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Attorney Fees under ERISA
Disability Claims Administered by the SSA
EAJA Fees in Social Security Cases
ERISA 502(c) Actions
ERISA Subrogation
How to Tell if an Insurance Claim is Preempted by ERISA
Levels of Appeal for Social Security Cases
Sequential Evaluation Process
Worker's Compensation Offset
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Disability Insurance AttorneyHow to Tell if an Insurance Claim is Preempted by ERISA Eric Buchanan |  |
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I. Introduction:
A. What is ERISA? If your client obtained his or her insurance coverage at work, then any claim under that policy may be preempted by the Employee Retirement Income Security Act of 1974 (ERISA). For example, claims for long-term disability benefits, life insurance or health insurance benefits are ERISA claims in most cases, if the insurance was provided through work. ERISA is a comprehensive Federal statute that applies to many claims related to employee benefits. ERISA is a complicated area of the law that throws up many hurdles that stand between employees (and their attorneys) and their insurance benefits if the insurance coverage is provided as an employee benefit. ERISA was passed in response to a significant perceived problem, that employee benefits were subject to varying, and often conflicting state laws, and that employee's rights were not adequately protected by state laws. Employees often had significantly different rights depending on the state in which they worked, while large, multi-state companies often had conflicting obligations. Congress also perceived problems involving possible corruption and self-dealing involving large pension plans. In order to provide Federal oversight of employee pensions and uniform national standards, Congress enacted ERISA to regulate employee pension plan. At the last minute, ERISA was amended to include other employee benefits, including such employee welfare benefits as health care coverage, long-term disability insurance, life insurance and other similar benefits provided to employees by private employers. Thus, ERISA applies to two broad categories of employment benefits, pension benefits and welfare benefits. The intent of Congress in enacting ERISA was to protect the "interest of participants in employee benefit plans . . . 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. ." 29 U.S.C. 1001(b) . The language of the ERISA statute draws heavily from trust law as well as contract law. Congress instructed the courts to develop a common law of ERISA, using both trust and contract principals. The Department of Labor also has authority to issue regulations governing the processing of ERISA claims. B. So what if ERISA applies? After nearly 30 years of case law, ERISA benefits litigation has become a dangerous landscape, with pitfalls and mine fields full of traps for the unwary. ERISA limits the remedy of a claim in a benefits case to the benefits that should have been paid under the plan, plus maybe attorneys' fees, but precludes other state law remedies, such as claims for bad faith failure to pay an insurance claim, or fraud, and ERISA precludes punitive damages or other state law remedies. ERISA also lives in its own world of civil procedure, where ordinary rules do not ordinarily apply. For example, a claimant must first present all evidence to the insurance company and appeal all of the insurance policies internal appeals before filing a suit. Once a suit is filed, a claimant usually may not submit more evidence to be considered, and generally no discovery is permitted regarding the merits of the claim; a court instead reviews only those documents that were before the insurance. Additionally, when reviewing the limited record, most claims are reviewed by the court under a standard of review that is deferential to the decision made by the insurance company. In broad strokes, the case law holds that laws that provide additional remedies or causes of action outside of ERISA are still preempted, while state laws that regulate insurance in other ways may not be. If ERISA applies, most claims should be filed in federal court (except for claims that are limited to claims for benefits over which state courts have concurrent jurisdiction), and if a plaintiff files a claim that is properly preempted by ERISA, the defendant may remove the claim to federal court without regard to the well-pled complaint rule. 29 U.S.C. 1132(e) . ERISA claims can be successfully litigated, if the attorney is knowledgeable of ERISA procedures; however, ERISA litigation strategies are beyond the scope of this paper. Rather, the purpose of this paper is to address how to tell if a claim is preempted by ERISA. II. ERISA Preemption ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ... ." ERISA 514(a), 29 U.S.C. 1144(a) . A saving clause then provides that some state laws are not preempted: "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." ERISA 514(b)(2)(A), 29 U.S.C. 1144(b)(2)(A) . ERISA preemption means that almost all employee benefits plans that provide such benefits as health insurance, life insurance or disability insurance are preempted by Federal ERISA law; however, plans sponsored by governmental employers and churches are not usually preempted by ERISA. E RISA 4(a), 29 U.S.C. 1003(a) provides that ERISA shall apply to any employee benefit plan if it is established or maintained
