Key takeaways
– A Multiple Employer Welfare Arrangement (MEWA) lets two or more employers pool resources to offer health and other welfare benefits to their employees.
– MEWAs can give small employers buying power and administrative scale, but they carry funding, regulatory, and fiduciary risks.
– MEWAs are subject to federal ERISA rules (Department of Labor oversight) and often to state insurance regulators; state rules vary.
– Employers should do careful due diligence, secure stop‑loss and fidelity coverage, and obtain ERISA and insurance counsel before joining or forming a MEWA.
What is a MEWA?
A Multiple Employer Welfare Arrangement (MEWA) is an arrangement through which two or more employers join to provide welfare benefits—most commonly health insurance—to their employees. Employers contribute to a shared fund, and benefits are paid from that pooled resource. MEWAs are also called multiple employer trusts (METs) in some contexts.
How a MEWA works (overview)
– Participating employers contribute premiums or contributions proportional to their covered workforce and plan design.
– The pooled funds are used to pay claims and administrative costs for the covered employees across the participating employers.
– MEWAs may be fully insured (buy commercial insurance for benefits) or self-funded (pay claims from the pooled fund and purchase stop‑loss insurance for large claims).
– An administrator (third‑party administrator or a trustee) typically manages claims processing, recordkeeping, and regulatory filings.
Important legal and regulatory framework
– ERISA: MEWAs fall under the Employee Retirement Income Security Act when they provide employee welfare benefits; that creates federal fiduciary, reporting, disclosure, and funding obligations. (U.S. Department of Labor)
– State regulation: States also regulate insurance and MEWAs; some states require registration, solvency standards, contributions to guaranty funds or other protections, while others are less prescriptive. Which state law applies can depend on MEWA structure and where it operates. (DOL; state insurance departments)
– Compliance areas to watch: ERISA plan documents and Summary Plan Descriptions (SPDs), Form 5500 and other reporting, COBRA and HIPAA rules, ACA market rules when applicable, and fiduciary duties.
Benefits of MEWAs
– Economies of scale: Lower per‑employee administrative and premium costs through pooled purchasing power.
– Improved access: Small employers can offer benefits similar to larger employers, helping with recruitment and retention.
– Local or industry customization: Employers with common interests (same trade, region, or association) can tailor benefit options.
– Employer input: Participating employers often get a voice in plan design and governance.
Primary risks and concerns
– Underfunding/insolvency: Poor pricing, inadequate reserves, or unexpected claim experience can deplete the fund and leave claims unpaid.
– Fraud and mismanagement: MEWAs have historically been targets of fraud or deficient administration leading to losses.
– Complex regulation: Dual federal and state oversight can be confusing; noncompliance has serious penalties.
– Coverage reliability: Some MEWAs are not covered by state guaranty funds; when a MEWA fails employees may face coverage disruption.
Special considerations and common protections
– Stop‑loss insurance: Most MEWAs purchase stop‑loss (specific and aggregate) to cap exposure to large or catastrophic claims.
– Fidelity and D&O insurance: Protects the plan from embezzlement, fraud, and management errors.
– Professional governance: Use experienced third‑party administrators, independent trustees, actuaries, and ERISA counsel.
– Transparent reporting: Robust financial reporting, audits, and reserves maintain solvency and regulatory compliance.
MEWA vs. Multiple Employer Retirement Plan (MEP)
– MEWA: Provides welfare benefits (health, disability, life, etc.).
– Multiple Employer Plan (also called a MEP): A pooled retirement plan adopted by two or more unrelated employers to offer retirement benefits (401(k), pension) with shared administration and cost efficiencies.
– Both pool employers for scale, but they cover different types of benefits and are subject to different regulatory rules and compliance detail.
Who regulates MEWAs?
– Federal level: U.S. Department of Labor enforces ERISA requirements for welfare plans, including many MEWAs. The DOL publishes guidance and a detailed guide to MEWAs under ERISA.
