Under section 419A of the Internal Review Code (“IRC”), welfare benefits can be funded through taxable entities called “welfare benefit funds” that are sponsored by employers or employee organizations to provide the employees or their beneficiaries welfare benefits. Employers and employee organizations can join multiple employer trusts (“METs”). An MET is, generally, an independent organization offering services and benefits to employers and employee organizations (plan sponsors). METs can provide welfare benefits to the employees of two or more employers in a situation that resembles a VEBA, though without the qualification as one.  Pursuant to IRC

• 419A(a), a MET can provide the following benefits:
• Disability benefits;
• Medical benefits;
• Severance pay benefits; or
• Life insurance

Benefits provided by a MET are permissible under IRC §501(c)(9), 26 C.F.R. §1.501(c)(9)-3, and Treas. Reg. §1.501(c)(9)-3(d).

A MET will allow the groups participating to keep insurance premiums at lower levels than otherwise available by pooling the risks of several small employers together. Like the special tax rules applicable to VEBAs, contributions by employers to welfare benefit funds are also subject to special tax rules regarding deductibility. Contributions by employees are normally not deductible.

METs can be established by third parties or through collective bargaining. The courts have generally held that METs established by employee groups (other than METs established by collective bargaining), for the sole purpose of providing benefits, are not inherently covered by ERISA. However, ERISA coverage may arise where the employer takes an active role with the purchase or management of benefits through a MET. Likewise, a MET established through collective bargaining may be covered by ERISA. The determining factor is the employer’s involvement in the establishment, funding, and management of the MET. Kidder v. H&E Marine, 932 F2d 347 (5^th Cir. 1991) (employer’s payment of premiums on behalf of employees is substantial evidence that a plan, fund, or program has been established); Donovan v. Dillingham, 688 F.2d 1367, 1373, 1375 (11^th Cir.1982 – en banc) (the purchase of a policy or multiple policies covering a class of employees offers substantial evidence that a plan, fund, or program has been established); Crull v. Gem Ins. Co., 58 F3d 1386 (9^th Cir. 1995) (employer payed 25% of premiums and performed administrative tasks).

To qualify for employer tax deductibility under IRS §§419 and 419A, Funds may not be segregated, by sponsor, under a MET. Arrangements that are experience rated with respect to individual employers do not qualify for the exemption under §419A(f)(6). Under a MET, all funds and all risk must be mingled in order to provide tax deductibility for contributing employers. For contributing governmental employers, tax deductibility may not be a concern.

There are a multitude of regulations which impact METs. A MET which is comprised of related sponsors (such as members of a controlled group), must have at least 10 member sponsors. A MET made up of unrelated sponsors needs only two sponsors. However, there is very little guidance on what constitutes “related” sponsors. For a Multi-Employer Welfare Arrangement (“MEWA”), “related” means only that the participating sponsors are in the same general business or industry. This is relevant because MEWAs are very similar to METs and are covered under many of the same regulations. In general, however, these regulations deal with qualification of the plans for tax purposes. This may not be relevant to exempt governmental and “governmental instrumentality” plans.