However, ERISA does not apply to all employee benefit plans. ERISA 4(b), 29 U.S.C. 1003(b) provides: (b) The provisions of this subchapter shall not apply to any employee benefit plan if--
III. What is an "employee benefit plan?" ERISA benefits fit into two broad categories: employee pension benefit plans and employee welfare benefit plans. Insurance benefits are provided to employees through welfare benefit plans. ERISA defines a welfare benefits plan in ERISA 3, 29 U.S.C. 1002 as follows: The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services. . . A. When is a plan "established or maintained?" While ERISA 402(a)(1), 29 U.S.C. 1102(a)(1) states that "every employee benefit plan shall be established and maintained pursuant to a written instrument," courts have held that an ERISA plan may exist even without a written plan. The Court of Appeals for the Eleventh Circuit explained that, "ERISA does not . . . require a formal, written plan." Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir. 1982)(en banc) . The Dillingham Court set out the test to determine if an ERISA plan was established: "a 'plan, fund, or program' under ERISA is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits." Id, at 1373. The Dillingham test has been adopted by every circuit, and is the most cited case on haw to determine if a "plan" has been established. Jayne E. Zenglein, ERISA Litigation 8 (The Bureau of National Affairs 2003); see also Butero v. Royal Maccabees Life Ins. Co., 174 F.3d 1207, 1214 (11th Cir. 1999) and Williams v. WCI Steel Co.,Inc., 170 F.3d 598, 602 n.3 (6th Cir. 1999) (The Sixth Circuit reported that the Dillingham test had been adopted by every circuit). However, not all insurance provided to employees fall under ERISA. The Department of Labor has issued regulations at 29 C.F.R. 2510.3-1(j), which clarify that certain insurance policies that are made available at work are not ERISA benefits. This is often referred to as the "safe harbor" provisions of ERISA. See, e.g. Anderson v. Unum Provident Corporation, 369 F.3d 1257, 1262 (11th Cir. 2004). The regulations explain that the definition of a "welfare plan"
shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which
This exception is difficult to meet. In Anderson v. Unum Provident Corporation the Plaintiff presented evidence that the employer affirmatively took the position that ERISA did not apply to the long-term disability benefits insurance policy that was made available to its employees. Id at 1267. The "determination of whether ERISA governs the UNUM Plan does not turn on whether [the employer] intended the plan to be governed by ERISA, but rather on whether Shaw intended to establish or maintain a plan to provide benefits to its employees as part of the employment relationship." Anderson v. Unum Provident Corporation, 369 F.3d at 1263-4 (emphasis in original). (Holding that "[i]f the UNUM Plan satisfies the statutory definition of an employee welfare benefit plan, then ERISA applies regardless of the intent of the plan administrators and fiduciaries." A plan was established or maintained based on various factors, including the fact that the employer chose the insurance policy to be offered, the use of the employer's emblem on claims forms, and the fact that the documents referred to ERISA, and the employer took no affirmative steps to remove the reference to ERISA from Unum's documents until after litigation began.)
When the employer pays the premiums, that is almost universally held to be an ERISA plan. See generally, ERISA Litigation, supra, 13; see also Fugarino v. Hartford Life and Acc. Ins. Co., 969 F.2d 178, 183 (6th Cir. 1992) (abrogated on other grounds in Yates v. Hendon, 541 U.S. 1, 124 S.Ct. 1330, 159 L.Ed. 40 (2004)) and Randol v. Mid-West Nat. Life Ins. Co. of Tennessee, 987 F.2d 1547, 1551-2 (11th Cir. 1993). The test in the Sixth Circuit to determine if a plan is an ERISA plan is set out in the Sixth Circuit case of Thompson v. American Home Assurance Co., 95 F.3d 429, 434-35 (6th Cir. 1996). This case provides for a detailed analysis of whether a plan is an ERISA plan. First, the Court explained that The existence of an ERISA plan is a question of fact, to be answered in light of all the surrounding circumstances and facts from the point of view of a reasonable person. See Credit Managers Ass'n of So. Calif. v. Kennesaw Life and Acc. Ins. Co., 809 F.2d 617, 625 (9th Cir.1987), citing Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir.1982) ( en banc ). Accord Gahn v. Allstate Life Ins. Co., 926 F.2d 1449, 1451 (5th Cir.1991); Wickman v. Northwestern Nat'l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.), cert. denied,498 U.S. 1013, 111 S.Ct. 581, 112 L.Ed.2d 586 (1990). 95 F.3d at 434. The Court explained how this analysis works; first a court must conduct a three-part test:
