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Court: DOL went too far with AHP rules

Redefined “employer” under ERISA

Posted April 8, 2019

On March 28, the District Court of the District of Columbia ruled that the U.S. Department of Labor overstepped its regulatory authority when it published final rules regarding association health plans (AHPs). The rules were published on June 21, 2018, and established a more flexible test to facilitate the adoption and administration of AHPs.

At issue is how the DOL’s final rules defined “employer” for purposes of AHPs. In the case (State of New York et al. v. United States Department of Labor), the court found that the rule went too far when it allowed self-employed individuals without employees to be treated as employers under the Employee Retirement and Income Security Act (ERISA) and therefore to participate in AHPs.

Additionally, the final rules expanded interpretation of what constitutes a “bona fide association” of employers that is deemed to be a single “employer” for purposes of ERISA. Originally, the DOL required a group of employers to be connected by a common “economic or representational interest” in order to be considered a single employer. The final rule, however, allows employers that share only common geography to form such an association.

ERISA provides that some employer associations acting “in the interest of” employer members are sufficiently employer-like to fall within the law. Health plans offered by these associations may qualify as single ERISA plans.

Originally, as well, the group must have been formed on the basis of a business purpose unconnected to offering health coverage. The final rule, however, allows the group to be formed solely to offer an AHP as long as the association also has at least one other substantial business purpose, such as offering classes on business issues of interest to association members.

The court indicated that the DOL’s final rule “unreasonably expands the definition of ‘employers’ to include groups without any real commonality of interest and to bring working owners without employees within ERISA’s scope despite Congress’s clear intent that ERISA cover benefits arising out of employment relationships. Accordingly, these provisions are unlawful and must be set aside.”

The DOL did not specifically indicate that it will appeal the decision but is looking at its options. The DOL is instructed to review the final rule.

Employers who took advantage of the final rule and have created AHPs will need to keep a watchful eye on this evolving and be prepared to act accordingly.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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