erisa 101 - Shirazi Benefits

ERISA 101
Knowing When ERISA Impacts
Employee Welfare Benefits
November 8, 2012
Instructor: John C. Gall, AVP & Senior Counsel
#452461v1
ERISA 101
All citations used in this presentation that refer to ERISA Sections may be
found in Title 29 of the United States Code, beginning with 29 U.S.C.
Section 1001 et seq. These sections are referenced in the “CCH Pension
and Employee Benefits: Code, ERISA, Regulations as of January 1, 2007,
Volume 2,” and “The ERISA Outline Book: A Study Guide and Reference
Manual in Five Volumes” by Sal L. Tripodi. All citations that refer to C.F.R
Sections may be found in the Code of Federal Regulation, which can also be
found in the same sources as noted above.
The law and regulations pertaining to ERISA are also available online. For
example, log onto the U.S. Department of Labor’s website at
http://www.dol.gov/compliance/laws/comp-erisa.htm and scroll down to
the heading “Applicable Laws and Regulations” for links to the law and
regulations.
You can use the Bibliography at the end of this presentation for additional
information on ERISA.
Federal and State Laws Governing Employee Benefits
§ ERISA
IRC
FASB
ADEA
ADA
FMLA
Civil Rights Act of
1964
§ Privacy
§ Labor:
Collective
Bargaining
Employment
Agreements
§ UETA
§
§
§
§
§
§
Federal
§ Policy Form
§ Policy Content
§ Unfair Trade
Practices Act
§ Insurer
Characteristics
§ Rate Filing
§ Marketing
§ Advertising
§ Privacy
§ Little UETAs
§ Eligible Group
§ Attorney Client/Work
Product Privileges
State
§ Policy Language
§ Administrative Letter
§ Side Agreement with
policyholder, TPA,
etc.
§ Funding Agreement
§ Request for Proposal
§ Employer-Prepared
Summary Plan
Description
§ Underwriting/Field
Files
§ Bill/Invoice
§ Letter/E-mail
§ Note
§ Verbal Discussion
Contractual
Every Law is Unique
u  Every
law has its own unique history or story, i.e., the reason it was
enacted.
u  Therefore,
every law specifies unique requirements regulating a
certain specific activity.
u  ERISA
is no different.
What’s the origin of ERISA?
Location:
Studebaker Corporation in South Bend, Indiana.
Date:
December 23, 1963
Event:
The company has announced the plant is closing….
Source:
DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 454 (3d Cir., 2003)
What’s the origin of ERISA?
… what happened next wasn’t so pretty
•  5,000 workers dismissed
•  Pension plan terminated that covered 11,000 members of United Automobile
Workers
•  Underfunded plan: not enough funds to cover vested benefits
•  Of the 11,000 workers:
Ø  3,600 reaching age 60 received a full pension
Ø  4,000 (59.5 years old, 43 years of service) received 15%
Ø  2,900 received nothing at all
Ø  Some with 40+ years of service missed full pension (age 60) by a few
months
And, just days before December holidays, 3,000 laid off with no pension
Source:
"The Most Glorious Story of Failure in the Business: The StudebakerPackard Corporation and the Origins of ERISA" by James A. Wooten,
Buffalo Law Review, Vol. 49, P. 693, 2001,
http://papers.ssrn.com/paper.taf?abstract id=290812
Why Do We Need ERISA?
To protect working men and women from abuses in the
administration and investment of private retirement plans
and employee welfare benefit plans.
What is ERISA?
u  ERISA
is a federal law
u  ERISA
comprehensively regulates welfare and pension
benefits
•  provided by employers or employee organizations
•  to employees
•  pursuant to employee benefit plans
For our discussion today, we’ll be focusing on
welfare benefits
(not pension benefits).
Source:
ERISA Sections 2, 3(1) and 3(2)
ERISA benefits
“Welfare benefits” include:
• Medical, surgical, hospital care or benefits
• Disability
• Long Term Care
• Life & AD&D
• Dental
• Vision
“Welfare benefits” do not include:
• Adoption assistance
• Transportation benefits
• Vacation benefits paid from employer general assets
• Holiday gifts
• Strike funds
• Routine payroll practices
• Incentives to complete training
• Leave/vacation sharing programs
• Mortgage programs
• On premises facilities (gym, dining hall, clinic)
• Professional development training
• Uniforms
• Warehouse shopping clubs
What are the elements of an ERISA plan?
Five elements of a “plan:”
•  plan/fund or program
•  established or maintained
•  by an employer or employee organization or both
•  for the purpose of providing welfare or retirement
benefits
•  to participants and beneficiaries
Source:
ERISA Section 3(1).
See also 29 C.F.R. Sections 2510.3-1, 2510.3-1(a)(2))
Plan, fund or program
u 
Key is an ongoing administrative scheme from which a participant can tell
who gets what benefits and how s/he (or the designated beneficiary) can get
those benefits.
u 
The fact that an employer purchases an insurance policy and pays all or a
part of the premium will typically create an ERISA plan--unless other facts
and circumstances indicate otherwise.
u 
Need not be complicated. No need to use special technical words.
u 
Specifically look to see whether a reasonable person could figure out:
•  What benefits are intended
•  Who the beneficiaries are
•  How its paid for
•  How to get the benefits.
