The Employee Retirement Income Security Act (ERISA) affects millions of Americans with employer-sponsored benefits, but most don’t know until a claim is denied. Congress passed the Employee Retirement Income Security Act (ERISA) in 1974. The primary intent behind ERISA was to protect employees’ retirement benefits. However, immediately prior to ERISA’s enactment, Congress significantly broadened the law by incorporating “welfare” benefits within its scope. The use of the term “welfare” benefits does not apply to public assistance, though. It is meant to encompass benefits intended for the welfare of employees such as health, disability, and life benefits. However, ERISA does not apply to every employee benefit offered by every employer as will be discussed below.
Table of Contents
- What Plans Does ERISA Cover (and Exclude)?
- Key Legal Differences in ERISA vs. Non-ERISA Plans
- Special Considerations Applied to Different Types of Benefits (Health, Disability, and Retirement)
- Determining ERISA Plan Status: How to Know if ERISA Applies
- Recent Legal Developments and Impact
- When to Seek Legal Guidance for an ERISA or Non-ERISA Claims
What Plans Does ERISA Cover (and Exclude)?
ERISA encompasses most types of employee benefits offered by private sector employers. Exempted, however, are “payroll practices” such as paid time off (i.e., sickness and vacation benefits). Short-term disability (STD) benefits can sometimes fall in a gray area. They are in some instances viewed as payroll practices and in others as a welfare benefit. When an employer pays these benefits directly from its general assets without using insurance, the plan typically functions as a payroll practice, and ERISA does not cover it.. In contrast, when the benefit is insured or funded through a separate trust, it is usually governed by ERISA as a welfare benefit. However, simply having an insurance company administer the benefit does not automatically make the plan ERISA-covered.
Two other major exemptions are governmental plans and church plans. ERISA does not apply to benefits for federal, state, municipal, or public-school employees. The exception occurs only when a union provides these benefits. