Donovan v. Dillingham

Decision Date15 October 1982
Docket NumberNo. 80-7879,80-7879
Citation688 F.2d 1367
Parties3 Employee Benefits Ca 2122 Raymond J. DONOVAN, Secretary of the United States Department of Labor, Plaintiff-Appellant-Cross Appellee, v. C. H. DILLINGHAM, C. H. Dillingham, III, W. Lamar Mathis, National Administrators, Inc. and Time Control, Inc., Defendants-Appellees-Cross Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit

Margaret M. Topps, Norman P. Goldberg, Edward A. Scallet, U. S. Dept. of Labor, Washington, D. C., for plaintiff-appellant-cross appellee.

Lloyd A. Fox, Law Firm of Stokes & Shapiro, Atlanta, Ga., for defendants-appellees-cross appellants.

Appeals from the United States District Court for the Northern District of Georgia.

(ON REHEARING EN BANC)

Before GODBOLD, Chief Judge, RONEY, TJOFLAT, HILL, FAY, VANCE, KRAVITCH, JOHNSON, HENDERSON, HATCHETT, ANDERSON and CLARK, Circuit Judges.

GODBOLD, Chief Judge:

The Secretary of Labor pursuant to his authority under ERISA 1 § 502(a), 29 U.S.C. § 1132(a), brought this action against the trustees of Union Insurance Trust (UIT) and businesses owned and operated by them, alleging they are fiduciaries 2 subject to the fiduciary responsibility provisions contained in Part 4 of Title I of ERISA, 29 U.S.C. §§ 1101 et seq. Fiduciary duties under ERISA, however, arise only if there are employee benefit plans as defined by the Act. The district court held that this case is controlled by Taggart Corp. v. Life & Health Benefits Administration, 617 F.2d 1208 (5th Cir. 1980), cert. denied sub nom. Taggart Corp. v. Efros, 450 U.S. 1030, 101 S.Ct. 1739, 68 L.Ed.2d 225 (1981), and dismissed for lack of subject matter jurisdiction because there were no employee benefit plans involved. A panel of this court agreed. Donovan v. Dillingham, 668 F.2d 1196 (11th Cir. 1982). 3 Upon reconsideration en banc we find there was subject matter jurisdiction and reverse.

I.

Congress enacted ERISA to protect working men and women from abuses in the administration and investment of private retirement plans and employee welfare plans. Broadly stated, ERISA established minimum standards for vesting of benefits, funding of benefits, carrying out fiduciary responsibilities, reporting to the government and making disclosures to participants. See generally H.R. Rep. No. 93-533, 93d Cong. 2d Sess., reprinted in (1974) U.S. Code Cong. & Ad. News 4639.

With a few specific exceptions not pertinent to this decision, Title I of ERISA applies to any "employee benefit plan" if it is established or maintained by any employer or employee organization engaged in commerce or in any industry or activity affecting commerce, or by both an employer and an employee organization. ERISA § 4(a), 29 U.S.C. § 1003(a). "Employee benefit plan" or "plan" means an "employee welfare benefit plan" or an "employee pension benefit plan" or a plan which is both a welfare plan and a pension plan. ERISA § 3(3), 29 U.S.C. § 1002(3).

UIT is a group insurance trust, commonly known as a multiple employer trust ("MET"), whose purpose is to allow employers of small numbers of employees to secure group health insurance coverage for their employees at rates more favorable than offered directly by an insurer. UIT obtained a group health insurance policy from Occidental Life Insurance Company of California to furnish specified insurance benefits. Employers and various employee organizations "subscribe" to UIT to receive the coverage of the blanket Occidental Life policy. Appellees contend that ERISA does not apply because there is involved only the "bare purchase of health insurance" and that no employee welfare benefit plans are implicated. The parties have debated whether UIT is a fiduciary and how that status or lack thereof bears on the presence of an employee welfare benefit plan. We agree with the Secretary that whether UIT merely sells insurance or is a fiduciary does not determine whether employee welfare benefit plans exist. Likewise, we agree with appellees that the existence of appellees' management of the trust or their falling within ERISA's fiduciary definition (which they challenge) does not necessarily mandate a finding that employee welfare benefit plans exist.

II.

