Which Disability and Life Insurance Plans are Under ERISA?

ERISA, the Employee Retirement Income Security Act, is a federal law that regulates employee benefit plans in the private sector.

Since ERISA regulates most disability and life insurance plans that employees offer, it is important that you and your lawyer understand why this matters.

If you’re wondering “which of my benefits are subject to ERISA,” this guide will give you a clear understanding. We’ll explain the types of benefit plans ERISA encompasses, from your disability plan to your life insurance, ensuring you understand the protections and standards set forth by this federal law.

Before you go any further, we’ll preface by saying there’s a lot of information below. Our team at BenGlassLaw has been working in the niche legal field of ERISA since 1995 and understand the law and it’s small fine print. So, if you don’t find your answer here or are overwhelmed with the details, we suggest contacting our long-term disability team for a free consultation and we will guide you in the right direction.

Key Takeaways

• ERISA is a law that sets standards for retirement and health plans in the private sector, ensuring protection for employees by imposing fiduciary duties and transparency requirements on plan administrators. ERISA protects you, the employee.

• ERISA governs both welfare benefit plans (including health, disability, and life insurance) and pension benefit plans like 401(k)s, but excludes plans by governmental entities, churches, and for non-U.S. residents.

• Navigating ERISA is complex for both employees and administrators, but professional help from ERISA attorneys, third-party administrators, and benefits administration software can make understanding and compliance more manageable.

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ERISA Overview: The Basics

ERISA, also known as ERISA law, serves as a complicated piece of legislation that safeguards your benefits. It operates as a safety net for your disability and life plans by setting standards for different employer plans. This is mainly to protect your interests if you partake in these benefit plans. It lays down minimum standards for most voluntarily established disability and life insurance plans in the private sector, providing a safety measure for individuals who are part of these plans. Hence, your company’s life insurance/disability plan paperwork is extensive, courtesy of ERISA.

However, ERISA isn’t solely focused on rules and regulations. It also oversees the administrative elements of employee benefit and retirement plans, ensuring their authenticity and faithfulness. Simply put, ERISA’s role is to verify that your employer’s insurance company follows the prescribed guidelines regarding your benefits.

Key Provisions of ERISA

Fiduciary duty is a pivotal provision of ERISA. This duty obligates those handling plan assets to act in the best interest of you and other participants and beneficiaries. They are required to adhere to the ‘prudent person standard of care’, which means they have to act with the care, skill, prudence, and diligence a prudent person would exercise. So, if you’ve ever worried about your employer mismanaging your retirement fund, rest easy knowing that ERISA has your back.

ERISA also has some pretty strict rules about transparency. It requires employers to keep you informed about your benefits. So, they must provide you with information about plan features and funding. This way, you always know what you’re getting into with your benefit plans. Plus, ERISA mandates that those managing your plan’s assets must uphold fiduciary responsibilities, ensuring they act solely in your interest. And if they don’t? They could be looking at some serious ERISA litigation.

ERISA’s Role in Protecting Employees

The Employee Retirement Income Security Act (ERISA) is all about protecting you, the employee. It mandates that employee benefit plans adhere to minimum standards, so you can always expect a certain level of benefits. It also provides you with rights to benefits you’ve earned through its vesting rules. These rules provide gradual entitlement in employer-sponsored retirement plans. So, if you’ve been with your company for a while, you can look forward to a solid retirement package.

In the world of long-term disability and life insurance claims, this means, at a minimum, plan administrators (the insurance company) must:

1. Give you the specific reason for any claim denials;
2. Provide you with a complete copy of the claim file;
3. Engage in “meaningful dialogue” with you about your claim;
4. Not put their profit interests above your claim;
5. Give you a reasonable time to appeal any benefit denials;
6. Tell you who their claim reviewer doctors are and give you their reports; and
7. Tell you exactly what your next steps are if their final decision is a denial of your claim.