Established or maintained
u  What
exactly does this mean?
u  Has
the employer “established or maintained” an ERISA plan if they
merely serve as the group policyholder and deduct and remit
employee premium at its employee’s direction?
u  Will
discuss in more detail in a few minutes
A Responsible Employer or Employee Organization
u  Employer
can include corporations, limited liability companies,
partnerships, sole practitioners, sole proprietorships, and most taxexempt organizations.
u  Employee
organizations include unions, employee associations and
benevolent associations.
u  Trust
Plans
u  Professional
Employer Organizations
●
Sources:
● ERISA Section 3(5)
29 C.F.R. Section 2510.3-1
Participants and Beneficiaries
u 
If the “benefit” isn’t provided to “participants” or their “beneficiaries,” then
its not an ERISA plan.
u 
Participants includes:
•  employees and former employees
•  members and former members of an employee organization
u 
Participants do not usually include:
•  Owners of a business
•  Partners in a partnership
•  Independent contractors
•  Employees that are not in an eligible class
u 
Beneficiaries are designated by participants or by the plan as entitled to a
benefit.
•  Life insurance beneficiary
•  COBRA spouse or dependent child under a group health plan
Sources:
● ERISA Section 3(7), 3(8)
● 29 C.F.R. Section 2510.3-1
Even if you have a “plan”, it may be exempt…
ERISA specifically carves out the following plans:
u  Governmental
u  Church
entity plans
or church organization plans
u  Plans
set up only to comply with state workers compensation,
unemployment compensation or disability insurance laws
u  Plans
offered only to non-U.S. citizens by a non-U.S. plan
Note: Individual disability plans are not automatically exempted.
Source:
● ERISA Section 4(b)(1) – (b)(4), 3(33)
“Simple” General Rules: When Does ERISA Apply?
Non ERISA Plans
u  Group
or group-type employee-pay-all insured plans with no
employer establishment or sponsorship
u  Employer-paid
pay as you go payroll practices (uninsured -
usually STD)
IDI and Voluntary plans:
Where do they fall?
• 
• 
ERISA Plans
Group or group-type employee-pay-all
insured plan established by the employer
Employer-paid insured group plans
Sources:
ERISA Sections 3(1), 4(a))
29 C.F.R. Sections 2510.3-1(j), 2510.3-1(b))
One more exemption: Voluntary Insurance
(1) the employer makes no contributions,
(2) participation is completely voluntary,
(3) the sole function of the employer is, without endorsing the
plan, permitting the insurer to publicize the program and
collecting premiums through payroll deductions, and
(4) the employer receives no commissions other than reasonable
compensation for administrative services.
Most voluntary programs can easily satisfy requirements
# 1, 2, and 4. It is less clear what employer activities under #3 will
cause a plan to fall outside the safe harbor and, thus, be subject to
ERISA.
Source:
● 29 C.F.R. Section 2510.3-1(j)
Factors that impact the likelihood that an employer is
endorsing an ERISA plan
q  Pays premiums or reimburses employees for paid premium; or
q  Offers a benefits program under a flexible benefit or cafeteria plan.
likely
q  Chooses insurers;
q  Endorses the plan and permits the employer’s logo to be used by the insurer;
q  Suggests or negotiates policy design, terms and rates; or
q  Runs enrollment meetings.
q  Reviews and approves literature distributed to its employees;
q  Limits the number of insurers for administrative purposes;
q  Prepares claim forms for employees;
q  Allows its name to be used on insurer’s marketing materials;
q  Answers employee questions about policy;
q  Permits enrollment meetings during business hours; or
q  Distributes certificates, enrollment forms and waiver cards.
q Permits employees to receive a group discount on individual policies;
q Permits employees to receive group rates on group policies;
q Serves as policyholder;
q Permits the insurer to advertise its policy and distribute information about
the policy to employees; or
q Deducts and remits employee premiums at its employees’ direction.
NOTE: Factors in various combinations can affect the likelihood that it is an ERISA Plan.
unlikely
Time for Additional Questions….
Bibliography
u 
Bitzer, Frank and Nicholas W. Ferrigno, Jr. 2007 ERISA Facts. Cincinnati: The National Underwriter Company, 2007.
u 
CCH Editorial Staff Publication. Pension and Employee Benefits: Code, ERISA, Regulations as of January 1, 2007, Volume 2. © CCH
Incorporated.
u 
DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 454 (3d Cir., 2003)
u 
Tripodi, Sal. The ERISA Outline Book: A Study Guide and Reference Manual in Five Volumes: 2007 Edition. TRI Pension Services
Publication of the American Society of Pension Actuaries (ASPA), 2007.
u 
Employee Benefits Institute of America publications including its ERISA Manual and its free e-newsletter EBIA Weekly. Sign up at
http://www.ebia.com/Weekly/Subscribe
u 
U.S. Department of Labor’s ERISA Website http://www.dol.gov/compliance/laws/comp-erisa.htm
u 
Wooten, James. "The Most Glorious Story of Failure in the Business: The Studebaker-Packard Corporation and the Origins of ERISA."
Buffalo Law Review, Vol. 49, P. 683, 2001 http://ssrn.com/abstract=290812
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