In determining whether a plan is an ERISA plan, a district court must undertake a three-step factual inquiry. First, the court must apply the so-called "safe harbor" regulations established by the Department of Labor to determine whether the program was exempt from ERISA. Fugarino v. Hartford Life and Accident Ins. Co., 969 F.2d 178, 183 (6th Cir.1992), cert. denied,507 U.S. 966, 113 S.Ct. 1401, 122 L.Ed.2d 774 (1993). Second, the court must look to see if there was a "plan" by inquiring whether "from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits." Int'l Resources, Inc. v. New York Life Ins. Co., 950 F.2d 294, 297 (6th Cir.1991) (citing Donovan, 688 F.2d at 1373), cert. denied,504 U.S. 973, 112 S.Ct. 2941, 119 L.Ed.2d 565 (1992). Finally, the court must ask whether the employer "established or maintained" the plan with the intent of providing benefits to its employees. See McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 234, 236 (5th Cir.1995), cert. denied,516 U.S. 1174, 116 S.Ct. 1267, 134 L.Ed.2d 214 (1996); Hansen v. Continental Ins. Co., 940 F.2d 971, 977 (5th Cir.1991).FN1
FN1. Some courts collapse the first and third prongs of this analysis by interpreting the Department of Labor regulations as the indicia for determining whether a plan is established and maintained by the employer. See, e.g., Gahn, 926 F.2d at 1451. Since, however, those courts agree that even if a plan is not within the safe harbor, there must be an additional finding that the employer intended to establish or maintain a plan in order to find that an ERISA plan exists, see id., the court finds that breaking the analysis into three separate prongs is more logical. 95 F.3d at 434-5. At the first step, a court should determine whether a plan meets the "safe harbor" provisions.
Department of Labor ("DOL") regulations set out a "safe harbor" provision that excludes an employee insurance policy from ERISA coverage if: (1) the employer makes no contribution to the policy; (2) employee participation in the policy is completely voluntary; (3) the employer's sole functions are, without endorsing the policy, to permit the insurer to publicize the policy to employees, collect premiums through payroll deductions and remit them to the insurer; and (4) the employer receives no consideration in connection with the policy other than reasonable compensation for administrative services actually rendered in connection with payroll deduction. 29 C.F.R. 2510.3-1(j). A policy will be exempted under ERISA only if all four of the "safe harbor" criteria are satisfied. Fugarino, 969 F.2d at 184, citing Hansen, 940 F.2d at 977. Accord Grimo, 34 F.3d at 150; Gahn, 926 F.2d at 1451; Kanne v. Connecticut General Life Ins. Co., 867 F.2d 489, 492 (9th Cir.1988) (per curiam), cert. denied,492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989).
95 F.3d at 435. Often, the third part of the test, whether the employer "endorsed the policy" is argued by insurers to establish ERISA preemption. In Thompson, the Court of Appeals adopted the test set out previously by the First Circuit in Johnson v. Watts Regulator Co., 63 F.3d 1129 (1st Cir.1995), which the Thompson Court summarized:
In Johnson, the First Circuit clarified the standards that govern a finding of endorsement, including its belief that "endorsement of a program requires more than merely recommending it." 63 F.3d at 1136. According to the Johnson court,
95 F.3d at 436. The Court of Appeals for the Sixth Circuit explained that this reasoning would be adopted in this Circuit, as correctly applying Congress's intent:[a]s long as the employer merely advises employees of the availability of group insurance, accepts payroll deductions, passes them on to the insurer, and performs other ministerial tasks that assist the insurer in publicizing the program, it will not be deemed to have endorsed the program under 29 C.F.R. 2510.3-1(j) It is only when an employer purposes to do more, and takes substantial steps in that direction, that it offends the ideal of employer neutrality and brings ERISA into the picture. Id. at 1133. The First Circuit further found that, while the Hansen court had relied on the employer's intent in determining endorsement, the proper focus was on whether employees could reasonably conclude that the employer had endorsed the policy based on their observation of the employer's activities in connection with the plan. 63 F.3d at 1134 & 1137 n. 6.