ERISA § 3(1), 29 U.S.C. § 1002(1), defines "employee welfare benefit plan" or "welfare plan" as

any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in § 302(c) of the Labor Management Relations Act, 1947 (other than pensions on retirement or death, and insurance to provide such pensions). 4

By definition, then, a welfare plan requires (1) a "plan, fund, or program" (2) established or maintained (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits (5) to participants or their beneficiaries.

A.

Prerequisites (3), (4) and (5) are either self-explanatory or defined by statute. A plan, fund, or program must be established or maintained "for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise," health, accident, disability, death, or unemployment or vacation benefits or apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits. 5

The gist of ERISA's definitions of employer, 6 employee organization, 7 participant, 8 and beneficiary 9 is that a plan, fund, or program falls within the ambit of ERISA only if the plan, fund, or program covers ERISA participants because of their employee status in an employment relationship, and an employer or employee organization is the person that establishes or maintains the plan, fund, or program. Thus, plans, funds, or programs under which no union members, employees or former employees participate are not employee welfare benefit plans under Title I of ERISA. See 29 C.F.R. 2510.3-3(b), (c).

An issue in other cases has been whether a multiple employer trust-the enterprise-is itself an employee welfare benefit plan. The courts, congressional committees, and the Secretary uniformly have held they are not. See, e.g., Activity Report of the Comm. on Education and Labor, H.R. Rep. No. 94-1785, 94th Cong. 2d Sess. 48 (1977); Taggart Corp. v. Life & Health Benefits Administration, Inc., 617 F.2d 1208 (5th Cir. 1980), cert. denied sub nom. Taggart Corp. v. Efros, 450 U.S. 1030, 101 S.Ct. 1739, 68 L.Ed.2d 225 (1981); Wayne Chemical, Inc. v. Columbus Agency Service Corp., 567 F.2d 692 (7th Cir. 1977); Bell v. Employee Security Benefit Ass'n, 437 F.Supp. 382 (D. Kan. 1977). All parties to this appeal agree that UIT is subject to state laws regulating insurance and is not itself an employee welfare benefit plan. 10

B.

Not so well defined are the first two prerequisites: "plan, fund, or program" and "established or maintained." Commentators and courts define "plan, fund, or program" by synonym-arrangement, scheme, unitary scheme, program of action, method of putting into effect an intention or proposal, design-but do not specify the prerequisites of a "plan, fund, or program." At a minimum, however, a "plan, fund, or program" under ERISA implies the existence of intended benefits, intended beneficiaries, a source of financing, and a procedure to apply for and collect benefits.

"Established or maintained" appears twice in the definition of an employee welfare benefit plan: first, an employer or employee organization or both must establish or maintain a plan, fund, or program, and, second, the plan, fund, or program must be established or maintained for specified purposes. In many instances a plan is established or maintained, or both, in writing. It is obvious that a system of providing benefits pursuant to a written instrument that satisfies ERISA §§ 102 and 402, 29 U.S.C. §§ 1022 and 1102, would constitute a "plan, fund or program."

ERISA does not, however, require a formal, written plan. ERISA's coverage provision reaches "any employee benefit plan if it is established or maintained" by an employer or an employee organization, or both, who are engaged in any activities or industry affecting commerce. ERISA § 4(a), 29 U.S.C. § 1003(a) (emphasis added). There is no requirement of a formal, written plan in either ERISA's coverage section, ERISA § 4(a), 29 U.S.C. § 1003(a), or its definitions section, ERISA § 3(1), 29 U.S.C. § 1002(1). Once it is determined that ERISA covers a plan, the Act's fiduciary and reporting provisions do require the plan to be established pursuant to a written instrument, ERISA §§ 102 and 402, 29 U.S.C. §§ 1022 and 1102; but clearly these are only the responsibilities of administrators and fiduciaries of plans covered by ERISA and are not prerequisites to coverage under the Act. Furthermore, because the policy of ERISA is to safeguard the well-being and security of working men and women and to apprise them of their rights and obligations under any employee benefit plan, see ERISA § 2, 29 U.S.C. § 1001, it would be incongruous for persons establishing or maintaining informal or unwritten employee benefit plans, or assuming the responsibility of safeguarding plan assets, to circumvent the Act merely because an administrator or other fiduciary...

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