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What is ERISA (and what isn't)?
"ERISA" stands for The Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1002(1), which is a federal program that was designed by Congress to help protect funds that have been set aside to pay for employee benefits that typically include long-term disability and retirement benefits. ERISA may apply to both short-term disability (STD) and long-term disability (LTD) plans.
A disability plan falls under ERISA if it is a "plan, fund or program" which has been "established or maintained" by an employer (or employee organization) intending to provide benefits to its employees, which usually include life, health, disability, and pension benefits.Shearer v. Sw. Serv. Life Ins. Co., 516 F.3d 276 (5th Cir. 2008).
An ERISA plan "must provide benefits to at least one employee, not including an employee who is also the owner of the business in question." Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102 (11th CIr. 1999). For example, an individual and his/her spouse are not deemed to be employees with respect to a trade or business, which is wholly owned by the individual or by the individual and his/her spouse. 29 C.F.R. section 2510.3-3(c)(1).
A plan may fall into ERISA even when emloyees pay their own premiums. This may occur when an employer doesn't pay premiums but "contributes" to the plan by providing its employees with a benefit from a rate structure or premium discount that the employer is able to negotiate in obtaniing group benefits. Harding v. Provident Life & Acc. Ins. Co., 809 F.Supp.2d 403 (W.D. Pa. 2001) ("when discounted premiums are offered to a group of employees, the safe harbor regulations are not applicable and ERISA governs.")
What is Not ERISA
A plan that falls under the "safe harbors" is not an ERISA plan. Under the safe harbor provisions, established by the Department of Labor, a group insurance program will not be considered an ERISA plan if (1) the employer does not contribute to the plan, (2) participation is voluntary, (3) the employer's role is limited to collecting premiums and remitting them to the insurer, and (4) the employer receives no profit from the plan. 29 C.F.R. section 2510.3-1(j). In order to be exempt from ERISA, however, the plan must meet all four criteria.
As above noted, an individual disability policy may be governed by ERISA even when an employee pays his/her own premiums, if the employer "contributes" to the plan by providing a rate structure or premium discount from which the employee benefits.
A payroll practice is not ERISA. For example, some employers, instead of providing a STD plan to its employees that are governed by ERISA, prefer to provide short-term disability benefits through a “payroll practice” exemption. For a payroll practice exemption to apply, an employer must pay disability benefits out of its own general assets. The benefits must be self-funded and not paid by an insurer or other third party. An employer can use an insurer as a third-party administrator (TPA) to handle claims, but not to pay them. Langley v. DaimlerChrysler Corp., 502 F.3d 475 (6th Cir. 2006).
Under the Department of Labor, a payroll practice is exempt from ERISA when it constitues a “payment of an employee's normal compensation, out of the employer's general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment).” 29 CFR § 2510.3-1(b)(2). In Bassiri v. Xerox Corp., 463 F.3d 927, 933 (9th Cir. 2006), the court explained that if the disability benefits paid to the employee comes out of the employer's bank account (like wage payments), those disability benefits constitute a "payroll practice" and are not subject to ERISA.
A "government" plan is not ERISA. Government plans are excluded from ERISA. A “government" plan, under 29 U.S.C. § 1002(32), is "a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing."
A "church" plan is not ERISA. Church plans are excluded from ERISA. Under 29 U.S.C. 1002 (33)(A), a church plan is "a plan established and maintained ... by a church or by a convention or association of churches, (that) is exempt from tax under section 501 of Title 26."
There are a number of other plans that are specifically excluded from ERISA, such as workers compensation benefits, adoption assistance plans, cafeteria plans, medical clinics providing first aid, state mandated disability plans, tuition reimbursement plans, sick pay plans, paid time-off plans, overtime, jury duty pay, and vacation pay.
It's important to determine, right at the outset, whether you are dealing with an ERISA or non-ERISA plan. At Law Med, we are ERISA knowledgeable and experienced.