The court finds that the First Circuit's approach in Johnson is directly in keeping with Congress' intentions in enacting ERISA. According to the Department of Labor, "employer neutrality is the key to the rationale for not treating such a program as an employee benefit plan" 40 Fed.Reg. 34,526 (1975). As the Johnson court noted, therefore, where the employer "offends the ideal of employer neutrality" as a result of its level of involvement, ERISA is properly invoked. 63 F.3d at 1133. "Where, however, the employer separates itself from the program, making it reasonably clear that the program is a third party's offering, not subject to the employer's control, then the safe harbor may be accessible." Id. at 1137. 95 F.3d at 436. Thus, the Court of Appeals explained, the key element whether an employer endorsed a plan, is whether the employer acted neutrally. >
The crucial task before the court, therefore, is to determine the set of circumstances in which employer neutrality is compromised to such an extent that ERISA should provide the governing framework. After reviewing the relevant case law, the court determines that a finding of endorsement is appropriate if, upon examining all the relevant circumstances, there is some factual showing on the record of substantial employer involvement in the creation or administration of the plan. See Hansen, 940 F.2d at 977 (requiring "some meaningful degree of participation by the employer in the creation or administration of the plan"). For example, where the employer plays an active role in either determining which employees will be eligible for coverage or in negotiating the terms of the policy or the benefits provided thereunder, the extent of employer involvement is inconsistent with "employer neutrality" and a finding of endorsement may be appropriate. See, e.g., Custer v. Pan American Life Ins. Co., 12 F.3d 410, 417 (4th Cir.1993) (considering, inter alia, employer's role in negotiating terms and benefits of the policy in determining whether a plan should fall out of the safe harbor); Wickman, 908 F.2d at 1083 (considering, inter alia, employer's role in devising eligibility requirements when determining the applicability of the safe harbor regulations). Similarly, where the employer is named as the plan administrator, a finding of endorsement may be appropriate. See, e.g., Kanne, 867 F.2d at 493; Shiffler v. Equitable Life Assur. Soc. of U.S., 838 F.2d 78, 82 n. 4 (3d Cir.1988) (both considering, inter alia, the employer's role in administering the plan when determining whether to allow the policy to come under the safe harbor provision of the DOL regulation).
95 F.3d at 436. The test whether the employer "endorsed" the plan, is not measured from the point of view of the insurance company, but from the point of view of the employee, viewing the conduct of the employer:
The court agrees, however, with the holding of the Johnson court that the relevant framework for determining if endorsement exists is to examine the employer's involvement in the creation or administration of the policy from the employees' point of view. Johnson, 63 F.3d at 1134 & 1137 n. 6. Accordingly, in evaluating an employer's role in the creation and administration of a plan, emphasis should be placed on those circumstances which would allow an employee to reasonably conclude that the employer had compromised its neutrality in offering the plan. Thus, for example, where the employer provides a summary plan description that specifically refers to ERISA in laying out the employee's rights under the policy or that explicitly states that the plan is governed by ERISA, the employee is entitled to presume that the employer's actions indicate involvement sufficient to bring the plan within the ERISA framework. See Johnson, 63 F.3d at 1137 n. 5 (protective filing of ERISA form with the Department of Labor is insufficient to prove employer endorsed a policy in the absence of any evidence that the employees knew of this filing); Kanne, 867 F.2d at 493 (where employer, inter alia, distributed a summary plan description detailing the employees rights under ERISA, the safe harbor regulations were inapplicable); Wickman, 908 F.2d at 1083 (same). See also Hansen, 940 F.2d at 976 (finding that an ERISA plan existed because an employer letter accompanying the plan suggested, although without referring to ERISA, that it had endorsed the program).
95 F.3d at 436-7. In Thompson, the Court found that the employer did not endorse the plan.
While, like in Hansen, the insurance policy here included an introductory letter encouraging employees to obtain accident insurance, that letter was not printed on Burns' letterhead, nor did it refer to the accident insurance policy as Burns' plan. Further, while Burns' name was featured on the cover of the policy description, this fact may be as consistent with identification as endorsement, depending on what the evidence on remand shows concerning the circumstances of its placement. The policy documentation submitted as an exhibit on appeal nowhere mentions that the policy is subject to ERISA, nor does it set out a description of an employee's rights under ERISA. It is unclear from the record whether Burns acts as an administrator, nor is it clear whether Burns participated in either devising the terms of the policy or in processing claims, although the record does indicate that Thompson submitted her claim directly to American Home. The court finds that such evidence presents a material question of fact as to whether Burns endorsed the policy under the DOL regulation. See Johnson, 63 F.3d at 1135 n. 3 ("The question of endorsement vel non is a mixed question of fact and law. In some cases the evidence will point unerringly in one direction so that a rational factfinder can reach but one conclusion. In those cases, endorsement is a question of law In other cases, the legal significance of the facts is less certain, and the outcome will depend on inferences that the factfinder chooses to draw In those cases, endorsement becomes a question of fact. This case is of the latter type.") (citations omitted).
