, if the claiming of the 
exception is done in good faith. However, the claiming of the exception 
for ECEs under this filing requirement does not prevent the application 
of State law to an entity that is later determined to be a MEWA. This 
is because the filing, or the failure to file, under this section does 
not in any way affect the application of State law to a MEWA.
    (d) Information to be reported (1) The annual report required by 
this section shall consist of a completed copy of the Form M-1 ``Annual 
Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain 
Entities Claiming Exception (ECEs)'' (Form M-1) and any additional 
statements required in the instructions to the Form M-1. This report is 
available by calling 1-800-998-7542 and on the Internet at     http://www.dol.gov/dol/pwba.
    (2) The Secretary may reject any filing under this section if the 
Secretary determines that the filing is incomplete, in accordance with 
Sec. 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 the Act and 
Sec. 2560.502c-5).
    (e) Timing--(1) Period to be Reported. 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 offers or provides coverage for medical care 
to the employees of two or more employers (including one or more self-
employed individuals).
    (2) Filing deadline--(i) General March 1 filing due date. Subject 
to the transition rule described in paragraph (e)(2)(ii) 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 to be reported (as described 
in paragraph (e)(1) of this section). However, if March 1 is a 
Saturday, Sunday, or federal holiday, the form must be filed no later 
than the next business day.
    (ii) Transition rule for Year 2000 filings. For the year 1999 
period to be reported, a completed copy of the Form M-1 is required to 
be filed no later than May 1, 2000.
    (iii) Special rule requiring a 90-Day Origination Report when a 
MEWA or ECE is originated--(A) In general. Subject to paragraph 
(e)(2)(ii)(B) of this section, when a MEWA or ECE is originated, the 
administrator of the MEWA or ECE is also required to file a completed 
copy of the Form M-1 within 90 days of the origination date (unless 90 
days after the origination date is a Saturday, Sunday, or federal 
holiday, in which case the form must be filed no later than the next 
business day).
    (B) Exceptions. (1) Paragraph (d)(2)(ii)(A) of this section does 
not apply if the origination occurred between October 1 and December 
31.
    (2) Paragraph (d)(2)(ii)(A) of this section does not apply before 
May 1, 2000. Therefore, for an entity that is originated, for example, 
on January 1, 2000, no 90-day origination report is required. 
Nonetheless, for an entity originated, for example, on April 1, 2000, a 
90-day origination report is required to be completed and filed no 
later than June 30, 2000.
    (iv) Extensions. An extension may be granted for filing a report if 
the administrator complies with the extension procedure prescribed in 
the Instructions to the Form M-1.
    (f) Filing address. A completed copy of the Form M-1 is filed with 
the Secretary by sending it to the address prescribed in the 
Instructions to the Form M-1.
    (g) Civil penalties and procedures. For information on civil 
penalties under section 502(c)(5) of the Act for persons who fail to 
file the information required under this section (including a 
transition rule applicable to filings due in the year 2000), see 
Sec. 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 the Act, see Sec. 2570.90 et seq.
    (h) Examples. The rules of this section are illustrated by the 
following examples:
    Example 1. (i) MEWA A began offering coverage for medical care 
to the employees of two or more employers July 1, 1989 (and 
continuous to offer such coverage). MEWA A does not claim the 
exception under section 3(40)(A)(i) of ERISA.
    (ii) In this Example 1, the administrator of MEWA A must file a 
completed copy of the Form M-1 by May 1, 2000. Furthermore, the 
administrator of MEWA A must file the Form M-1 annually by every 
March 1 thereafter.
    Example 2. (i) ECE B began offering coverage for medical care to 
the employees of two or more employers on January 1, 1992. ECE B has 
not been involved in any mergers and in 1999 the number of employees 
to which ECE B provides coverage for medical care is not at least 50 
percent greater than the number of such employees on December 31, 
1998.
    (ii) In this Example 2, ECE B was originated was on January 1, 
1992 has not been originated since then. Therefore, the 
administrator of ECE B is not required to file a Form M-1 on May 1, 
2000 because the last time the ECE B was originated was January 1, 
1992 which more than 3 years prior to May 1, 2000.
    Example 3. (i) ECE C began offering coverage for medical care to 
the employees of two or more employers on July 1, 1998.
    (ii) In this Example 3, the administrator of ECE C must file a 
completed copy of the Form M-1 by May 1, 2000 because the last date 
A was originated was July 1, 1998, which is less than 3 years prior 
to the May 1, 2000 due date. Furthermore, the administrator of ECE C 
must file a year 2000 annual report by March 1, 2001 (because July 
1, 1998 is less than three years prior to March 1, 2001). However, 
if ECE C is not involved in any mergers that would result in a new 
origination date and if ECE C does not experience a growth of 50 
percent or more in the number of employees to which ECE C provides 
coverage from the last day of the previous calendar year to any day 
in the current calendar year, then no Form M-1 report is required to 
be filed after March 1, 2001.
    Example 4. (i) MEWA D begins offering coverage to the employees 
of two or more employers on January 1, 2000. MEWA D 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) In this Example 4, the administrator of MEWA D is not 
required to file Form M-1 on May 1, 2000 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 5. (i) MEWA E is originated on September 1, 2000.
    (ii) In this Example 5, because MEWA E was originated on 
September 1, 2000, the administrator of MEWA E must file a completed 
copy of the Form M-1 on or before November 30, 2000 (which is 90 
days after the origination date). In addition, the administrator of 
MEWA E must file a completed copy of the Form M-1 annually by every 
March 1 thereafter.

    (i) Compliance dates--(1) Subject to paragraph (i)(2) of this 
section, reports filed pursuant to this reporting requirement are first 
due by May 1, 2000. (Therefore, on May 1, 2000, filings are due with 
respect to MEWAs or ECEs that provided coverage in calendar year 1999.)
    (2) 90-Day Origination Reports (described in paragraph (e)(2)(ii) 
of this section) are first due by May 1, 2000. Therefore, for an entity 
that is

[[Page 7165]]

originated, for example, on January 1, 2000, no 90-day origination 
report is required. Nonetheless, for an entity originated, for example, 
on April 1, 2000, a 90-day origination report is required to be 
completed and filed no later than June 30, 2000.

    Signed at Washington, DC, this 4th day of February 2000.
Leslie B. Kramerich,
Acting Assistant Secretary, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.

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[FR Doc. 00-2935 Filed 2-10-00; 8:45 am]
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