Use of a welfare fund's remaining assets for dental benefits

P/OPINION 76-98

402
403✓
October 1, 1976

Dear          :

In your letter of March 24, 1975 to the Department of Labor,
you requested advice whether the [Union] Welfare and Insurance
Fund (the Fund) may utilize the cash on hand when the employers
discontinue contributing to the Fund to purchase dental benefits
for members until such cash is depleted. I understand that
of this office has discussed your questions with you
by telephone.

You explain that for a number of years the Fund collected
moneys from various employers and provided benefits for
employees within the bargaining unit either through self
insurance or by purchasing benefits from insuring companies.
You advise that the union has negotiated for the direct purchase
of benefits by the employers, that within a year no new moneys
will be collected by the Fund, and that the trustees intend to
purchase dental benefits for members with the balance of the
Fund's assets (about $90,000 at that time).

Without information regarding the distribution provisions of
the plan under which the Fund is maintained and the status
of the participants' accrued benefits under the plan at the
time dental benefits are to be purchased, we cannot state
specifically whether using the remaining assets of the
Fund to provide dental benefits would satisfy the requirements
of the Employee Retirement Income Security Act of 1974 (ERISA).
However, we believe the following general information may be
helpful to you.

Section 402(a)(l) and (b)(3) & (4) requires every employee
benefit plan to be established and maintained pursuant to
a written instrument, to provide a procedure for amending
such plan and for identifying the persons who have authority
to amend the plan, and to specify the basis on which payments
are made to and from the plan. Section 403(d)(2) provides
that the assets of a welfare plan which terminated shall be
distributed in accordance with the terms of the plan, except
as otherwise provided in regulations of the Secretary.

Although no regulations have been issued under section 403(d)(2),
Conference Report No. 93-1280, 93rd Congress, 2d Session, states
on page 303 that it is intended that the Secretary of Labor
would allow the terms of the plan (or in the case of a plan
subject to collective bargaining, the collective bargaining
agreement) to govern such distribution or transfer of assets
except to the extent that implementation of the terms of the
plan or agreement would unduly impair the accrued benefits
of the plan participants or would not be in the best interests
of the plan participants. The Conference Report also states
that where such distribution or transfer is incidental to
the merger of one multiemployer plan with another, it is expected
that the Secretary of Labor would disallow the distribution or
transfer only where the merger would reasonably be expected to
jeopardize the ability of the plan to meet its obligations or
would otherwise not be in the best interests of the plan
participants.

If the plan or collective bargaining agreement in question
does not specifically provide for purchasing dental benefits
for participants, such purchase would violate the above
requirements of ERISA. However, such provisions may be added
by amending the plan or collective bargaining agreement, in
accordance with the requirements of section 402(b)(3) and (4).
In order to meet the requirements of section 403 (d)(2), the
amendment should also provide that dental benefits will be
purchased for participants when employer contributions are
discontinued only if such purchase would not unduly impair
the accrued benefits of the plan participants and only if
such purchase is in the best interests of plan participants.
Of course, in order to meet the requirements of section 403(d)(2),
the actual purchase of dental benefits must then follow the
provisions of the amended plan and in actual operation (as well
as in the form of the amendment) the purchase must not unduly
impair the accrued benefits of the plan participants and must
be in their best interests.

We sincerely regret the delay in replying to your letter.   If we
may be of any further assistance, please contact us.

Sincerely,