95 F.3d at 437. In remanding the claim, the Court of Appeals gave specific instructions as to what factors a trial court should consider:
The district court's further consideration of this issue, whether in the context of a renewed summary judgment motion based on a more complete factual record or at trial, should take into account, but is not limited to, Burns's role in administering benefits under the plan, whether the policy language itself contemplates the application of ERISA, and Burns's role in determining eligibility and coverage. The crucial question is whether Burns was substantially involved in the creation and administration of the plan to such an extent that employees could reasonably conclude that Burns had endorsed the plan.
Further, if the district court determines that the policy is not excluded from ERISA coverage under the safe harbor regulations, the court on remand must also determine that a "plan" exists under the standards set forth in Int'l Resources, Inc., 950 F.2d at 297 (a "plan" exists if "from the surrounding circumstances a reasonable person [could] ascertain the intended benefits, the class of beneficiaries, the source of financing, and procedures for receiving benefits"). See also Dist. of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 131 n. 2, 113 S.Ct. 580, 584 n. 2, 121 L.Ed.2d 513 (1992); Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12, 107 S.Ct. 2211, 2218, 96 L.Ed.2d 1 (1987); Belanger v. Wyman-Gordon Co., 71 F.3d 451, 454 (1st Cir.1995) (all defining "plan"). Furthermore, the district court must conclude that Burns "established or maintained" the plan with an intent to provide benefits to its employees. See McDonald, 60 F.3d at 236; Hansen, 940 F.2d at 977 ("In addition to some meaningful degree of participation by the employer in the creation or administration of the plan, the statute requires that the employer have had a purpose to provide health insurance, accident insurance or other specified types of benefits to its employees. 29 U.S.C. 1002(1). Thus, the evidence must show that the employer had an intent to provide its employees with a welfare benefit program through the purchase and maintenance of [the] group insurance policy.") (internal citation omitted). Only upon completing this three-step factual inquiry can a district court ascertain that an ERISA plan exists, thus requiring the application of the federal common law of ERISA to the underlying insurance claim.
95 F.3d at 437-8.More recent decisions have relied on Thompson and the analysis set fourth in that case. The Court of Appeals found that ERISA did apply in the unpublished case of Nicholas v. Standard Ins. Co., 48 Fed.Appx. 557 (6th Cir., 2002). (Finding that ERISA did apply, where the insurance agent who sold the policy testified that he helped procure employee benefits for the employer, where the employer was named as the plan administrator, and the documents specificially referred to ERISA. Id at 564) IV. Who is covered under a plan? A. Employees are covered. ERISA 3(7), 29 U.S.C. 1002(7) defines a "participant" as "any employee or former employee of an employer, ... who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer ..., or whose beneficiaries may be eligible to receive any such benefit." An "Employee," is defined as "any individual employed by an employer," ERISA 3(6), 29 U.S.C. 1002(6). B. Independent Contractors are not covered. A person must be an "employee" to be covered by an ERISA plan. In Nationwide Mutual Insurance Company v. Darden, 503 U.S. 318, 112 S.Ct. 1344, (1992) the Supreme Court adopted the "common law" definition of an "employee" using traditional agency law principals. Id at 323. The Court held that the following factors should be used:
C. Employers may or may not be covered. The general rule addressing whether an employer is also an "employee" and covered by ERISA is whether or not other employee are also covered under the plan. Yates v. Hendon, 541 U.S. 1, 124 S.Ct. 1330, 1335, 159 L.Ed. 40 (2004). The ERISA regulations explain that:
The Court found that the definition of "employee" in ERISA was "completely circular and explains nothing." Id, at 1339. The Court found that a working owner can have dual status as both an employer and employee entitled to participate in the plan. Id, at 1341. The Court overturned lower court decisions that held an owner could never be a participant in an ERISA plan. Id, at 1342-3. However, the Court left open the general interpretation of ERISA application, that an employer may not be covered where no other employees are covered by the Plan. V. Other "plans" that are not ERISA plans. A. Payroll practices are not ERISA "plans." The Department of Labor has explicitly excluded certain employee benefits from ERISA if those benefits meet the definition of certain payroll practices. (b) Payroll practices. For purposes of Title I of the Act and this chapter, the terms "employee welfare benefit plan" and "welfare plan" shall not include--
