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Are your plans subject to ERISA?

Nine simple rules (making plans subject to ERISA)

The Employee Benefits Institute of America lists nine factors that may help to determine whether an employer (legally) endorses a plan, thus making the plan(s) subject to ERISA:

1.      Selection of insurers

2.      Negotiation of terms with the insurer

3.      Linking to employee status

4.      Using the employer's name on promotional materials

5.      Recommending the plan to employees

6.      Saying that ERISA applies

7.      Whether more than payroll deduction is used to pay for the benefit

8.      Use of a cafeteria plan to administer the benefit

9.   Assisting employees in paying for it


Disability plan originally maintained by employer remains subject to ERISA even after it becomes employee-pay-all arrangement in Stern v. Provident Life & Accident Ins. Co., 2003 U.S. Dist. LEXIS 23183 (M.D. Fla. 2003)

Note to employers wishing to insulate a voluntary insurance arrangement from ERISA: The employer in this case provided long-term disability coverage to certain employees under individual insurance policies. For the first six years of the arrangement, the employer paid the insurance premiums on behalf of the covered employees. After that, the employer’s board took formal action to convert the arrangement to a plan under which the employees paid the full premiums with after-tax dollars. Under the new arrangement, the employer acted merely as an administrative conduit between the employees and the insurance company, forwarding the necessary premiums to the insurer after deducting the premium amounts from the employees’ pay. In due time, however, a dispute developed, and one of the employees sued the insurer for non-payment of disability benefits. The suit was filed in state court, but the insurer removed it to federal court on the grounds that the arrangement was subject to ERISA. The federal trial court concluded that the arrangement was subject to ERISA because, by originally paying the premiums, the employer had “established or maintained” the arrangement within ERISA’s definition of employee welfare benefit plan. Even though the current arrangement appeared to satisfy the DOL’s safe harbor exemption from ERISA for voluntary plans, the court relied on cases holding that ERISA continues to apply whenever a plan is originally established by the employer. In other words, because the arrangement had been subject to ERISA (due to the employer’s payment of premiums), it remained subject to ERISA even though it did not continue to be maintained by the employer after the conversion to employee-pay-all status. As the court put it, “once ERISA, always ERISA.” Therefore, the federal court retained jurisdiction, and the case was not sent back to state court. It is safer to terminate any existing employer-provided plan before allowing a new voluntary arrangement to take effect. If the employer strictly complies with the requirements of the DOL safe harbor, such a voluntary arrangement may be exempt from ERISA.

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