Multiple Employer Trusts (METs) and Multiple Employer Welfare Arrangements (MEWAs) consist of two or more employers or labor unions seeking group health insurance coverage by joining together to form a larger group. METs and MEWAs are established by groups that are otherwise unable to obtain group insurance.
The employers work together to collectively purchase a group health plan. METs and MEWAs may also be self funded by the employers without the purchase of coverage from an insurer; however, non-insured plans are risky. Even partially insured plans leave the employer or employees responsible for any outstanding debt from the plan.
The U.S. Congress authorized the formation of METs in 1984 under Section 419(A) of the Internal Revenue Code. The rules set forth for METs are stringent and require that no single employer contribute more than 10 percent of total funding for the benefit plan purchased by the MET. In addition, the MET must be an indivisible entity, with all participating employers sharing equally in the benefits forfeited by other members of the group. The employees of each participating employer are viewed as if they worked for a single company and are subject to the same requirements A similar arrangement to a MET is a Multiple Employer Welfare Arrangement (MEWA). MEWAs include plans established by two or more employers to provide welfare benefits to their employees, including health care and pensions. The main difference between a MET and a MEWA is that a MEWA is generally subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), which regulates pension plans of businesses with more than 25 employees and imposes penalties on employers for breaches of fiduciary duty. The main purpose of a MET is to give entrepreneurs and small business owners a tax-friendly way to provide life insurance benefits for themselves and their key employees. Under ordinary circumstances, life insurance is tax deductible for the employer in the current year, but any amounts that could be considered "bonus" life insurance must be reported as taxable income by the employee. Larger businesses are often able to get around this problem by funding life insurance benefits as part of a qualified retirement or profit-sharing plan. Although the benefits provided through such plans are usually tax free, there are a number of restrictions and complicated paperwork requirements associated with them that reduce the attractiveness of life insurance for smaller businesses. For example, the government requires companies that set up qualified plans to establish eligibility and vesting rules and then offer the benefits to all employees who meet them.
THE IMPORTANCE OF LIFE INSURANCE
It may seem odd for small businesses to go to the trouble of forming a MET just for the sake of providing life insurance for employees. But life insurance has a variety of uses that make it a very attractive benefit, particularly for key employees. A small business might need to provide life insurance to its workers in order to compete with larger companies in attracting and retaining qualified employees.
MET REQUIREMENTS
Participating in a MET enables a small business to provide life insurance to its key employees without subjecting them to negative tax implications. It does this by allowing tax-deductible contributions to a life insurance plan, made by the employer on behalf of employees, to be used for severance benefits. Basically, the cash value of the life insurance is available for severance benefits, while the mortality portion of the life insurance is payable to the beneficiary named by insured. A MET must be structured properly in order to comply with the tax laws, but the rules are significantly less extensive than with qualified pension and profit-sharing plans.
Source:
http://www.inc.com/encyclopedia/multiple-employer-trust.html
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