[Federal Register Volume 68, Number 68 (Wednesday, April 9, 2003)]
[Rules and Regulations]
[Pages 17494-17503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8115]



[[Page 17493]]

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Part IV





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 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; Assessment of Civil Penalties under 
Section 502(c)(5) of ERISA; Procedures for Administrative Hearings 
Regarding the Assessment of Civil Penalties Under Section 502(c)(5) of 
ERISA; Final Rules

  Federal Register / Vol. 68, No. 68 / Wednesday, April 9, 2003 / Rules 
and Regulations  

[[Page 17494]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2520

RIN 1210-AA64


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: Employee Benefits Security Administration, Department of Labor.

ACTION: Final rule.

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SUMMARY: This document contains a final rule governing certain 
reporting requirements under Title I of the Employee Retirement Income 
Security Act of 1974 (ERISA) 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 final rule 
generally requires the administrator of a MEWA, and certain other 
entities, 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 final rule is effective January 1, 2004.
    Compliance Dates: If a filing is required for an entity, it is due 
on or before each March 1 following the period to be reported. A 90-day 
origination report is also required to be filed as described in 
paragraph (e)(2)(ii) of Sec. 2520.101-2. (Therefore, the first filing 
required under this final rule is the 2003 Form M-1, which is generally 
required to be filed by March 1, 2004. Prior to that date, filings are 
due in accordance with Sec. 2520.101-2 contained in the 29 CFR revised 
as of July 1, 2002.

FOR FURTHER INFORMATION CONTACT: Amy J. Turner or Deborah S. Hobbs, 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room C-5331, 200 Constitution Avenue, NW., Washington, DC 20210 
(telephone (202) 693-8335).

SUPPLEMENTARY INFORMATION: 
    Customer Service Information: The Department of Labor's Employee 
Benefits Security Administration (EBSA) is committed to working 
together with administrators to help them comply with this filing 
requirement. The Form M-1, as well as the publication MEWAs; Multiple 
Employer Welfare Arrangements Under the Employee Retirement Income 
Security Act: A Guide to Federal and State Regulation, are available by 
calling EBSA toll free at 1-866-444-3272 and on the Internet at: http://www.dol.gov/ebsa. In addition, the EBSA Help Desk (telephone (202) 
693-8360) is available to answer questions (such as whether an entity 
is required to file a report) and to provide assistance in completing a 
report. If you have other questions about this reporting requirement, 
or about the requirements of the recent health care laws in Part 7 of 
ERISA, you may call the Office of Health Plan Standards and Compliance 
Assistance at 202-693-8335. If you have questions about the definition 
of a MEWA (including the exception for collectively bargained plans 
under 29 CFR 2510.3-40), or coverage questions concerning whether a 
plan is or is not subject to the provisions of Title I of ERISA, you 
may call the Office of Regulations and Interpretations, Division of 
Coverage, Reporting and Disclosure at 202-693-8500. Copies of Form M-1 
filings are available over the Internet at: askebsa.dol.gov/epds.

A. Background

    The Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191) (HIPAA) amended ERISA 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, as 
amended by Pub. L. 107-116 and Pub. L. 107-147) (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) 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) 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 (Part 7).
    HIPAA also added a new section 101(g) to ERISA providing the 
Secretary with the authority to require, by regulation, annual MEWA 
reporting. Specifically, this section provides that 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)) which are not group health plans 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.
    The term ``multiple employer welfare arrangement'' is defined in 
section 3(40) of ERISA to mean, in pertinent part 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 under or 
pursuant to one or more agreements which the Secretary of Labor finds 
to be collective bargaining agreements, by a rural electric 
cooperative, or by a rural telephone cooperative association.
    For purposes of this definition, two or more trades or businesses, 
whether or not incorporated, shall be deemed a single employer if such 
trades or businesses are within the same control group, the term 
``control group'' means a group of trades or businesses under common 
control, and the determination of whether a trade or business is under 
``common control'' with another trade or business shall be determined 
under regulations of the Secretary applying principles similar to the 
principles applied in determining whether employees of two or more 
trades or businesses are treated as employed by a single employer under 
section 4001(b), except that, for purposes of this paragraph, common 
control shall not be based on an interest of less than 25 percent. \1\
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    \1\ 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)).
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    An interim final rule implementing the MEWA reporting requirement 
was published in the Federal Register on February 11, 2000 at 65 FR 
7152. The interim final rule generally required the administrator of a 
MEWA (or certain other entity that offers or provides coverage for 
medical care to the employees of two or more employers) to file the 
Form M-1 Annual Reporting Requirement for Multiple Employer

[[Page 17495]]

Welfare Arrangements and Certain Entities Claiming Exception with the 
Secretary of Labor for the purpose of determining whether the 
requirements of part 7 are being met.
    This reporting requirement also responds to a 1992 recommendation 
of the General Accounting Office (GAO). See ``Employee Benefits: States 
Need Labor's Help Regulating Multiple Employer Welfare Arrangements,'' 
March 1992, GAO/HRD-92-40. In that report, the GAO detailed a history 
of fraud and abuse by some MEWAs and recommended that the Department 
develop a mechanism to help states identify MEWAs. The problems pointed 
out in that report continue to this date. By the end of Fiscal Year 
2002, the Department had initiated approximately 522 civil and 90 
criminal investigations (with 70 criminal convictions) affecting over 
1.825 million participants and beneficiaries and involving monetary 
violations of over $121.6 million. During the last three years, the 
Department has had an average of over 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.
    In the preamble to the February 2000 interim final regulation, the 
Department sought comments from those affected. After consideration of 
all the comments received on the MEWA reporting requirement, the 
Department is publishing this final rule. The final rule does not 
significantly modify the reporting requirement established in the 
interim rule. Instead, several clarifications were added to make 
clearer the application of the reporting requirement to different types 
of arrangements. Some of these clarifications were initially issued in 
the form of question-and-answer guidance during the period of interim 
effectiveness of this rule and were included in the instructions to the 
Form M-1 in Years 2000, 2001, and 2002.