And if you believe your benefits have been unfairly denied? ERISA empowers you to pursue legal actions in federal court, including employee benefits litigation. In fact, ERISA grants you the ability to sue for benefits and fiduciary breaches, providing a federal legal pathway in case of disputes over benefits under federal law.

This is what the BenGlassLaw Disability and Life Insurance Team does all day long!

Other Types of Benefit Plans Covered by ERISA

So which benefit plans are governed by ERISA? Primarily, ERISA has jurisdiction over two types of plans: welfare benefit plans and pension benefit plans. These categories include a wide range of benefits for employees. This means if you have health insurance through your employer, it’s likely covered by ERISA. Additionally, your retirement plan, which could include various forms of pensions, are also subject to ERISA regulations. It’s like having a guardian angel watching over your most important benefits!

However, ERISA’s sphere of influence doesn’t stop at disability and life insurance plans. It also encompasses a range of other benefits that may not be immediately evident in your employee benefits package. Let’s explore these benefits now.

Welfare Benefit Plans

When we talk about welfare benefit plans under ERISA, we’re not just talking about simple health insurance. ERISA welfare benefit plans can include coverage for medical, surgical, or hospital care, as well as benefits for sickness, accident, disability, or even death. So whether your employer offers a self-insured or fully insured health plan, you can rest assured that ERISA has it covered.

But there’s more! Under ERISA, welfare benefit plans also include welfare benefits such as:

• Special enrollment rights via the Health Insurance Portability and Accountability Act (HIPAA)

• Health insurance coverage provisions compliance via the Affordable Care Act (ACA), which requires offering affordable insurance to employees

• Continuation of health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for you and your family in certain circumstances

Quite a comprehensive coverage, isn’t it?

Pension Plans and Retirement Benefits

Pension plans under ERISA, including employee pension plans, are a bit more straightforward. They include defined benefit plans, which provide retirees with a specified monthly benefit, often based on factors like salary history and duration of service. ERISA even covers cash balance plans, a type of defined benefit plan that specifies benefits through a hypothetical account balance that grows through pay credits and interest credits.

But that’s not all. ERISA also covers defined contribution plans, which are retirement benefits based on contributions made by you, the employee, your employer, or both, without promising a specific benefit amount at retirement. The most common type of defined contribution plan is the 401(k) plan, which allows you to defer salary with potential employer matching, thereby reducing your taxable income and investing for retirement.

So whether you’re a fan of the traditional pension or prefer to take control of your retirement savings, the Retirement Income Security Act (ERISA), in compliance with the Internal Revenue Service, has got you covered.

Other Benefits Subject to ERISA

But ERISA doesn’t stop at just welfare and pension plans. It also covers some of the more unusual benefits your employer may offer. For example, did you know that apprenticeship and training programs can fall under ERISA coverage? That’s right, if these programs are established or maintained by an employer or an employee organization, ERISA recognizes them as welfare benefit plans.

And it doesn’t stop there. Scholarship and educational assistance programs sponsored by employers may qualify as ERISA-covered plans, providing you with additional educational benefits. Even holiday and vacation benefits, including paid time off and vacation pay, are recognized by ERISA and are governed by its regulations when offered by employers. Who knew ERISA could be so versatile?

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Exclusions and Exceptions: When ERISA Doesn’t Apply

While we’ve extensively discussed what falls under ERISA’s purview, what aspects aren’t covered by it? Well, ERISA doesn’t apply to:

• Plans established by governmental entities or churches

• Plans maintained solely for the purpose of complying with applicable workers’ compensation, unemployment, or disability laws

• Benefit plans for nonresident aliens working outside the United States

• Unfunded excess benefit plans

So while ERISA has a wide reach, there are some exceptions to the rule.

Governmental and Religious Organizations

Now, you might be wondering, why are governmental and religious organizations exempt from ERISA? Well, in the case of governmental employers, it’s to avoid excessive government interference in public institutions. This includes plans established by federal, state, or local governments and encompasses entities such as public schools and law enforcement agencies.