29 C.F.R. 2510.3-1; see also Massachusetts v. Morash, 109 S.Ct. 1668 (1989) and Stern v. International Business Machines Corp., 326 F.3d 1367 (11th Cir. 2003) (an employee benefit providing continued pay while the employee is unable to work due to sickness or injury was exempted from ERISA by regulation. Even if the employer filed a "form 5500 and treated the plan as an ERISA plan, that does not overcome the regulatory exemption).(1) Payment by an employer of compensation on account of work performed by an employee, including compensation at a rate in excess of the normal rate of compensation on account of performance of duties under other than ordinary circumstances, such as-- (i) Overtime pay, (ii) Shift premiums, (iii) Holiday premiums, (iv) Weekend premiums; (2) 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); and (3) Payment of compensation, out of the employer's general assets, on account of periods of time during which the employee, although physically and mentally able to perform his or her duties and not absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment) performs no duties; for example-- (i) Payment of compensation while an employee is on vacation or absent on a holiday, including payment of premiums to induce employees to take vacations at a time favorable to the employer for business reasons, (ii) Payment of compensation to an employee who is absent while on active military duty, (iii) Payment of compensation while an employee is absent for the purpose of serving as a juror or testifying in official proceedings, (iv) Payment of compensation on account of periods of time during which an employee performs little or no productive work while engaged in training (whether or not subsidized in whole or in part by Federal, State or local government funds), and (v) Payment of compensation to an employee who is relieved of duties while on sabbatical leave or while pursuing further education. B. Benefits provided by governmental entities are not ERISA "plans." ERISA 4(b), 29 U.S.C. 1003(b) states that the provisions of ERISA "shall not apply to any employee benefit plan if-(1)such plan is a governmental plan (as defined in 3(32)). That section further defines a governmental plan as: "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 any of the foregoing." ERISA 3(32), 29 U.S.C. 1002(32). C. Church plans are not "ERISA" plans unless the employer "opts in" to ERISA. ERISA 4(b)(2), 29 U.S.C. 1003(b)(2) likewise exempts "church plans (as defined in 3(33) with respect to which no election has been made under 410(d) of the internal revenue code. . ." A Church Plan is "a plan established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26." ERISA 3(33), 29 U.S.C. 1002(33). "An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches." ERISA 3(33(C)(iv), 29 U.S.C. 1002(33)(C)(iv). Furthermore, a church plan may not "opt in" just by saying that it has. A church can elect to have participation, vesting, funding, and other provisions under the tax laws apply to it, even though church plans are normally excluded if it "opts in" in the manner prescribed by the Secretary; an election under Internal Revenue Code with respect to any church plan is irrevocable. IRC 410(d), 26 U.S.C. 410(d). The Treasury regulations, at 26 C.F.R. 1.410(d)-1 state that the election must be made by the plan administrator for the church plan. 26 C.F.R. 1.410(d)-1(c)(2). The Plan Administrator must make a statement that an election is made under 410(d) and must state the first year that election is effective. 26 C.F.R. 1.410(d)-1(c)(5). That statement of election must be attached to the annual return filed for the first year such election is effective or attached to a written request for a determination letter. 