B. Overview of the Final Rule

(1) Definitions

    (a) Entity Claiming Exception (ECE). The final rule retains the 
term ``entity claiming exception'' or ``ECE.'' An ``ECE'' is defined as 
an entity that claims it is not a MEWA due to the exception in section 
3(40)(A)(i) of ERISA. 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, today the Department is 
also publishing a final regulation under ERISA section 3(40) setting 
forth specific criteria that, if met and if certain other factors set 
forth in the regulation are not present, constitute a finding by the 
Secretary of Labor that a plan is maintained pursuant to one or more 
collective bargaining agreements and, therefore, excluded from the 
definition of a MEWA. See 29 CFR 2510.3-40. In a separate regulation 
also published today, the Department adopts a process pursuant to which 
a plan or other arrangement may, if subject to an action under state 
law, seek an individualized finding from a Department of Labor 
Administrative Law Judge (ALJ). See 29 CFR 2570.150 through 2570.159.
    However, because some entities may incorrectly claim the exemption 
under Sec.  2510.3-40, this final rule retains the requirement that 
ECEs file a Form M-1 with the Department for three years following an 
``origination'' (the three-year rule). Of course, if an entity does 
have a determination from an ALJ that it is a collectively-bargained 
plan, that entity does not have to file while the opinion remains in 
effect unless the circumstances underlying the determination change.
    Moreover, because, some operators of insurance fraud schemes 
continue to market health coverage to small employers under the guise 
of collectively bargained plans using, among other things, sham unions 
and collective bargaining agreements, in an effort to avoid state 
insurance regulation, the retention of the three-year rule provides an 
important enforcement tool for the Department and state insurance 
departments, while imposing little burden on bona fide collectively 
bargained plans. Finally, bona fide collectively bargained plans and 
their sponsors also benefit from the early identification of sham MEWA 
operators.
    Under the final rule, as under the interim final rule, the term 
origination continues to be defined as the occurrence of any of the 
following three events `` (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).
    (b) Excepted Benefits. The final rule adds a definition of 
``excepted benefits'' and defines the term by reference to section 
733(c) of ERISA and 29 CFR 2590.732(b). This definition was added 
because of a clarification that MEWAs or ECEs that provide coverage 
consisting solely of excepted benefits are not required to report under 
this section. This clarification is discussed in more detail below, 
under the heading Persons required to report.

(2) Persons Required To Report

    Paragraph (c) of the final rule sets forth the persons required to 
report under the final rule. As under the interim final rule, the final 
rule requires filing by the administrator of a MEWA that provides 
benefits consisting of medical care, whether or not the MEWA is a group 
health plan. It also requires filing by the administrator of an ECE 
that offers or provides coverage consisting of medical care during the 
first three years after the ECE is originated.
    The final rule also contains language to clarify the scope of the 
reporting requirement. The clarifications were initially included in 
question-and-answer guidance published by the Department in April and 
June of 2000, and are described in the Instructions to the Form M-1 for 
the Years 2000, 2001, and 2002.
    (a) Exception for coverage consisting solely of excepted benefits. 
First, because coverage consisting solely of excepted benefits is not 
subject to the requirements of part 7 of ERISA (pursuant to ERISA 
sections 732 and 733 and Sec.  2590.732), the final rule provides that 
a MEWA or ECE is not subject to this filing requirement if it provides 
coverage that consists solely of excepted benefits. However, if the 
MEWA or ECE provides coverage that consists of both excepted benefits 
and other benefits for medical care that are not excepted benefits (and 
is, therefore, subject to the requirements of part 7 of ERISA), the 
administrator of the MEWA or ECE is required to file the Form M-1.
    (b) Exceptions for coverage not subject to ERISA. In addition, 
because governmental plans, church plans, and

[[Page 17496]]

