How many Non-Bargaining Employees is Too Many?

A Multiemployer Plan under the Employee Retirement Income Security Act (“ERISA”) is a plan in which one or more employers contribute, is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and one or employer, and satisfies other requirements set forth by the United States Department of Labor. However, and despite this definition, you will often find non-bargaining employees covered under a multiemployer plan. For example, the employees of the Union, employer organization, or the fund office are often covered under the plan through a participation agreement. Which raises the question: how many non-bargaining employees can the plan cover? 

For health and welfare plans, this question is very important. If a plan has too many non-bargaining employees, the plan risks being reclassified as a “Multiple Employee Welfare Arrangement,” or “MEWA.” MEWAs are subject to different reporting requirements and must comply with state health insurance laws that normally do not apply to multiemployer plans. These rules vary by state and could require the plan to be funded at a certain level or offer a specific package of benefits to eligible participants.  

Under Department of Labor regulations, to maintain multiemployer status at least 85% of participants in the plan must be (1) employees who work under the plan’s collective bargaining agreement; (2) retirees who previously worked for employers that made contributions to the plan (often referred to as “Alumni Employees”); or (3) non-bargaining employees of an employer that is bound by the collective bargaining agreement and who contributes to the plan on behalf of bargaining unit. Importantly, only 10% of employees in the plan may fall into the third category. 

Finally, a frequent question that comes up when determining the number of non-bargaining employees is how to classify a working owner that contributes on himself. Generally, it will depend on how that working owner is classified. If the owner is classified as a journeyman and pays all fringes, then the owner would be considered an employee working under the collective bargaining agreement. If the owner chooses which benefit plans, he or she pays into, then the owner would count as a non-bargaining unit employee and would fall into category 3 above, where there is a 10% limit.

Ultimately, it is vital that trustees and administrators of multiemployer plans understand these rules and conduct an analysis before extending coverage to non-bargaining employees. Failing to examine these rules could lead to a disastrous result.