26 C.F.R. 1.410(d)-1(c)(3). Simply filing a form 5500 is not enough. See, e.g. Stern v. International Business Machines Corp., 326 F.3d 1367 (11th Cir. 2003) (in a non-church plan case, the Court held that an employer's filing of a form 5500 does not make a non-ERISA plan into an ERISA plan.) Furthermore, it has been held that even when an election is made, ERISA does not apply until the election has been filed. Catholic Charities of Maine, Inc. v. City of Portland, 319 F.Supp.2d 88 (D.Me. 2004). It has been held that a plaintiff may not rely on a mere allegation that a plan is a "church plan" in order to avoid ERISA. Duckett v. Blue Cross and Blue Shield of Alabama, 75 F.Supp.2d 1310 (M.D.Ala.1999) (Holding that the Plaintiff, who claimed ERISA should not apply, should have produced evidence, including tax records or evidence that the controlling board was appointed by the church. Plaintiff failed to take discovery of such information, relying on the name of the employer as "Baptist" Health Services, thereby failing to overcome the Defendant's motion for summary judgment by having no evidence to create a genuine issue of material fact.) VI. Avoiding ERISA If an insurer claims ERISA applies, and you have a good faith argument that one of the above exemptions applies, make them prove it. "The burden of establishing the existence of an ERISA plan is on [the insurer]." Zavora v. Paul Revere Life Ins. Co., 145 F.3d 1118, 1121 n 2 (9th Cir. 1997). Whether an ERISA plan exists is a question of fact, Thompson v. American Home Assur. Co., 95 F.3d 429 (6th Cir. 1996), and mere conclusory allegations that an ERISA Plan was established is insufficient to support a finding that an ERISA plan has been established. See, e.g., Arkansas Book Co., 794 F.2d 358 (8th Cir. 1986); Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985). Crespo v. Candela Laser Corp., 780 F. Supp. 866 (D. Mass. 1992); Molyneaux v. Arthur Guinners & Sons, P.L.C., 616 F. Supp. 240, 243 (S.D. N.Y. 1985). Some insurance policies that were originally issued as part of an ERISA plan may not longer be covered by ERISA is the employee converted the policy to an individual policy. Mizrahi v. Provident Life and Accident Ins. Co., 994 F.Supp. 1452, 1453-54 (S.D. Fla. 1998); Loudermilch v. The New England Mutual Life Ins. Co., 942 F.Supp. 1434, 1437 (S.D. Ala. 1996) (where the employer-company contributing to the ERISA plan is sold, makes no further contributions to the participant's plan, and has no further involvement in the plan, the plan converts to an individual insurance policy outside the rubric of ERISA); but see, Glass v. United of Omaha Life Ins. Co., 33 F.3d 1341, 1346 (11th Cir.1994) (holding that ERISA governed a converted policy when the former employee's ability to obtain the converted policy continued to be integrally linked with the original plan). At least one Circuit has expressly disagreed with this logic, holding that while the right to convert remains subject to ERISA, the conversion policies themselves do not. Demars v. CIGNA Corp., 173 F.3d 443, 450 (1st Cir.1999). If an employee converts a plan to an individual policy, ERISA may still apply. Paul Revere Life Ins. Co. v. Bromberg, 382 F.3d 33 (1st Cir. 2004) (where the employee resigned due to his disability and began making his own payments, and applied for disability six months after his resignation, ERISA still applied because his claimed onset date of disability was the date he left employment.) Contrast this to Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 874 (9th Cir.2001) (the injury causing disability occurred three years after conversion); Owens v. UNUM Life Ins. Co., 285 F.Supp.2d 778, 780 (E.D.Tex.2003) (disability occurred eleven years after conversion). If the employee keeps the same policy, but begins making his own payments, that may not be enough to convert the policy in some Circuits. See, e.g. Massachusetts Cas. Ins. Co. v. Reynolds, 113 F.3d 1450 (6th Cir. 1997). (where employer provide employees with various individual policies and employee's same policy remained in effect without change it was "continuation coverage" and, therefore, related to an employee benefit plan.) See also Painter v. Golden Rule Ins. Co., 121 F.3d 436 (8th Cir.1997) (holding state law claims under a converted policy are preempted by ERISA because the converted policy resulted from the exercise of a right under an ERISA plan). VII. Conclusion Plaintiffs may successfully litigate ERISA claims, but their attorneys' hands are tied. ERISA limits discovery, limits damages to the amount due under the plan (plus possibly attorneys' fees), often allows the insurer a deferential standard of review, limits evidence to that information that was provided during the administrative appeals process, does not allow for jury trials, and usually involves litigating in federal court. A Plaintiff's attorney should try to avoid ERISA in most cases; however, if ERISA applies, the attorney should know that before working on the case. Eric Buchanan, Donna Green, and Scott Wilson are Certified as Social Security Disability Specialists by the Tennessee Commission on Continuing Legal Education and Specialization. Copyright 2007 - Eric Buchanan & Associates, PLLC - All Rights Reserved |
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