Fifth Circuit Outlines Analysis for Determining Partnership Arrangement’s ERISA Plan Status

The Fifth Circuit has upheld a trial court’s vacatur of a DOL advisory opinion on the ERISA status of a health coverage arrangement for limited partners of a partnership, but concluded that the trial court erred in its analysis of key issues. As background, the partnership’s general partner offered health coverage to thousands of individual limited partners whose electronic data, collected through software installed on their personal electronic devices, was aggregated and sold by the partnership. In response to the partnership’s inquiry regarding the arrangement’s ERISA status, the DOL concluded that the limited partners’ actions were not sufficient to create an employment or services-based relationship, and thus there was no ERISA plan (see our Checkpoint article). Subsequently, however, a court concluded that the limited partners were working owners (who, although not employees, may participate alongside employees in an ERISA plan) and enjoined (i.e., blocked) the DOL from refusing to acknowledge the plan’s ERISA status (see our Checkpoint article). The DOL appealed.

The appellate court upheld the trial court’s conclusion that the DOL’s action was arbitrary and capricious, noting that the advisory opinion’s definition of working owner was “materially different” from definitions set forth in prior DOL opinions. But, according to the court, the trial court did not correctly interpret the terms “working owner” or “bona fide partner” for ERISA purposes. The court explained that the Supreme Court has provided a framework for analyzing working owner status (see our Checkpoint article), but that the trial court did not perform that analysis as to the limited partners. Similarly, with respect to bona fide partner status, the trial court failed to consider the totality of the circumstances as required by applicable regulations, instead interpreting the regulations to require simply a more-than-pretextual relationship among the parties. Because the injunction was based on flawed interpretations of judicial and regulatory requirements, the court set it aside and returned the case to the trial court for reconsideration.

EBIA Comment: Absent ERISA group health plan status, this arrangement generally would be subject to Affordable Care Act (ACA) individual insurance market rules because, according to HHS and Treasury, it would not be a “group health plan” for purposes of those agencies’ group market rules. Since the injunction has been set aside, the DOL could refuse to acknowledge the arrangement’s ERISA status, potentially rendering it out of compliance with the individual market rules (if it has been operating as a single ERISA group health plan). More broadly, this program is in line with recent efforts to expand the variety of arrangements that may be treated as a single ERISA group health plan, thereby avoiding certain requirements that would otherwise apply. For more information, see EBIA’s ERISA Compliance manual at Sections VI.E (“Are Plan Benefits Provided to Participants or Beneficiaries?”) and XIX.D (“Is There an ERISA Plan at the MEWA Level or at the Participating Employer Level?”). See also EBIA’s Health Care Reform manual at Section XIV.A (“Introduction and Understanding Small and Large Group Markets”).

Contributing Editors: EBIA Staff.