plans maintained solely for the purpose of complying with workmen's 
compensation laws (as defined in sections 4(b)(1), 4(b)(2) and 4(b)(3) 
of ERISA, respectively) are not covered by Title I of ERISA, the final 
rule provides that a MEWA or ECE is not subject to the filing 
requirement if it is a governmental plan, church plan, or plan 
maintained solely for the purpose of complying with workmen's 
compensation laws. Similarly, the final rule also provides that a MEWA 
or ECE is not subject to the filing requirement under this section if 
it provides coverage only through governmental plans, church plans, or 
plans maintained solely for the purpose of complying with workmen's 
compensation laws (or other arrangements not covered by Title I of 
ERISA, such as health insurance coverage offered to individuals other 
than in connection with a group health plan, known as individual market 
coverage). However, if a MEWA provides coverage both to group health 
plans that meet the definition of a governmental plan, church plan, or 
plan maintained solely for the purpose of complying with workmen's 
compensation laws and to any group health plan that is subject to part 
7 of ERISA, the MEWA is required to file the Form M-1.
    (c) Other exceptions. Finally, the final rule also contains a 
clarification that reporting is not required if an entity would not 
constitute a MEWA or ECE but for any of the three circumstances 
described below.
    (1) Common control interest of at least 25 percent. The first of 
these circumstances relates to the treatment of two or more trades or 
businesses as a single employer for purposes of the definition of MEWA 
if the trades or businesses are within the same control group. Section 
3(40)(a)(1)(B) defines the term ``control group'' to mean a group of 
trades or businesses under common control, and provides that trades or 
businesses that are part of the same ``control group'' are deemed to be 
a single employer for purposes of the definition of MEWA. It then 
states that the determination of whether a trade or business is under 
``common control'' with another trade or business is to be determined 
under regulations of the Secretary applying principles similar to the 
principles applied in determining whether employees of two or more 
trades or businesses are treated as employed by a single employer, 
except that common control shall not be based on an interest of less 
than 25 percent. The Department has not issued any regulations under 
this provision.
    Commenters argued that arrangements where businesses maintain 
significant ownership interests in other businesses and provide 
benefits under the same health plan are not the kinds of arrangements 
that historically have been found to lead to problems with fraud and 
failure to provide promised benefits. The Department agrees and has 
modified the final rule accordingly.
    The final rule clarifies that a filing is not required on behalf of 
certain plans or other arrangements that provide coverage to the 
employees of two or more employers that share a common control 
interest. Specifically, if an entity would not constitute a MEWA or ECE 
but for the fact that it provides coverage to the employees of two or 
more trades or businesses that share a common control interest of at 
least 25 percent at any time during the plan year (applying the 
principles applied under section 414(b) or (c) of the Internal Revenue 
Code), a Form M-1 filing is not required. However, while use of a 25 
percent test may result in a determination of common control for 
purposes of the Form M-1 filing requirement, common control generally 
means, under sections 414 (b) and (c) of the Internal Revenue Code, an 
80 percent interest in the case of a parent-subsidiary group of trades 
or businesses and a more than 50 percent interest in the case of a 
brother-sister relationship among organizations controlled by five or 
fewer persons that are the same persons with respect to each 
organization.
    (2) Temporary MEWAs created by a change in control. The second of 
these circumstances that will not, by itself, trigger a filing relates 
to temporary arrangements providing medical benefits to the employees 
of more than one employer that are created by a change in control of 
the business. This exception was suggested by a commenter who argued 
that entities that end up covering employees of another employer for a 
brief period of time by virtue of a change in business ownership should 
not be required to file a Form M-1. The commenter suggested that the 
Department define ``temporary'' to mean that the arrangement does not 
extend beyond the end of the plan year following the plan year in which 
the change in control occurs.
    Commenters explained how change in control transactions may take 
place over a period of time, and the health plan for a control group 
may therefore be providing medical benefits to the employees of more 
than one employer for a temporary period. According to one source cited 
by a commenter, reasons that a transaction may occur over a period of 
time include the need to obtain financing, the need to obtain various 
regulatory approvals, and the need to ``iron out the details'' of the 
transaction.
    The Department agrees with the comment and has modified the final 
rule to create an exception for arrangements that would not constitute 
MEWAs but for their creation in connection with a change in control of 
businesses (such as a merger or acquisition) and which are temporary in 
nature (i.e., do not extend beyond the end of the plan year following 
the plan year in which the change in control occurs). The change in 
control must occur for a purpose other than avoiding Form M-1 filing.
    (3) Very small number of persons who are not employees or former 
employees. The last of the circumstances that will not, by itself, 
trigger a filing is an exception for entities that would not be a MEWA 
or ECE but for the fact that they cover a very small number of persons 
(excluding spouses and dependents) who are not employees or former 
employees of the plan sponsor. For example, an arrangement may cover 
non-employee members of the board of directors of the plan sponsor or 
individuals classified as independent contractors. The final rule 
provides that any entity is not required to file the Form M-1 if it 
would not be a MEWA but for the fact that it provides coverage to 
persons who are not employees nor former employees (including those 
participants on COBRA continuation coverage) \2\ of the sponsor 
(excluding spouses and dependents) and the number of such persons does 
not exceed one percent of the total number of employees or former 
employees covered by the arrangement, determined as of the last day of 
the year to be reported (or, in the case of a 90-day origination 
report, determined as of the 60th day following the origination date).
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    \2\ The term ``employee'' is defined in section 3(7) of ERISA as 
any individual employed by an employer, and includes all common law 
employees. See also National Mutual Insurance Company v. Darden, 503 
U.S. 318 (1992) (``Darden does not cite, and we do not find, any 
provision [of ERISA] either giving specific guidance on the term's 
meaning or suggesting that construing it to incorporate traditional 
agency law principles would thwart the congressional design or lead 
to absurd results. Thus, we adopt a common-law test for determining 
who qualifies as an `employee' under ERISA * * *.'')
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    (d) Persons not excepted. Some commenters argued that MEWAs that 
are fully-insured should not be required to report. One commenter 
argued that coverage under insurance contracts that have been approved 
by state regulators complies with part 7 by virtue of this

[[Page 17497]]

state approval. The final rule makes no change to the scope of the 
reporting requirement because the purpose of the Form M-1 filing 
requirement is largely to evaluate compliance with part 7 of ERISA. The 
evaluation of part 7 compliance requires a determination that the group 
health plan is in compliance both on the face of the plan documents 
(including the plan's insurance policy) and in operation. The Form M-1 
requires the administrator of the MEWA to answer as to whether the 
coverage it provides is in compliance with part 7. The answer to this 
question should address compliance both on the face of the documents 
and in operation. This evaluation is as important for fully-insured 
arrangements as it is for self-insured arrangements.
    Moreover, as noted earlier, the Form M-1 reporting requirement is 
an important enforcement tool for the Department and state insurance 
departments. While, in part, this reporting requirement serves as a 
vehicle for reviewing compliance with the requirements of part 7 of 
ERISA, the Form M-1 also serves as the only national registry of MEWAs 
operating throughout the United States. For this reason, it is 
important that fully-insured MEWAs continue to file the Form M-1.
    One commenter asked what authority the Department has to ask about 
compliance with part 7 by insured group health plans, presumably 
because of the fact that section 502(b)(3) of ERISA provides that the 
Secretary is not authorized to enforce any requirement of part 7 
against a health insurance issuer offering health insurance coverage in 
connection with a group health plan. The Secretary does, however, have 
authority to enforce the requirements of part 7 against all group 
health plans, whether insured or self-insured.
    Several comments on the MEWA/ECE reporting requirement were also 
received from representatives of Professional Employer Organizations 
(PEOs). In general, PEO representatives have argued that, for a variety 
of reasons, they should be treated as ``co-employers'' and, 
accordingly, their group health plans should not be considered MEWAs. 
While PEOs have sought to distinguish themselves from employee leasing 
companies on the basis of a ``co-employer'' relationship with 
employees, the Department is unable to conclude that the group health 
plans maintained by PEOs, like the plans maintained by employee leasing 
companies, do not cover the employees of more than one employer.\3\ For 
this reason the final regulation does not create an exception from the 
filing requirement.
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    \3\ The Department has issued a number of advisory opinions over 
the years under which an arrangement providing benefits for medical 
care and sponsored by an employee leasing company was found to be a 
MEWA. See, e.g., Advisory Opinion 91-17A to L.J. Darter, III (April 
5, 1991); Advisory Opinion 91-47A to Lee P. Jedziniak (December 20, 
1991); Advisory Opinion 92-04A to Sandra Milburn (January 27, 1992); 
Advisory Opinion 92-05A to Chuck Huff (January 27, 1992); Advisory 
Opinion 92-07A to Lee P. Jedziniak (February 20, 1992); Advisory 
Opinion 93-29A to Alfred W. Gross (November 2, 1993); Advisory 
Opinion 95-22A to Dale Robison (August 25, 1995); and Advisory 
Opinion 95-29A to Kevin W. Ahern (December 7, 1995).
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    The Department recognizes that other arguments were also made on 
behalf of PEOs to support either a complete or limited exception from 
the requirement to file a Form M-1. However, this registration 
regulation allows the Department to collect information to facilitate 
compliance with the requirements of part 7. As noted earlier, it is 
also an important enforcement tool for the Department and state 
insurance departments and serves as the only national registry of MEWAs 
operating throughout the United States. It also responds to the GAO's 
recommendation in its 1992 GAO report entitled ``States Need Labor's 
Help Regulating Multiple Employer Welfare Arrangements,'' where the GAO 
detailed a history of fraud and abuse by MEWAs and recommended a 
federal MEWA registration requirement. GAO/HRD-92-40, March 1992.

