When you are making a claim for long-term disability through your company’s insurance plan, you will be dealing with the ERISA law. Below is an article which explains the history and purpose of this law. This article will help you become more familiar with the areas of the law you are navigating. However, these laws are often confusing. If you need help making your long-term disability claim, call us. We are ready to help you!
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If you believe you have been wrongfully denied your ERISA, or non-ERISA, long-term disability benefits, give us a call for a free lawyer consultation. You can reach Cody Allison & Associates, PLLC at (615) 234-6000. We are based in Nashville, Tennessee; however, we represent clients in many states (Tennessee, Kentucky, Georgia, Alabama, Texas, Mississippi, Arkansas, North Carolina, South Carolina, Florida, Michigan, Ohio, Missouri, Louisiana, Virginia, West Virginia, New York, Indiana, Washington DC (just to name a few). We will be happy to talk to you no matter where you live. You can also e-mail our office at firstname.lastname@example.org. Put our experience to work for you. For more information go to www.LTDanswers.com.
ERISA: A Statute’s History, Purposes, and Progression
The Employee Retirement Security Act of 1971 (ERISA) is a complex and wide-reaching federal statute, regulating most pension, welfare, and health plans offered by employers to their employees. ERISA applies to virtually all private-sector corporations, partnerships, and proprietorships, including non-profit corporations–regardless of their size or number of employees. The goals of ERISA are to provide uniformity and protections to employees. While ERISA compliance is enforced primarily by the Department of Labor, employee benefit plans may also be regulated by other government agencies, such as the Internal Revenue Service and astate’s Department of Insurance. Failure to comply with ERISA can result in enforcement actions, penalties, and/or employee lawsuits. United States Dep’t of Labor, Frequently Asked Questions About Pension Plans and ERISA, http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html.
Because ERISA can dictate the course of these benefit plans without much state law interference or regulation, it can improve in certain plan areas (i.e.pension reform) while remain stagnant in others (i.e. welfare benefit plans). In this article, I will provide the history and statutory purposes of ERISA, as well as evaluate where the evolution of this statute stands today.
ERISA: Definition and History
ERISA is the principal federal statute that regulates employee benefit plans. The primary employee benefit plans not covered by ERISA include government plans, church plans, plans “maintained solely for the purpose of complying with applicable workmen’s compensation laws or unemployment compensation or disability insurance laws,” plans “maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens,” and unfunded excess benefit plans. See Id. at §1003(b). ERISA is a wide-reaching statute that covers most employee benefit plans and affects a majority of the U.S. population. Craig Copeland, Retirement Plan Participation and Retirees’ Perception of Their Standard of Living, EBRI Issue Brief, http:// www.ebri.org/pdf/EBRI_IB_01-2006.pdf at 1, 31.
ERISA regulates both “employee pension benefits plans” and “employee welfare benefits plans”. Pension benefit plans provide income to retired employees. See Treas. Reg. §1.401-1(b)(1)(i) (as amended in 1976). The two types of pension plans are the defined benefit plan and the defined contribution plan.
A defined benefit plan sets a predetermined amount that an employee will receive upon retiring. See Id. at §1.401-1(a)(2)(ii). Usually, the employer agrees to pay the employee a certain monthly benefit upon retirement at a predetermined age. The employee can continue to work past the predetermined retirement age, but should not expect to receive the defined benefit until he retires. The benefits paid to the employee are based on certain factors, including “years of service and compensation received”. Id.
A defined contribution plan is one in which an employee and employer pay into an individual account in the employee’s name. See Treas. Reg. supra note 5, at (ii). The two most common defined contribution plans are a 401(k) plan and a profit-sharing plan. “In a 401(k) plan, the employee makes contributions from current income into an account, which the employer may or may not match.” 26 U.S.C. §401(k). With the 401(k), the employee is given certain investment options including mutual funds, stocks, or bonds. This way, the employee’s individual account may earn income through investment. A profit-sharing plan is one in which an employee can share in the profits of his employer.The employer decides which portion of the profits will be shared and determines when and how the employee will receive these funds.
Employee welfare benefit plans provide for a wide range of benefits such as health care, disability, and prescription coverage to active employees and their dependents. 29 U.S.C. §1002(1) (B). Some plans continue to provide these benefits after retirement. In the United States, roughly “75 percent of workers considered their health benefits to be their most important non-cash compensatory benefit”. See 29 U.S.C.A. §1001(b).
Purposes of ERISA
ERISA was created to “protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.” S. Rep. No. 117 (1993).