The exemption of churches from ERISA’s requirements, on the other hand, is about upholding the principle of separation of church and state. This ensures that the government does not overly intrude into church affairs. A ‘church plan’ is described in ERISA as one established or maintained by a church, or a plan maintained by an organization whose principal purpose is to fund or manage a benefit plan for the church’s employees. So even though these organizations are exempt from ERISA, they still provide important benefits to their employees.

Voluntary Plans and Certain HSAs

But what about voluntary plans and Health Savings Accounts (HSAs)? Well, these can also be exempt from ERISA, but only if they follow certain safe harbor provisions. For example, HSAs offered by employers are generally not subject to ERISA if the employer:

• Limits its involvement with the HSA

• Does not contribute to the accounts

• Ensures that participation is completely voluntary

• Does not receive any consideration apart from reasonable compensation for administrative services performed.

The Department of Labor (DOL) has issued safe harbor guidelines that, if followed, ensure that employer-offered HSAs are not considered ERISA plans. These guidelines include restrictions on employer contributions and limitations on the employer’s influence over the HSA.

Additionally, Voluntary Employee Beneficiary Associations (VEBAs) that are set up without any employer contributions and where participation by employees is completely voluntary are not governed by ERISA. And if your employer deducts payroll for voluntary insurance programs, as long as they don’t endorse the program and act as a mere pass-through for funds, these plans are not automatically subject to ERISA.

International Plans and Nonresident Aliens

International plans and nonresident aliens are another area where ERISA doesn’t apply. ERISA does not cover plans that are maintained outside the United States primarily for the benefit of nonresident aliens. This includes plans established for employees working abroad, where the majority of the beneficiaries are nonresident aliens. The exclusion of these plans addresses the jurisdictional and administrative challenges of applying U.S. regulations to foreign entities and workers.

Furthermore, benefit plans offered by multinational corporations to non-U.S. employees may be structured specifically to avoid being subject to ERISA’s regulations, given the law’s complexity and jurisdictional issues. So if you’re a non-U.S. citizen working for a multinational corporation, you likely won’t be dealing with ERISA.

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ERISA Compliance: Obligations for Employers and Plan Administrators

Given the extensive rules and regulations, achieving ERISA compliance might appear intimidating for employers and plan administrators. But fear not! ERISA lays out clear obligations for those managing your benefit plans. Under ERISA, plan administrators must have a grievance and appeals process in place for participants to claim their benefits. Plus, participants are empowered by ERISA to file lawsuits for the collection of benefits and for violations of fiduciary responsibilities. And the Department of Labor provides various forms of compliance support, like informative publications and materials, for employers managing ERISA-covered plans.

So while ERISA compliance is a complex task, it’s not an impossible one.

Reporting and Disclosure Requirements

A big part of ERISA compliance involves reporting and disclosure requirements. ERISA mandates that a Summary Plan Description (SPD) containing comprehensive details about plan provisions, benefits, eligibility, procedures for claims, and ERISA rights be provided to participants. SPDs must be furnished to participants within 120 days of implementing a new plan and to new participants within 90 days of eligibility, with changes delivered through a Summary of Material Modifications.

ERISA also requires annual reporting through the filing of Form 5500, or Form 5500-SF, which in turn provides the data for the Summary Annual Report (SAR) shared with participants. And recent amendments have introduced new reporting requirements such as Schedule MEP for multiple-employer plans and Schedule DCG for defined contribution group reporting, applicable from the 2023 plan year.

Health plans are specifically required to provide participants with the Summary of Benefits and Coverage, clearly outlining costs, benefits, and covered healthcare services. And if you’re wondering how all this information gets to you, plan disclosures can be electronically distributed in accordance with safe harbor provisions ensuring participants’ receipt of information and their right to request paper copies.

But beware, failure to meet disclosure obligations can result in significant penalties from the Department of Labor, such as daily fines for not providing SPDs or SMMs on request.