(3) Extensions

    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.
    One commenter argued that the extension of time to file should be 
longer than the 60 days provided in the Instructions to the Form M-1 in 
certain special circumstances. Specifically, the commenter stated that 
the 60-day period is not adequate for a merger or acquisition context. 
This comment has been addressed in the final regulation by creating an 
exception from the filing requirement for a MEWA that is created by a 
change in control of businesses and is temporary in nature. (This 
exception to the reporting requirement is discussed above, under the 
discussion of Persons Required to Report).

(4) Civil Penalties and Procedures

    Paragraph (g) of the final rule 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.\4\ In this regard, ERISA section 502(c)(5), as amended by 
HIPAA, provides for the assessment of a penalty for the failure or 
refusal to file a report pursuant to section 101(g) of ERISA, as 
amended by HIPAA. The penalty and procedure regulations are designed to 
parallel the procedures set forth in 29 CFR 2560.502c-2 regarding civil 
penalties under section 502(c)(2) of ERISA relating to reports required 
to be filed under ERISA section 101(b)(4). In general these regulations 
provide that, in the event of no filing, an incomplete filing, or a 
late filing, a penalty may apply of up to $1,000 a day (or a higher 
amount if adjusted pursuant to the Federal Civil Penalties Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996) for each day that the administrator of a MEWA or ECE fails 
or refuses to file a complete report. For information relating to 
administrative hearings and appeals in connection with the assessment 
of civil penalties under section 502(c)(5) of ERISA, see 29 CFR 2570.90 
through 2570.101 (published in this issue of the Federal Register).
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    \4\ Moreover, other relevant criminal penalties may apply. See, 
e.g., ERISA Sec.  501 and 18 U.S.C. 1021, 1027, and 1035.
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C. Regulatory Impact Analysis

    The total cost of the reporting requirement as implemented by this 
final rule is estimated to be $403,000, or about $200 for each of the 
2,000 entities expected to be required to file the annual reporting 
form for MEWAs, the Form M-1. No additional cost is attributable to the 
clarifying changes made in this final rule. Although the benefits have 
not been quantified, EBSA believes that the cost of the filing 
requirement is more than justified by the benefits associated with 
ensuring uniform adherence to the requirements and protections added to 
ERISA by HIPAA, MHPA, the Newborns' Act, and WHCRA. HIPAA amended ERISA 
to add section 101(g), which authorizes the Secretary of Labor to 
require reporting by MEWAs that are not group health plans for the 
purpose of determining 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 
these health care protections.
    The reporting requirement implemented by this final rule provides 
the most cost effective means of facilitating compliance with part 7 of 
ERISA, as well as with the full range of other Federal and State 
requirements

[[Page 17498]]

that may apply to MEWAs under ERISA, the Internal Revenue Code, the 
Public Health Service Act, and State insurance laws. The data collected 
as a result of the filing requirement will ultimately serve as the only 
source of complete and uniform information identifying these 
arrangements, helping Federal and State regulators to evaluate their 
compliance with all applicable requirements. Evaluation of compliance 
based on the information reported is significantly more cost effective 
for both governmental entities and MEWAs than the alternative of active 
intervention by compliance examiners.
    Ensuring compliance by these arrangements is beneficial to 
participants and beneficiaries who are able to fully realize their 
rights under these statutes. The greater assurance of compliance is 
also beneficial because compliance by these arrangements with various 
provisions that apply to them has been shown to be inconsistent. 
Although the provisions of Title I 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.
    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. Identification of these entities 
through this reporting requirement helps to ensure that administrators 
of these arrangements are aware of the requirements that apply, and 
that the protections intended to be provided are actually implemented 
for the benefit of employers and of participants who obtain their group 
health coverage through these arrangements.
    Ancillary benefits arise from the public disclosure of this data. 
Participants with greater access to information about the arrangements 
through which they obtain their group health coverage may better 
exercise their rights in the event of a dispute with the arrangement. 
The data collected also enhance capability to conduct analysis of the 
market segment represented by MEWAs, which is useful to policy makers 
in evaluating the role of these entities in providing access to 
employment-based health care benefits.
    When the Department developed its initial estimates of the number 
of filers and the costs potentially associated with these filings, it 
acknowledged a significant degree of uncertainty with respect to the 
number of entities that would be required to file. Although reasonable 
estimates were available from the Form 5500 Annual Return/Report of 
Employee Benefit Plan data for the potential number of Entities 
Claiming Exemption and multiple-employer group health plans that file 
the Form 5500, no information was available that specifically 
identified the universe of MEWAs that are not group health plans under 
ERISA.
    To develop the estimates used in the analysis of the potential 
impact of the interim final rule, the Department considered information 
from several sources. The first of these was the GAO study from 
1992,\5\ which indicated there were about 1,000 MEWAs doing business in 
the states in 1991. These figures are not current, and the MEWA 
universe is known to be variable over time relative to health insurance 
market cost fluctuations. Surveys of association members \6\ with 
respect to group health plan sponsorship were also reviewed. This 
information, adjusted conservatively for low response rates, suggested 
the existence of about 1,200 health plans sponsored by associations. 
The overlap between plan and non-plan MEWAs within this number is 
unclear, however.
---------------------------------------------------------------------------