With ERISA, Congress intended to implement uniform protection for employee benefits upon retirement. The advantage for employers came with creation of a single, comprehensive set of rules to follow regarding employee benefit plans. Before ERISA, employers would be subject to different state laws regarding employee benefit plans, often creating confusion, particularly for employers engaged in interstate commerce. ERISA’s preemption provision states that it “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plans.” 29 U.S.C. §1144(a).
Without this provision, ERISA’s laws and policies would be meaningless, as an employer would be forced to follow state statutes regarding employee benefits. This could encourage employers, in an attempt to save money, to conduct business only in the states with the most lenient employment benefit laws. The preemption provision applies only to state laws that deal with areas covered in ERISA. A state law should be preempted if it: negates any ERISA plan provision, affects relations among the primary ERISA entities, affects the structure or administration of the plan, or has an economic impact on the plan.
Judicially Declared Purposes/Objectives
Courts have stated many purposes for ERISA. Among these objectives are encouraging the growth and development of voluntary, private employer-financed benefit plans, and minimizing financial and administrative burdens on employers. Siskind v. Sperry Ret. Program, Unisys, 47 F.3d 498, 503 (2d Cir. 1995). Another judicially-stated goal is protecting and promoting the interests of plan participants and beneficiaries. Boggs v. Boggs, 520 U.S. 833 (1997). Still another court has declared that ERISA is designed to provide for employees victimized by inequitable plan provisions of poorly funded plans. In re C. D. Moyer Co. Trust Fund, 441 F. Supp. 1128, 1132 (E.D. Pa. 1977). Courts have also held that ERISA is meant to ensure that if a worker has been promised a defined benefit upon retirement and has fulfilled the required conditions to obtain it, the worker actually receives it (Michael v. Riverside Cement Co. Pension Plan, 266 F.3d 1023-25 (9th Cir. 2001)) and protect employees from the economic hardship of joblessness, and reward employees for past service to the employer (Bennett v. Gill & Duffus Chems., Inc., 699 F.Supp. 454, 459 (S.D.N.Y.1988).
In Siskind, former employees filed action against their employer’s retirement program. They claimed the program violated ERISA’s fiduciary provisions and sought injunctive relief. The court ruled for the defendant and determined that an employer could discriminate among employees regarding eligibility for special retirement programs. Siskind, 47 F.3d 504. By allowing an employer to determine certain guidelines for participation in a benefit plan, ERISA encourages the growth and development of voluntary, private employer-financed benefit plans.
In Muse v. Int’l Bus. Machines Corp., employees brought action against their former employer, alleging that the employer breached ERISA’s fiduciary provision by not informed employees of a better early retirement plan offered. 103 F.3d 490, 492 (6th Cir. 1996). The court ruled for defendant, stating plaintiffs were unable to show they were knowingly deceived by their employer and thus a fiduciary breach had not occurred. Id. at 495. Also, the court held that the plaintiffs could not bring a separate state law claim based on the breach, since it would be preempted by ERISA. Id. ERISA creates a singular venue for its claims, which in turn minimizes financial and administrative burdens on employers involved in litigation.
The wife of a deceased pension plan participant brought action against his sons in Boggs v. Boggs. 520 U.S. 833. She claimed that ERISA preempted Louisiana community property laws, which allowed her husband’s first wife to transfer her interest in the participant’s pension plan. Id. The Court held that ERISA did preempt the Louisiana law. Id. at 844. Preempting state community property laws, especially those involving testamentary instruments, allows ERISA to protect and promote the interests of plan participants and beneficiaries.
In re C. D. Moyer Co Trust Fund is a response to an application by the Pension Benefit Guaranty Corporation (PBGC). PBGC was created under ERISA (29 U.S.C. §1302) “to administer the mandatory pension plan termination insurance program in Title IV of ERISA.” Id. at (a). In PBGC’s application, the corporation requested a trustee appointment to disburse excess funds created from the termination of C. D. Moyer Co Trust Fund (The Fund). The main objective of this application was to provide for employees who had been victimized by inequitable plan provisions or poorly funded plans. Yet the application was denied because The Fund was able to pay benefits to participants and met the minimum funding standard required. In re C.D. Moyer, 441 F.Supp. 1133. Although unsuccessful here, PBGC exists for the purpose of plan participant protection.
ERISA ensures that if a plan administrator has promised an employee a benefit, he or she will actually receive it. In Michael v. Riverside Cement Co. Pension Plan, a former employer brought action alleging that his early retirement benefits were unjustly reduced by an amendment to his plan, an action in violation of ERISA’s anti-cutback rule, which provides that a participant’s accrued benefits will not be reduced by an amendment to the plan. 266 F.3d 1023. The plaintiff in Michael had retired in 1983, and when he came back to work for his former employer in 1988, the benefit plan had been changed by an amendment. Id. The court held that the amendment was a violation of ERISA’s anti-cutback rule, since plaintiff had already accrued the benefits promised with his previous retirement, and he was therefore entitled to them when he chose to retire again. Id. at 1029.