– State level: State insurance departments often regulate MEWAs as insurers or require registration, solvency filings, and consumer protections. State requirements and enforcement vary; check the insurance department in each state where the MEWA operates. (See DOL and state insurance departments such as the New Jersey Department of Banking and Insurance for examples.)
Practical steps for an employer considering joining or forming a MEWA
If you’re an employer evaluating participation in a MEWA, follow these steps to manage risk and meet legal obligations:
1. Preliminary assessment
– Define objectives: Why do you want to join/form a MEWA (cost, plan design, administrative relief)?
– Identify potential partners: Industry groups, associations, or unrelated employers with similar needs.
2. Due diligence on the MEWA or administrator
– Request financials: audited financial statements, reserve and funding policies, loss ratios, and stop‑loss coverage details.
– Review governance documents: trust agreements, bylaws, plan documents, and SPD drafts.
– Check regulatory status: state registrations, DOL filings, any enforcement actions or litigation history.
– Verify vendor credentials: TPA track record, insurer ratings, actuarial support, and references.
3. Legal and compliance review
– Retain ERISA and insurance counsel to review plan document language, fiduciary duties, and state filing requirements.
– Confirm reporting responsibilities (Form 5500, benefit statements, disclosures) and who (MEWA or employer) handles each obligation.
4. Financial and actuarial protections
– Require independent actuarial pricing and funding studies to set adequate contribution levels.
– Ensure stop‑loss insurance is in place (specific and aggregate) with sufficient attachment points.
– Require fidelity bonds and errors & omissions coverage for administrators and trustees.
5. Governance and fiduciary structure
– Define employer representation and decision‑making processes on the board/trustee body.
– Establish conflict‑of‑interest policies, ethics standards, and regular independent audits.
6. Contractual protections and exit strategy
– Negotiate contractual terms for termination, withdrawal liability, solvency protections, and claim run‑out coverage.
– Clarify what happens to claims in the event of plan insolvence, termination, or a participating employer’s exit.
7. Implementation and operations
– Confirm enrollment processes, data security (HIPAA), billing, eligibility verification, COBRA administration, and member communications.
– Test claims processing flows and grievance/appeal procedures before go‑live.
8. Ongoing monitoring
– Require periodic (at least annual) financial audits, stop‑loss renewals review, performance metrics, and compliance updates.
– Maintain open lines with state insurance departments and the DOL for regulatory changes.
Checklist for employer decision‑making
– Are audited financial statements available and acceptable?
– Is stop‑loss coverage in place with transparent terms and a financially stable insurer?
– Has an independent actuarial analysis validated contribution levels?
– Do governance documents clearly describe fiduciary responsibilities and dispute resolution?
– Are ERISA and state filings current and in good standing?
– Do contracts include a clear withdrawal/termination process and protections if the MEWA becomes insolvent?
Mitigating the biggest MEWA risks
– Use reputable TPAs and trustees with strong references.
– Keep conservative reserve targets and regularly stress‑test funding assumptions.
– Purchase adequate stop‑loss and fidelity/D&O coverage.
– Maintain clear contractual exit and run‑out provisions.
– Engage independent auditors and actuaries and consult ERISA counsel.
The bottom line
MEWAs can be an effective way for smaller employers to access broad or lower‑cost welfare benefits through pooled purchasing power. However, they require careful structuring, strong governance, rigorous funding and actuarial discipline, appropriate insurance protections, and close attention to federal and state regulatory requirements. Employers should perform thorough due diligence, secure professional advice (ERISA and insurance counsel, actuary, auditor), and negotiate contractual protections before joining or creating a MEWA.
Primary sources and further reading
– Investopedia. “Multiple Employer Welfare Arrangement (MEWA).”
– U.S. Department of Labor. “Multiple Employer Welfare Arrangements (MEWAs).” — includes the DOL guide to federal and state regulation of MEWAs.
– New Jersey Department of Banking and Insurance. “Multiple Employer Welfare Arrangements (MEWAs).”
If you want, I can:
– Draft a sample due‑diligence questionnaire to send to a MEWA administrator; or
– Create a one‑page checklist you can use in board or owner meetings when evaluating a MEWA opportunity. Which would you prefer?