    \5\ ``EMPLOYEE BENEFITS--States Need Labor's Help Regulating 
Multiple Employer Welfare Arrangements,'' GAO/HRD-92-40.
    \6\ ``Survey of Association Member Health Plans,'' W.G. Morneau 
& Associates/American Society of Association Executives, 1993 and 
1997.
---------------------------------------------------------------------------

    A third source of information was a RAND Corporation analysis of 
the 1997 Robert Wood Johnson Foundation Employer Health Insurance 
Survey as it pertains to pooled purchasing arrangements.\7\ This 
analysis suggested the existence of 4,000 to 4,800 multiple employer 
arrangements, including collectively bargained group health plans, 
association plans, and MEWAs. The data reviewed was establishment-
based, and the imputation of the number of arrangements reported by 
establishments to employer sponsored group health plans was thought to 
introduce additional uncertainty into the estimate of the possible 
universe of filers.
---------------------------------------------------------------------------

    \7\ ``Pooled Purchasing: Who Are the Players?'' Stephen H. Long 
and M. Susan Marquis, ``Health Affairs,'' July-August 1999.
---------------------------------------------------------------------------

    As a result of data limitations and uncertainty within available 
data, the Department conservatively estimated that about 2,700 entities 
would file Form M-1. A substantial degree of uncertainty remained about 
this estimate, and we reported a possible range of 1,000 to 4,000. 
Actual filer counts have been significantly lower, totaling 
approximately 600 in each of the three years (i.e., 1999-2001) for 
which complete data are available at this time. In the Department's 
view, actual experience to date may differ from the estimate for 
several reasons, the first of these being the limited level of 
confidence in the original estimate. Based on past history of non-
compliance of MEWAs with a variety of regulatory requirements, the 
Department assumes that the actual number of filers continues to 
reflect incomplete compliance with this still relatively new filing 
requirement. Further, the Department is still in the process of 
implementing its civil penalty enforcement program to correct 
compliance failures, which faces the same significant challenges in 
identifying non-filers as are faced in developing reliable estimates of 
the number of MEWAs doing business at any given time. Finalization of 
this rule and the clarifications incorporated in the final rule may 
also help to ensure that potentially affected parties are aware of the 
filing requirement.
    The Department still has no data to support a more accurate 
estimate of the filer universe than that represented by actual filers. 
However, it reviewed available information on its active enforcement 
cases involving MEWAs to determine the degree to which those MEWAs had 
complied with the M-1 filing requirement. This information showed that 
about 42% of the MEWAs undergoing investigation that were required to 
file the M-1 had complied with the requirement. If this rate of non-
compliance applies to all MEWAs, about 1,400 MEWAs would be required to 
file the M-1 annually.
    Because the rate of non-compliance may differ from that found in 
the sample of enforcement cases, and because the Department continues 
to believe that full compliance has not yet been achieved, it has 
selected 2,000 as a conservative estimate of the number of potential 
filers of the M-1. This is approximately the mid-point between the 
number projected at the time of publication of the interim final rule, 
and the 1,400 developed from the number of actual filers adjusted for 
what is known about non-compliance in the available sample of MEWAs.
    To develop the current cost estimate of the cost of the filing 
requirement, the Department looked at the characteristics of the actual 
filers and applied the relevant factors to the projected number of 
filers. In its original estimates, the Department differentiated filing 
preparation time by whether a filer did business in more than one 
state, and whether or not the filer was fully insured. The existing 
filer data offers more information about the actual characteristics of 
filers. For purposes of these estimates, it is assumed that

[[Page 17499]]

available data is representative of all filers.
    Original estimates, as well as those shown here, were based on the 
assumption that 2 hours of start-up time for learning the law and 
becoming familiar with the form and instructions would be required for 
all filers, and that a range of 50 minutes for single state filers to 1 
hour and 35 minutes for multiple state filers would be required for 
Part III of the form. Part IV was estimated to require 15 minutes for 
fully insured filers, and 30 minutes for non-fully insured filers. It 
was also assumed that 100% of filings would be made by providers of 
service to the MEWA administrators, and thus result in the payment of 
fees rather than in the expenditure of time.
    Approximately 50% of actual filers report doing business in 
multiple states, and 50% in single states. Also, about 50% of all 
filers, without regard to the number doing business in single or 
multiple states, report being fully insured in most or all of the 
states in which they do business. Applying these ratios to the estimate 
of 2,000 filers results in estimates of 1,000 MEWAs doing business in 
multiple states, 1,000 in single states, 1,000 fully insured MEWAs, and 
1,000 not-fully insured. The resulting cost estimate is about $403,000, 
or $200 per filer on average. This estimate incorporates updated 
assumptions for wage rates and increased postage rates. Of the 
projected filers, about 15%, or about 300 filers are expected to have 
fewer than 100 participants, based upon the number of actual filers 
with fewer than 100 participants. As noted earlier, this is the total 
estimated cost of the filing requirement; no incremental cost is 
considered to be associated with this final rule.

Executive Order 12866 Statement

    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 of the economy of $100 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering 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. This 
action is significant under section 3(f)(4) because it raises novel 
legal or policy issues arising from the President's priorities. 
Accordingly, OMB has reviewed this regulatory action.

Paperwork Reduction Act

    The Department of Labor submitted the Form M-1 and instructions to 
OMB for emergency review and approval at the time of publication of the 
interim final rule on February 11, 2000. OMB subsequently approved the 
ICR on March 2, 2000 under control number 1210-0116. On November 22, 
2000, OMB approved the Department's request for extension of the 
emergency approval for a three-year period ending November 30, 2003. 
This final rule does not implement any substantive or material change 
to the information collection, and as such, no change is made to the 
ICR, and no further review is requested of OMB at this time. The 
estimated burden hours and costs associated with the information 
collection have been adjusted to reflect an updated estimate of the 
likely number of respondents as well as updated wage and postal rates. 
Estimates of the number of filers and burden hours and costs are shown 
below.
    You may address requests for copies of the ICR to Joseph S. 
Piacentini, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Room N-5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: 
(202) 219-5333. These are not toll-free numbers
    Agency: U.S. Department of Labor, Employee Benefits Security 
Administration.
    Title: Annual Report for Multiple Employer Welfare Arrangements and 
Certain Entities Claiming Exception.
    Form: M-1.
    Affected Public: Business or other for-profit; Individuals or 
households, Not-for-profit institutions.
    OMB Control Number: 1210-0116.
    Frequency of Response: Annually.
    Respondents: 2,000.
    Response time: Ranges from 2 hours to 3 hours and 50 minutes based 
on characteristics of filer.
    Responses: 2,000.
    Estimated Burden Hours: 1.
    Estimated Annual Cost (Operating and Maintenance): $403,000.

