Multiple employer trusts
MR. WATSON: Who can tell me what a multiple employer trust is?
STUDENT: Different companies can get together and get insurance, group insurance.
MR. WATSON: How many employers?
STUDENT: Multiple.
MR. WATSON: Multiple. These are common in states that have minimum requirements for group insurance, for example a minimum of 15. (Some states have no minimum size requirement for a group.) Sometimes these are called an insurance purchasing group. And what do these employers do? They get together with our school and/or other businesses (which now form a large group, meeting the minimum number), and we fund this trust with cash, so we don't have to pay insurance premiums. When one of our guys dies, the trust pays out a death benefit. Does that make sense?
STUDENT: Yes.
MR. WATSON: It's cheaper. Really, it looks like an unnatural group, but it's not, because, why did we form this trust? For the purpose of obtaining this insurance. But why did we come together in the first place, originally? As a business, to make money. Does that make sense?
STUDENTS: Yes.
WOMAN: No.
MR. WATSON: You own a business. She owns one, I own one. Instead of paying premiums every year, we all just put in $10,000 into this trust, let it grow with interest. Then when one of our guys dies, we just pay the beneficiary out of the trust which was created by the $10,000. We're self-insured.
WOMAN: But isn't that where you came back to say it was an unnatural group?
MR. WATSON: Unnatural group? Good point. If they were just ordinary folks off the street and formed a group just for the purpose of buying insurance, it would be an unnatural group. But these are natural groups, businesses coming together to make money. So because they were first natural groups, now they can do whatever they want to do. Each went into business for some purpose other than buying insurance. Then, they joined the trust. Does that make sense?
WOMAN: Yes.
MR. WATSON: A Multiple Employer Welfare Arrangement (MEWA) is a type of M.E.T for union employees that is self-funded and receives tax-exempt status. They provide various insurance benefits. In addition, they are
- self-funded
- tax exempt
- required by law to have an employment-related common bond &
- is subject to licensure and regulation by the State's Office of Insurance Regulation.
MR. WATSON: More about MEWAs in another chapter.
