If your family business owns multiple companies, you might assume you can cover employees of both companies under a single self-insured medical plan. However, this arrangement may unintentionally create a Multiple Employer Welfare Arrangement (MEWA), which comes with important compliance considerations.
What is a MEWA?
According to the Employee Retirement Income Security Act (ERISA), a MEWA is a welfare benefit plan established to provide benefits to employees of two or more employers, including self-employed individuals, or their beneficiaries¹. MEWAs are subject to both federal and state regulations. Unlike single-employer plans, MEWAs often face stricter state insurance rules, including requirements for reserves, bonding, and reporting.
When does a MEWA become “accidental”?
An accidental MEWA can occur when companies with related ownership but insufficient common control offer a single health plan to their employees. For example, if your family business owns two companies but the ownership percentages don’t meet the IRS’s controlled group thresholds, combining employees under one plan may unintentionally create a MEWA².
Why does this matter?
MEWAs are regulated differently than single-employer plans. Many states impose strict rules on self-insured MEWAs, and operating one without proper registration or compliance can lead to serious penalties³. For instance, California prohibits self-insured MEWAs unless they were registered before 1995⁴, and in North Carolina, operating an unregistered MEWA is a felony⁵.
Common traps leading to accidental MEWAs
- Related companies offering the same benefit plan without meeting controlled group rules
- Joint ventures combining employees under one plan
- Changes in ownership due to estate planning or gifting shares
- Mergers and acquisitions where acquired employees remain on the seller’s plan temporarily
- Including non-employee directors or independent contractors in the plan⁶
How is common control determined?
ERISA looks to IRS rules on controlled groups to determine if companies are under common control. Generally, at least 80% common ownership is required to treat multiple companies as a single employer for benefit plan purposes⁷. If your ownership structure doesn’t meet these thresholds, your plan may be a MEWA.
Reporting and compliance requirements
MEWAs must file federal reports such as Form M-1 and Form 5500, regardless of size⁸. There are some exceptions, such as when there is at least 25% common ownership or when coverage includes a small number of non-employee participants⁹. Additionally, MEWAs with employee contributions often require a trust and audited financial statements¹⁰.
What should you do?
If you suspect your arrangement might be an accidental MEWA, it’s important to consult legal counsel. They can help you understand your ownership structure, applicable state laws, and federal requirements to avoid costly penalties.
If you have questions about accidental MEWAs or need help reviewing your benefit plans, contact your Marsh McLennan Agency consultant for guidance.