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. Unless the agency certifies that a rulemaking action subject 
to section 553(b) is not likely to have a significant economic impact 
on a substantial number of small entities, section 604 of the RFA 
requires the agency to present a final regulatory flexibility analysis 
at the time of publication of the notice of final 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 were issued as interim final rules and not as a 
notice 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 economic impact on a substantial number of small 
entities, or conduct a regulatory flexibility analysis. The Department 
did, however, take the potential impact on small entities into account 
in developing the interim final and final rules. The Department defines 
a small entity for purposes of its RFA analyses as an employee benefit 
plan with fewer than 100 participants. This definition is grounded in 
section 104(a)(2) of ERISA, which permits the Secretary of Labor to 
prescribe simplified annual reports for certain employee benefit plans 
which cover fewer than 100 participants. Based on actual filer data, 
about 15% of filers are expected to be small. This results in an 
estimate of 300 small MEWAs being required to file Form M-1. The 
average cost to all filers, including the highest average cost filers--
those not-fully insured and those doing business in multiple states--is 
about $200 per year. The cost to small MEWA filers is expected to be 
lower than average due to the lower likelihood that they are not fully 
insured, and that they do business in many states. This cost is not 
expected to be considered substantial for any entity. The Department 
has developed a form for the collection of data, and has included 
voluntary worksheets with the form that are designed to assist with 
compliance and ease compliance burdens for all filers.

[[Page 17500]]

Small Business Regulatory Enforcement Fairness Act

    The 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. The rule is not a ``major rule'' as 
that term is defined in 5 U.S.C. 804, because it is not likely to 
result in (1) an annual effect on the economy of $100 million or more; 
(2) a major increase in costs or prices for consumers, individual 
industries, or federal, State, or local government agencies, or 
geographic regions; or (3) significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based enterprises to compete with foreign-based 
enterprises in domestic or export markets.

Unfunded Mandates Reform Act

    Pursuant to provisions of the Unfunded Mandates Reform Act of 1995 
(Pub. L. 104-4), this 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 
or more.

Federalism Statement Under Executive Order 13132

    Executive Order 13132 outlines fundamental principles of 
federalism, and requires the adherence to specific criteria by Federal 
agencies in the process of their formulation and implementation of 
policies that have substantial direct effects on the states, the 
relationship between the national government and the states, or on the 
distribution of power and responsibilities among the various levels of 
government. Agencies promulgating regulations that have these 
federalism implications must consult with state and local officials, 
and describe in the preamble to the regulation the extent of their 
consultation and the nature of the concerns of state and local 
officials, as well as the agency's position supporting the need to 
issue the regulation, and a statement of the extent to which the 
concerns of state and local officials have been met.
    In the Department's view, these final regulations do not have 
federalism implications because they do not have substantial direct 
effects on the states, the relationship between the national government 
and the states, or on the distribution of power and responsibilities 
among various levels of government. Not only do these regulations not 
reduce state discretion, the reports they require will facilitate state 
enforcement of their own laws as they apply to MEWAs since the reports 
will be available to the states and will identify MEWAs operating in 
each state.
    Although the Department concludes that these final regulations do 
not have federalism implications, in keeping with the spirit of the 
Executive Order that agencies shall closely examine any policies that 
may have federalism implications or limit the policy making discretion 
of the states, the Department of Labor engages in extensive efforts to 
consult with and work cooperatively with affected state and local 
officials.
    For example, the Department attends quarterly meetings of the 
National Association of Insurance Commissioners (NAIC) to listen to the 
concerns of state insurance departments. The NAIC is a non-profit 
corporation established by the insurance commissioners in the 50 
states, the District of Columbia, and the four U.S. territories that, 
among other things, provides a forum for the development of uniform 
policy when uniformity is appropriate. Its members meet, discuss, and 
offer solutions to mutual problems. The NAIC sponsors quarterly 
meetings to provide a forum for the exchange of ideas, and in-depth 
consideration of insurance issues by regulators, industry 
representatives, and consumers. In addition to the general discussions, 
committee meetings, and task force meetings, the NAIC sponsors standing 
HIPAA meetings for members during the quarterly conferences, including 
a Centers for Medicare and Medicaid Services (CMS)/Department of Labor 
(DOL) meeting on HIPAA issues. (This meeting provides CMS and DOL the 
opportunity to provide updates on regulations, bulletins, enforcement 
actions, and outreach efforts regarding HIPAA.) In these quarterly 
meetings, issues relating to MEWAs and the implementation of the Form 
M-1 filing requirement are frequently discussed and, periodically, 
entire sessions are scheduled that are dedicated exclusively to MEWA/
Form M-1 issues.
    The Department also cooperates with the states in several ongoing 
outreach initiatives, through which information is shared among federal 
regulators, state regulators, and the regulated community. For example, 
the Department has established a Health Benefits Education Campaign 
with more than 70 partners, including CMS, the NAIC, and many business 
and consumer groups. In addition, the Department website offers links 
to important state websites and other resources, facilitating 
coordination between the state and federal regulators and the regulated 
community.
    The Department also coordinates with state insurance departments to 
freeze assets when a MEWA operator is committing fraud or operating in 
a financially unsound manner. In these situations, typically, a state 
will obtain a cease and desist order to stave off further action by the 
MEWA in that state. In certain situations, the Department will then 
obtain a temporary restraining order (TRO) to freeze assets of the MEWA 
nationwide. In one case this year, the Department obtained a TRO to 
freeze assets of a MEWA whose operators were committing fraud and not 
paying benefits. This case affects more than 23,000 participants and 
beneficiaries in 50 states and the amount of unpaid claims could exceed 
$6 million. In a similar case last year, the Department obtained a TRO 
to freeze assets of a MEWA that was diverting plan assets for personal 
use of the MEWA's operators. That case affected at least 1,500 
participants and $2.8 million in unpaid claims. A court order was also 
issued in that case appointing an independent fiduciary to manage the 
MEWA.
    In conclusion, the Department has stayed in contact with state 
regulators and considered their concerns in developing these 
regulations. These regulations should help the states enforce their own 
laws as they apply to MEWAs since the reports they require will be 
available to them and will identify MEWAs operating in each state.

