This is an introduction to the Employee Retirement Income Security Act of 1974 ("ERISA"), the law affecting employee benefits plans. 29 USC CHAPTER 18 (ERISA). Health care professionals and employees should have a basic understanding of ERISA fundamentals to understand and hopefully avoid, claims of negligent or wrongful administration of employee benefits. It will discuss the interrelationship between ERISA and various state laws relating to claims over employee benefits. It will cover the basic claims employees may make under ERISA and defenses to those claims, with an emphasis on claims avoidance and documentation. ERISA is a complex statute and this section is intended to provide a brief overview of the law, rather than a complete reference.
2. DEFINITION OF AN EMPLOYEE BENEFIT PLAN
Under ERISA, employee benefits plans include: 1) employee pension benefits plans, and; 2) employee welfare benefits plans. ERISA covers every employee benefit plan unless there is a specific exemption.
a. Pension Benefit Plans--An employee pension benefit plan includes any plan, fund, or program established by an employer, union, or both that provides, by its express terms or as the result of surrounding circumstances, for a retirement income for employees or deferral of income for use after termination of employment. 29 USC Sec. 1002(2)(a).
b. Welfare Benefit Plans--An employee welfare plan is any plan fund or program established by an employer, union, or both that provides a wide variety of benefits including medical, sickness, accident, unemployment, vacation, disability, day care, scholarships, training programs and prepaid legal services. 29 USC Sec. 1002(1).
c. Plans that Are Excluded from ERISA--Although the definitions of pension and welfare benefit plans are broad and somewhat confusing, the general rule is that any program for the delivery of employee benefits other than wages is presumed to subject to the laws governing ERISA unless a specific exception can be found..
Benefit plans that are specifically excluded by ERISA include government plans, church plans, and plans designed to comply with state laws relating to worker's compensation, unemployment or disability insurance. 29 USC Sec. 1003; 29 USC Sec. 1101(a). In addition, certain unfunded excess benefits plans, benefits for sick leave, and vacation pay practices are excluded from ERISA. 29 USC Sec. 1003(b); 29 USC Sec. 1002(36). In the event that an employee benefit plan is found to be excluded from ERISA, state laws will control disposition of any employee claims.
3. EMPLOYEE CLAIMS UNDER ERISA
Most ERISA litigation involves benefit claims or claims of breach of fiduciary duties, though litigation has arisen challenging voluntary plan terminations of over-funded plans, terminations of under-funded plans, taxing, funding, contribution and withdrawal of plan assets.
Claims relating to employee benefits that are not excluded from ERISA are often improperly brought in state courts and are therefore subject to federal preemption and removal. ERISA grants exclusive jurisdiction over claims to the federal courts, with the exception of actions to enforce the terms of the plan itself, for which state courts have concurrent jurisdiction. 29 USC Sec. 1132(e)(1); 29 USC Sec. 1132(f).
Potential defendants to an ERISA action include employers, fiduciaries, trustees, administrators and the plan itself. A person is a fiduciary if he or she holds discretionary authority over the management or administration of a plan. 29 USC Sec. 1002(21)(A). A liberal approach to finding plan fiduciaries has been taken by the U.S. Supreme Court. In this regard, it is important to recognize that a benefits professional may be considered a fiduciary whether or not the plan is administered by some third party.
a. Statute of Limitations--Because ERISA claims may be brought a substantial number of years after an alleged breach occurs, record keeping relating to plan management, administration and benefit denials is critical. The statute of limitations for breach of fiduciary duty claims is six years from the date of the last action which constituted a breach or six years from the latest date the fiduciary could have cured a breach of omission. If the claimant had actual knowledge of the breach, the statute of limitations runs three years from the date of the claimant had actual knowledge. In the case of fraud or concealment, the statute of limitations runs six years from the date the breach was discovered. For claims other than breach of fiduciary duty, the applicable statute of limitations depends on the most analogous state statute of limitations and, for benefits claims, begins running on the date benefits were denied.
b. Remedies--ERISA provides specific remedies for plan participants and beneficiaries. Actions may be brought by: 1) participants or beneficiaries to recover benefits under the plan; 2) the Secretary of Labor or a plan participant, beneficiary or fiduciary for relief under Sections 409 or 105(C) of ERISA; 3) the Secretary of Labor or a participant, beneficiary or fiduciary to enjoin actions in violation of ERISA or the terms of the plan; or 4) the Secretary of Labor to collect civil penalties under ERISA.
Successful ERISA plaintiffs may be entitled to benefits improperly denied, along with pre-judgment interest and any consequential damages. Punitive damages and damages for mental anguish are not available under ERISA, though substantial statutory attorneys fees and costs are allowed in breach of fiduciary duty actions. As noted above, the Secretary of Labor can collect civil penalties under ERISA. 29 USC Sec. 1132(g)(1).
c. ERISA Preemption--Though perhaps an unintended feature of a law ostensibly designed to protect employee benefits, ERISA preempts any state law that relates to an employee benefit plan. State laws include "all laws, decisions, rules, regulations, or other State action having the effect of law." 29 USC Sec. 1144. ERISA's preemption clause has been broadly construed by the Supreme Court, which has found that a state law is preempted if it has a connection with or reference to an employee benefit plan. In addition to precluding state-mandated pension, health and other benefits, ERISA may even bar state law claims for which the statute itself provides no remedy. Thus state law claims for wrongful discharge, fraud and misrepresentation, breach of contract, promissory estoppel, negligence, conspiracy and certain claims under state insurance laws may be barred if they relate to an employee benefits plan. Were it not for ERISA preemption, many of these state law claims would allow for the potential imposition of punitive damages and recovery of damages for emotional distress.
ERISA preemption applies only to benefits provided through an ERISA-covered employee benefits plan. Because an individual contract of employment may not be covered by ERISA, breach of such a contract may be subject to state law claims.
ERISA is a very complex statutory scheme. Those who wish to learn more about their plans should consult the statute directly and visit with a benefits professional or an attorney.