Frequently Asked Questions (FAQs)
Why support employee benefit cooperatives?
- Employee benefit cooperatives will be a powerful tool to expand health care coverage, particularly among small businesses and their employees, by providing an aggregation device that allows small businesses to achieve economies of scale and expertise.
- Cooperatives are an ideal small business aggregation vehicle because they efficiently and fairly apportion costs, risks, and responsibilities among their members. Cooperatives are democratically controlled by their shareholder-members.
- Employee benefit cooperatives will maintain important legal protections for health care consumers by preserving rather than circumventing Federal and State laws and regulations governing employee benefits.
What are the primary drafting goals of the legislative initiative?
To modify the existing statutory schemes (Internal Revenue Code (“Code”), ERISA) to make it possible for Code § 1381 cooperatives to offer employees of shareholders of such benefit cooperatives access to total integrated benefit arrangements that deliver economies of scale, both economical and professional.
What would be the key features of an “employee benefit cooperative” or EBC?
- It would be a cooperative meeting the requirements of Subchapter T of the Internal Revenue Code as described in Code § 1381.
- The cooperative would be required to have at least 21 shareholders and be in similar lines of business.
- It would be treated as a “single employer” for employee benefit purposes, and would be eligible to provide the full range of employee benefits, including but not limited to:
- insured health;
- other welfare benefits (life, disability);
- direct reimbursement benefits (105(h));
- premium conversion plans;
- flexible spending account plans;
- dependent care accounts.
- Participating employers must enroll all benefits eligible employees.
- In the case of a retirement savings vehicle for employees of member employers, minimum benefits would be required for any retirement plan provided to employees (e.g., a safe harbor 401(k) plan with a matching contribution and automatic enrollment).
- In the case of an insured health plan for employees of shareholder employers (including self-employed owners), minimum benefits would be required for any health plan provided to employees (with cross-state authority subject to minimum guaranteed issue, community rating and other benefit standards).
- Favorable rules would apply to permit a single Code § 125 premium conversion plan and a single flexible spending account plan (health, dependent care), both sponsored by the cooperative.
- Favorable rules would apply to any tax-exempt trust related to the plans (i.e., VEBAs).
- Favorable rules would apply to >2 percent Sub S owners, partners in a partnership, etc., each of which would be deemed eligible as an employee under an EBC program and treated as such for tax purposes.
- EBC plan sponsors would bear plan obligations for administration, testing and communication, e.g. distribution of SPDs and notices, certain fiduciary obligations, HIPAA privacy compliance.
Why aren't cooperatives and other organizations able to do this today?
- For retirement savings and fringe benefits—entities created by consolidating other employers cannot be treated currently as a single employer.
- For health and welfare benefits—consolidated entities would be treated as a single employer but are a MEWA subject to the MEWA rules of ERISA (e.g., the MEWA is subject to M-1 reporting and State regulation).
What refinements need to be made to the existing proposal?
- The existing proposal (HR 6143, 110th Congress, Sec. 401) is too narrowly focused in that it speaks only to ERISA provisions related to tax-qualified retirement plans.
- The Code also needs to be amended with respect to tax-qualified retirement plan provisions.
- Additional amendments to both ERISA and the Code are necessary to accomplish the Alliance's goals, particularly with respect to health plans.
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