Statutory Authority

    29 U.S.C. 1021, 1027, 1059, 1132, 1135, 1181-1183, 1181 note, 1185, 
1185a-b, 1191, 1191a-c; Secretary of Labor's Order 1-2003, 68 FR 5374 
(Feb. 3, 2003).

List of Subjects in 29 CFR Part 2520

    Accounting, Employee benefit plans, Pensions, Reporting and 
recordkeeping requirements.

0
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]

0
1. The authority for part 2520 continues to read:

    Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134 and 
1135; Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 2003). 
Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 1181 
note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-

[[Page 17501]]

3, 2520.104b-1 and 2520.104b-3 also issued under 29 U.S.C. 
1003,1181-1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 
2520.104b-1 and 2520.107 also issued under 26 U.S.C. 401 note, 111 
Stat. 788. Sec. 2520.101-3 is also issued under 29 U.S.C. 1021(i).

0
2. Section 2520.101-2 is revised 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) of the Employee Retirement 
Income Security Act (ERISA) 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 ERISA), 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 subtitle B of title I of ERISA 
(part 7) are being carried out in connection with such benefits. 
Section 734 of ERISA provides that the Secretary may promulgate such 
regulations as may be necessary or appropriate to carry out the 
provisions of part 7. This section sets out requirements for 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 ERISA (referred to in this section 
as Entities Claiming Exception or ECEs). These requirements apply 
regardless of whether the MEWA or ECE is a group health plan.
    (b) Definitions. As used in this section, the following definitions 
apply:
    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 ERISA); or
    (3) In the case of a MEWA or ECE for which an administrator is not 
designated and a plan sponsor cannot be identified, jointly and 
severally the person or persons actually responsible (whether or not so 
designated under the terms of the instrument under which the MEWA or 
ECE is operated) for the control, disposition, or management of the 
cash or property received by or contributed to the MEWA or ECE, 
irrespective of whether such control, disposition, or management is 
exercised 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 on the basis that the entity is established or maintained 
pursuant to one or more agreements that the Secretary finds to be 
collective bargaining agreements within the meaning of section 
3(40)(A)(i) of ERISA and 29 CFR 2510.3-40.
    Excepted benefits means excepted benefits within the meaning of 
section 733(c) of ERISA and 29 CFR 2590.732(b).
    Group health plan means a group health plan within the meaning of 
section 733(a) of ERISA and 29 CFR 2590.701-2.
    Health insurance issuer means a health insurance issuer within the 
meaning of section 733(b)(2) of ERISA and 29 CFR 2590.701-2.
    Medical care means medical care within the meaning of section 
733(a)(2) of ERISA and 29 CFR 2590.701-2.
    Multiple employer welfare arrangement (MEWA) means a multiple 
employer welfare arrangement within the meaning of section 3(40) of 
ERISA and 29 CFR 2510.3-40.
    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) Exceptions--(i) 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--
    (A) 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;
    (B) Provides coverage that consists solely of excepted benefits, 
which are not subject to Part 7. If the MEWA or ECE provides coverage 
that consists of both excepted benefits and other benefits for medical 
care that are not excepted benefits, the administrator of the MEWA or 
ECE is required to report under this section;
    (C) Is a group health plan that is not subject to ERISA, including 
a governmental plan, church plan, or a plan maintained solely for the 
purpose of complying with workmen's compensation laws, within the 
meaning of sections (4)(b)(1), 4(b)(2), or 4(b)(3) of ERISA, 
respectively; or
    (D) Provides coverage only through group health plans that are not 
covered by ERISA, including governmental plans, church plans, or plans 
maintained solely for the purpose of complying with workmen's 
compensation laws within the meaning of sections 4(b)(1), 4(b)(2), or 
4(b)(3) of ERISA, respectively (or other arrangements not covered by 
ERISA, such as health insurance coverage offered to individuals other 
than in connection with a group health plan, known as individual market 
coverage);
    (ii) Nothing in this paragraph (c) shall be construed to require 
reporting under this section by the administrator of an entity that 
would not constitute a MEWA or ECE but for the following circumstances:
    (A) The entity provides coverage to the employees of two or more 
trades or businesses that share a common control interest of at least 
25 percent at any time during the plan year, applying the principles of 
section 414(b) or (c) of the Internal Revenue Code (26 U.S.C.);
    (B) The entity provides coverage to the employees of two or more 
employers due to a change in control of businesses (such as a merger or 
acquisition) that occurs for a purpose other than avoiding Form M-1 
filing and is temporary in nature. For purposes of this paragraph, 
``temporary'' means the MEWA or ECE

[[Page 17502]]