In Bennett v. Gill & Duffus Chemicals, Inc., former employees brought action to recover severance pay allegedly owed to them under ERISA. 699 F.Supp. 454. ERISA deems that a severance payment plan is a form of employee welfare benefit plan. 29 C.F.R. § 2510.3-2(b)(1). The Bennett plaintiffs were involuntarily terminated due to company downsizing, and after termination, the company had refused to award any severance pay benefit to former employees. 699 F.Supp. 461. The court held that this refusal was a violation of an ERISA severance benefit plan that existed at the company. Id. Defendant was ordered to pay their employees severance pay, including interest. Id. This exemplifies how ERISA protects employees from the economic hardship of joblessness and rewards employees for past service to the employer.
ERISA and Its Stated Objectives (Pension Benefit Plans)
Before ERISA, it was unclear how long an employee would need to wait before his or her defined benefit plan became vested. Sometimes, this could take up to 10 years. Certain plans would require that an employee stay with the company until retirement to receive any benefit.
ERISA has successfully established minimum guidelines for to defined benefit plan vesting. These minimum guidelines, however, make defined benefit plans expensive for employers to administer. Under ERISA, an employer must hire an actuary to ensure that the required contributions are being met. Therefore, the investment risk of the plan is shouldered by the employer. The employer is also required to participate in the PBCG and to pay a premium of $34 per participant. Those employees whose benefits are not received by the time specified have a cause of action for an ERISA violation. Compliance with ERISA standards has made defined benefit plans unpopular with most employers.
There were roughly 170,000 defined benefit plans in 1980. Facts From EBRI: Retirement Trends In The United States Over The Past Quarter-Century, EMPLOYEE BENEFIT RESEARCH INST., 2007. By 2004, there were only 47,000. Id. The major factor in this decline is the fact that ERISA does not require that an employee make a specific contribution to the plan. In most instances, funding comes solely from the employer. Richard W. Stevenson, The Fight Over Tax Changes: The Marriage Penalty, and More, N.Y. TIMES, July 23, 2000, at 116. For this reason, employers are more likely to provide a defined contribution plan.
Indeed, use of defined contribution plans became widespread after the creation of ERISA. With these plans, investment risk is the employee’s burden. Although the employer makes no promise to any benefit upon retirement, ERISA’s disclosure duties give the employee some control over retirement benefits. ERISA’s standards have inadvertently forced employees to participate in more risky pension benefit plans. In defined contribution plans, the employee exchanges the promise of a benefit upon retirement for, the ability to control his or her investment. Ironically, ERISA’s minimum standards, which are meant to ensure employee benefits upon retirement, have done just the opposite, making popular a pension benefit plan that actually promises nothing.
ERISA and Its Stated Objectives (Welfare Benefit Plans):
ERISA’s participation, vesting, and funding standards do not apply to employee welfare benefit plans. However, ERISA still preempts all state laws that relate to welfare benefit plans. See 29 U.S.C. §1144(a).
A plaintiff’s cause of action against a welfare benefit plan must be within ERISA’s civil enforcement provisions. 29 U.S.C. § 1132(a). This provision states that a civil action may be brought by a participant or beneficiary to recover benefits due him under the terms of the plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. Therefore, if the provision does not provide plaintiff with a cause of action, he is denied access to the courts for his claim.
The language of the civil enforcement provisions state that a plaintiff can recover only the benefits due under his plan, severely limiting his remedy. ERISA does not account for the consequential damages that come with a refusal of welfare benefits. A plaintiff is to receive only what he should have received in the first place. As a result, there is no punishment for fraudulent behavior by insurance companies. A great danger that insurance companies will unjustly refuse coverage to those in need is thus created.
In conclusion, while ERISA aims to protect employee’ benefits, it is greatly deficient in certain areas. The preemption provision should not be applied to welfare benefit plans. It offers no source of relief for many plaintiffs, and when it does offer relief, the relief is minimal. In order for the stated objectives of ERISA to be fully realized, this provision should be modified.
Ryan McParland is a 3L at Albany Law School. He will be graduating this spring and has a concentration in Business Law. He is currently working as an intern for Albany Law School’s Tax Clinic, where his main duties at the clinic include researching tax law and negotiating settlements with the IRS on behalf of low-income individuals. He is also an ACES teaching fellow and is actively involved in Moot Court.