PENSIONS - AUTHORITY OF EMPLOYEE WELFARE AND PENSION FUNDS TO PAY BENEFITS DIRECTLY OUT OF TRUST FUND

PENSIONS - AUTHORITY OF EMPLOYEE WELFARE AND PENSION FUNDS TO PAY BENEFITS DIRECTLY OUT OF TRUST FUND.

Trustees of employee welfare and pension trust funds established by employers and labor unions and jointly administered to provide pension, injury or sickness and death benefits to employees may pay such benefits directly out of the trust fund to the beneficiaries.

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                                                              September 24, 1959

Honorable John A. Petrich
State Senator, 26th District
1915 No. Cedar
Tacoma, Washington                                                                                         Cite as:  AGO 59-60 No. 70

Dear Sir:

            This is in answer to your request for an opinion from this office on the following question:

            May trustees of employee welfare and pension trust funds established by employers and labor unions and jointly administered by employer and employee representatives to provide pension, injury or sickness and death benefits to employees, pay such benefits directly out of the trust fund to the beneficiaries or are these trustees required to do so by and through insurance companies or medical or hospital service organizations?

            We conclude that the trustees may pay the benefits directly.

                                                                     ANALYSIS

            The Labor Management Relations Act of 1947 requires that all employee welfare trust funds to which employers make contributions must be administered by equal representatives of employees and employers.  The federal act in question makes it unlawful for an employer to give money to an employee representative, or for an employee representative to accept money from an employer except for five specific instances; the  [[Orig. Op. Page 2]] last exception which is concerned with payments to the employee trust funds with which we are concerned in the present problem, is found in U.S.C.A., Title 29, § 186 (c) (5), which provides as follows:

            ". . . with respect to money or other things of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer, and their families and dependents (or of such employees, families, and dependents jointly with the employees of other employers making similar payments, and their families and dependents):  Provided, That (A) such payments are held in trust for the purpose of paying, either from principal or income or both, for the benefit of employees, their families and dependents, for medical or hospital care, pensions on retirement or death of employees, compensation for injuries or illness resulting from occupational activity or insurance to provide any of the foregoing, or unemployment benefits or life insurance, disability and sickness insurance, or accident insurance; (B) the detailed basis on which such payments are to be made is specified in a written agreement with the employer, and employees and employers are equally represented in the administration of such fund, together with such neutral persons as the representatives of the employers and the representatives of the employees may agree upon and in the event the employer and employee groups deadlock on the administration of such fund and there are no neutral persons empowered to break such deadlock, such agreement provides that the two groups shall agree on an impartial umpire to decide such dispute, or in event of their failure to agree within a reasonable length of time, an impartial umpire to decide such dispute shall, on petition of either group, be appointed by the district court of the United States for the district where the trust fund has its principal office, and shall also contain provisions for an annual audit of the trust fund, a statement of the results of which shall be available for inspection by interested persons at the principal office of the trust fund and at such other places as may be designated in such written agreement; and (C)  [[Orig. Op. Page 3]] such payments as are intended to be used for the purpose of providing pensions or annuities for employees are made to a separate trust which provides that the funds held therein cannot be used for any purpose other than paying such pensions or annuities."

            It is well recognized that labor organizations generally do provide for and offer their members certain types of benefits of a nature similar to insurance coverage.  However, it is generally conceded that such benefits are incidental to membership and participation a principal purpose of such organizations.  Accordingly, it is clear that the trust funds in question are created and exist solely for the purpose of providing benefit payments incident to employment and membership in the industry.

            The only statutory provision we have been able to find which is concerned with the specific funds in question is found in chapter 48.52 RCW.  RCW 48.52.010 contains the definitions used in the chapter, and provides in part as follows:

            "(2) 'Employee welfare trust fund' means any fund established for employees of one or more employers for providing employees, their families or dependents medical or hospital care, disability benefits, death benefits, retirement benefits, annuity benefits, health care services or any insurance benefits whether such benefits or services are to be paid directly from such fund or interest therefrom, or paid under contracts entered into by the trustees of the fund with an insurer or health care service contractor."

            In addition, RCW 48.52.030 provides for the accounting by the trustees to the insurance commissioner of the state of Washington.  Under that provision they are required to file with the commissioner of insurance a copy of the trust instrument by which the employee trust fund is created and all amendments thereto.  Further, the commissioner is authorized to require the trustees to file such regular or special reports concerning the affairs of the trust fund as he deems necessary or advisable.

            RCW 48.52.040 prescribes the reporting that shall be done to the insurance commissioner by insurers or health care service contractors.  We think it is clear from a review of that chapter that the legislature obviously contemplated that the employee welfare trust funds in question which are created pursuant to federal law would be expended in one of three ways: (a) By the payments of such benefits directly from the fund by the trustees; (b) benefits  [[Orig. Op. Page 4]] to be paid under contracts entered into by the trustees with an insurance company; and (c) benefits paid under contracts entered into by the trustees with the health care service contractors.

            We think it is clear that the chapter in question authorizes the commissioner of insurance to adopt a program of public regulation over such funds and their expenditure.

            It should be made clear, however, that the benefits provided by the plan are payable only to the extent that they are available and that neither the union nor the trustees are legally liable to pay the benefits which are payable merely as an incident of membership in the plan or fund and not as a result of any contract issued to a member; nor should any employee or union member be given the impression that the contract is secured by insurance or that there is any liability over and beyond the amount of the trust fund collected, paid and available for that purpose.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

JANE DOWDLE SMITH
Assistant Attorney General