does not extend beyond the end of the plan year following the plan year 
in which the change in control occurs; or
    (C) The entity provides coverage to persons (excluding spouses and 
dependents) who are not employees or former employees of the plan 
sponsor, such as non-employee members of the board of directors or 
independent contractors, and the number of such persons who are not 
employees or former employees does not exceed one percent of the total 
number of employees or former employees covered under the arrangement, 
determined as of the last day of the year to be reported or, in the 
case of a 90-day origination report, determined as of the 60th day 
following the origination date.
    (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) and any additional statements 
required in the Instructions to the Form M-1.
    (2) The Secretary may reject any filing under this section if the 
Secretary determines that the filing is incomplete, in accordance with 
29 CFR 2560.502c-5.
    (3) If the Secretary rejects a filing under paragraph (d)(2) of 
this section, and if a revised filing satisfactory to the Secretary is 
not submitted within 45 days after the notice of rejection, the 
Secretary may bring a civil action for such relief as may be 
appropriate (including penalties under section 502(c)(5) of ERISA and 
29 CFR 2560.502c-5).
    (e) Reporting requirement and timing--(1) Period for which report 
is required. A completed copy of the Form M-1 is required to be filed 
for each calendar year during all or part of which the MEWA or ECE 
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 for annual 
filings. 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) 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) Exception. Paragraph (e)(2)(ii)(A) of this section does not 
apply if the origination occurred between October 1 and December 31. 
(Thus, no 90-day origination report is due when an entity is originated 
between October 1 and December 31. However, the March 1 filing deadline 
of paragraph (e)(2)(i) of this section continues to apply.)
    (iii) 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 ERISA for persons who fail to file 
the information required under this section, see 29 CFR 2560.502c-5. 
For information relating to administrative hearings and appeals in 
connection with the assessment of civil penalties under section 
502(c)(5) of ERISA, see 29 CFR 2570.90 through 2570.101.
    (h) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1. (i) Facts. MEWA A began offering coverage for medical 
care to the employees of two or more employers July 1, 1989 (and 
continues to offer such coverage). MEWA A does not claim the 
exception under section 3(40)(A)(i) of ERISA.
    (ii) Conclusion. In this Example 1, the administrator of MEWA A 
must file a completed copy of the Form M-1 each year by March 1.
    Example 2. (i) Facts. 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 the number of 
employees to which ECE B provides coverage for medical care has not 
grown by more than 50 percent in any given year.
    (ii) Conclusion. In this Example 2, ECE B was originated on 
January 1, 1992 and has not been originated since then. Therefore, 
the administrator of ECE B is not required to file a 2003 Form M-1 
on March 1, 2004 because the last time the ECE B was originated was 
January 1, 1992 which is more than 3 years prior to March 1, 2004.
    Example 3. (i) Facts. ECE C began offering coverage for medical 
care to the employees of two or more employers on July 1, 2004.
    (ii) Conclusion. In this Example 3, the administrator of ECE C 
must file a completed copy of the 2004 Form M-1 on or before 
September 29, 2004 (which is 90 days after the origination date). In 
addition, the administrator of ECE C must file an updated copy of 
the 2004 Form M-1 by March 1, 2005 because the last date C was 
originated was July 1, 2004, which is less than 3 years prior to the 
March 1, 2005 due date. Furthermore, the administrator of ECE C must 
file a 2005 Form M-1 by March 1, 2006 and a 2006 Form M-1 by March 
1, 2007 (because July 1, 2004 is less than three years prior to 
March 1, 2006 and March 1, 2007, respectively). 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, 2007.
    Example 4. (i) Facts. 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) Conclusion. In this Example 4, the administrator of MEWA D 
is not required to file Form M-1 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) Facts. MEWA E is originated on September 1, 2004.
    (ii) Conclusion. In this Example 5, because MEWA E was 
originated on September 1, 2004, the administrator of MEWA E must 
file a completed copy of the Form M-1 on or before November 30, 2004 
(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.
    Example 6. (i) Facts. Company F maintains a group health plan 
that provides benefits for medical care for its employees (and their 
dependents). Company F establishes a joint venture in which it has a 
25 percent stock ownership interest, determined by applying the 
principles under section 414(b) of the Internal Revenue Code, and 
transfers some of its employees to the joint venture. Company F 
continues to cover these transferred employees under its group 
health plan.
    (ii) Conclusion. In this Example 6, the administrator is not 
required to file the Form M-1 because Company F's group health plan 
meets the exception to the filing requirement in paragraph 
(c)(2)(ii)(A) of this section. This is because Company F's group 
health plan would not constitute a MEWA but for the fact that it 
provides coverage to two or more trades or businesses that share a 
common control interest of at least 25 percent.
    Example 7. (i) Facts. Company G maintains a group health plan 
that provides benefits for medical care for its employees. The plan 
year of Company G's group health plan is the fiscal year for Company 
G, which is October 1st--September 30th. Therefore, October 1, 
2004--September 30, 2005 is the 2005 plan year. Company G decides to 
sell a portion of its business, Division X, to Company H.

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Company G signs an agreement with Company H under which Division X 
will be transferred to Company H, effective September 30, 2005. The 
change in control of Division X therefore occurs on September 30, 
2005. Under the terms of the agreement, Company G agrees to continue 
covering all of the employees that formerly worked for Division X 
under its group health plan until Company H has established a new 
group health plan to cover these employees. Under the terms of the 
agreement, it is anticipated that Company G will not be required to 
cover the employees of Division X under its group health plan beyond 
the end of the 2006 plan year, which is the plan year following the 
plan year in which the change in control of Division X occurs.
    (ii) Conclusion. In this Example 7, the administrator of Company 
G's group health plan is not required to file the Form M-1 on March 
1, 2006 for fiscal year 2005 because it is subject to the exception 
to the filing requirement in paragraph (c)(2)(ii)(B) of this section 
for an entity that would not constitute a MEWA but for the fact that 
it is created by a change in control of businesses that occurs for a 
purpose other than to avoid filing the Form M-1 and is temporary in 
nature. Under the exception, ``temporary'' means the MEWA does not 
extend beyond the end of the plan year following the plan year in 
which the change in control occurs. The administrator is not 
required to file the 2005 Form M-1 because it is anticipated that 
Company G will not be required to cover the employees of Division X 
under its group health plan beyond the end of the 2006 plan year, 
which is the plan year following the plan year in which the change 
in control of businesses occurred.
    Example 8. (i) Facts. Company I maintains a group health plan 
that provides benefits for medical care for its employees (and their 
dependents) as well as certain independent contractors who are self-
employed individuals. The plan is therefore a MEWA. The 
administrator of Company I's group health plan uses calendar year 
data to report for purposes of the Form M-1. The administrator of 
Company I's group health plan determines that the number of 
independent contractors covered under the group health plan as of 
the last day of calendar year 2004 is less than one percent of the 
total number of employees and former employees covered under the 
plan determined as of the last day of calendar year 2004.
    (ii) Conclusion. In this Example 8, the administrator of Company 
I's group health plan is not required to file a Form M-1 for 
calendar year 2004 (which is otherwise due by March 1, 2005) because 
it is subject to the exception to the filing requirement provided in 
paragraph (c)(2)(ii)(C) of this section for entities that cover a 
very small number of persons who are not employees or former 
employees of the plan sponsor.

    Signed at Washington, DC, this 31st day of March 2003.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration.
[FR Doc. 03-8115 Filed 4-7-03; 8:45 am]
BILLING CODE 4510-29-P