Fiduciary Duties and Best Practices

ERISA also outlines fiduciary duties for those managing your benefit plans. Under ERISA, fiduciaries are tasked with:

• Acting solely in your interest and the interest of other plan participants and beneficiaries

• Following a standard of prudence, which includes diversifying plan investments to minimize the risk of substantial losses

• Adhering to the terms of the plan documents, provided these are in accordance with ERISA rules

• Avoiding transactions that could result in conflicts of interest.

But what happens if a fiduciary doesn’t meet ERISA’s standards? Well, they could be held personally accountable. This means they may need to restore any losses or profits made from improper use of the plan’s assets. So not only does ERISA protect you, it also keeps those managing your benefits on their toes!

How are ERISA Disability Benefits Different from Social Security Disability?

Were you employed when you became disabled? If so, and if your employer offers disability benefits (usually called “short-term disability benefits” and/or “long-term disability benefits”), then your plan is probably an ERISA plan.

If you were not employed when you became disabled, you are probably not covered by an ERISA disability plan. But if you have enough work credits, you may be eligible for social security disability benefits, also called “SSDI.” (Disabled and don’t have work credits? You may be eligible for a different type of social security income, called “SSI.”)

Social security disability benefits and ERISA disability benefits are both insurance plans. Social security disability pays benefits to people who have a long-term disability and can’t work, and the benefits are paid out of a national policy that is funded by us, the taxpayers.

An ERISA long-term disability policy is an optional insurance policy, either privately purchased through the marketplace or provided by your employer. Some short-term disability policies are covered by ERISA, too.

Though both are types of disability insurance, these policies operate very differently. Social security disability benefits are approved or denied based on clear guidelines, and appeals are typically reviewed by an impartial committee.

However, employer-sponsored ERISA disability insurance claims are approved or denied based on the insurance company’s internal guidelines (you get benefits if they say you get benefits). And although they won’t admit it, private disability insurance companies aren’t impartial – they worry about things that have nothing to do with YOUR disability, like profitability and their shareholders. So it’s not surprising to see some really, really bad ERISA denials. In fact, some ERISA insurance companies will deny valid claims repeatedly in the hopes that the policyholder will simply exhaust their appeals and go away. Don’t let that be you.

Handling ERISA Claims and Appeals

Handling ERISA claims and appeals is another crucial part of ERISA compliance. An ERISA-covered plan administrator has up to 90 days to make a decision on an initial claim, with specific deadlines for different types of claims, such as urgent care, pre-service, or post-service claims. If a plan requires further information to make a decision, this period is suspended until the necessary information is provided by you, the claimant.

Following a claim denial, you are granted 60 days to request an appeal, during which time administrators must provide a written explanation of the decision including their reasoning. Plan administrators then have another 60 days to review the appeal. And don’t worry, you have a 180-day window to file an appeal after a claim denial. ERISA litigation can be a complex process, and federal judges base their rulings on whether the insurance company acted reasonably in denying the claim. Generally, new evidence is not permitted to be introduced in ERISA cases.

What Type of Attorney Should You Hire for Your ERISA Appeal?

You should contact an attorney who is experienced in ERISA law. This may or may not be someone who is experienced in SSDI cases. You need someone who can tell you:

1. Is this an ERISA-governed plan? Some short-term disability plans are not. Plans for most public school teachers and other government employees are not. Why does it matter? The rules about how long you have to appeal and what the insurance company has to provide to you can be very, very different.
2. If it is ERISA, did the insurance company follow ERISA guidelines when they denied your appeal? If you don’t call them out for their mistakes in your appeal, it will be too late to add new arguments if and when you need to file a lawsuit.
3. What should you do next? Do you have any appeals left for this claim? Or is it time to file a lawsuit?

ERISA is a niche practice in which few attorneys are experienced. BenGlassLaw is one of the few firms that handles these cases nationwide, and we even teach other law firms how to handle ERISA claims. We do this because many well-meaning attorneys try to manage ERISA claims, but because ERISA is so complex, they often need assistance from knowledgeable ERISA attorneys.

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