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Friday, July 17, 2015

What Is ERISA? Welfare Benefits: Disability Benefits; Health Insurance; Severance Claims

As discussed in the prior post, ERISA governs almost all employee benefits, including non-pension benefits like LTD benefits, severance, and medical insurance.   These non-pension benefits were included in ERISA as an afterthought, and not many provisions of the law itself addresses them.  Over the forty years ERISA has been in effect, however, the courts have developed a complicated structure to apply ERISA to non-retirement benefits, a structure which the courts regularly change.  This is another one of the areas that makes ERISA complex.

With a Connecticut LTD denial, an attorney has many options in suing in court or pursuing a remedy with the Connecticut Department of Insurance.  With an ERISA LTD case, or other ERISA benefit claim, there are a different set of rules.  

  • ERISA does not require that a company offer any particular benefits, or require that any particular class of employees be covered.  So, a company doesn’t have to offer severance benefits, and can decide that some employees (for instance, part-time employees) are not entitled to benefits.  As with everything with ERISA, there are exceptions to this, particularly regarding health insurance after Obamacare, and limitations on favoring highly compensated employees.  But generally, employers get to offer what they want to, and they don’t have to fair about it.
  • Welfare benefits, as opposed to pension benefits, don’t vest.  That means until an employee earns the right to get a particular benefit, the employer can change or eliminate the benefit.  Pension benefits, on the other hand, cannot be changed once the benefits vest, even if the employee is not yet receiving pension payments.  So, the day before you are laid off, the employer can eliminate a severance plan, and there is nothing you can do about it.  As with everything with ERISA, there are exceptions: once you have started to receive benefits, the employer can’t take them away.
  • Prior to going to court to get benefits, you must exhaust any appeal rights that exist with the plan.  Nothing in ERISA requires this appeal, but the courts require it in almost every case.  So, after the plan denies your severance claim, health insurance claim, LTD claim or other welfare benefit, you must write the employer and ask them to change its mind.  Once the courts imposed the requirement, the Department of Labor issued regulations requiring plans to provide a fair and unbiased review of the denial.  Anyone who has been following this blog knows how important the administrative appeal is.  Even though it is not required by ERISA itself, it is one of the most important things in getting benefits that have been denied.  It is an example of the dangers ERISA presents to inexperienced lawyers.

Regarding health insurance, the Affordable Care Act, or Obamacare, has changed the landscape for denied medical benefit claims in many cases.  See my post on this here, and my post on the Supreme Court’s decision in King v. Burwell upholding key provisions of the act here.

Despite the changes made by Obamacare, plan participants in Connecticut and elsewhere with medical benefit claims, long and short disability benefit claims and severance claims, will have to go through the ERISA maze to vindicate their rights to benefits.  Make sure you have a guide in the maze who has been there before.

Monday, July 13, 2015

What is ERISA? What Difference Does it Make?

Even if you are new to the world of employee benefits, you have probably regularly seen references to ERISA, but you may not have run across an explanation of what it is.  In this post, I’ll discuss what ERISA is, and what tyipically are the most important consequences of a benefit issues being an ERISA case as opposed to a non-ERISA case.  

ERISA is the acronym for the Employee Retirement and Income Security Act, which is a federal law enacted in 1974.  The law was mainly intended to protect employee pensions.  Companies were going bankrupt without fully funded plans.  For instance, when Studebaker closed in 1963, its workers received 15% of the pension they had been promised.  Also, employees had to work a long time to vest in a pension, even as much as ten years, and the employee would get nothing if he missed the vesting date by a day.  Employers therefore had a strong incentive to fire employees shortly before their pensions vested.  ERISA addressed these issues by requiring full funding of retirement plans and less onerous vesting schedules, and by protecting employees from being fired because the employee was about to earn a pension.  ERISA imposes fiduciary duties on those who administer the plan and invest plan assets to act in the interests of the beneficiaries rather than the employer.  

In addition to pensions, ERISA covers non-pension employee benefits, called “welfare benefits” in the Act.  In future posts, I’ll discuss the effect of ERISA on pension claims, and on welfare benefits claims.  In the remainder of this post, I’ll talk about some of the principles of ERISA that apply to both types of claims.

Only plans established by private employers are subject to ERISA.  Plans for federal, state or local government employees and plans established by churches and other religious institutions are not subject to ERISA.  Also, benefits that you buy yourself, like a private disability policy, are not governed by ERISA.  

What’s Special About ERISA?

The ERISA laws passed by Congress establish a relatively simple legal foundation, though with technical requirements that can cause problems for an inexperienced lawyer.  In addition to the law Congress passed, the courts have developed an elaborate structure on the statutory foundation that is arcane and technical, and changes every few years.  I’ll state the general principles, but there are technical exceptions to almost everything I will say here, so don’t think these principles apply in all cases.

  • Federal law governs any matter covered by ERISA.   ERISA preempts all state laws.  “Preemption” means that federal law displaces all state laws that deal with the subjects ERISA addresses.  For instance, in a Connecticut denial of LTD benefits not subject to ERISA, I might be able to recover for an unfair insurance practices claim, and get punitive damages and emotional distress damages, and a jury would hear the claims.  If the plan is governed by ERISA, then I won’t be able to bring any of these causes of action, I will be in federal court, not state court, and I won’t get a jury. 

  • Because no state laws apply to claims, limited damages can be recovered.  Basically, if you win under ERISA, all you are going to get is the benefits the company should have paid you in the first place.  You won’t get compensation for the sleepless nights you had wondering how you would pay the mortgage, or whether you would have to ask your daughter to leave college.  Maybe, if you win in court, your attorney will get some fees, but that is it.  Individual ERISA cases are therefore much less lucrative for attorneys, which means it is much harder to find an attorney to represent you in an ERISA benefit denial.
  • In ERISA, the official plan documents are all that matter.  The official plan documents consist of the plan document itself (frequently the insurance policy in an LTD claim), and the Summary Plan Description, which is a plain language explanation of benefits that is given to the plan participants.   Even if the president of the company sends you a letter, countersigned by the chairman of the board of directors, that you will get a certain benefit, if the benefit is not in the plan documents, you probably won’t be able to enforce the promise.  Employee benefits departments frequently give out wrong information, but rarely can the employees do anything about it, even if the employee has suffered real damage from depending on the wrong information.  That the plan documents control can also be a good thing.  If the plan provides that you are entitled to benefits, you must be paid them, even if the employer thinks they are too expensive or that you don’t deserve them.  But in general, limiting benefits to what is provided in the plan documents makes ERISA cases more difficult than other cases.

While the statutes and the cases interpreting them are complex, many of the legal principles are the same as lawyers always deal with: benefits claims are basically breach of contract claims; and breach of fiduciary claims are based on trust law principles that are hundreds of years old.  Navigating the complicated course of regular law and ERISA’s special rules is complex, but finding a lawyer experienced in the area can help you get the benefits you have earned, and vindicate the few rights that ERISA gives you, whether you are seeking ERISA pension benefits, severance pay, medical benefit claims, or long term disability.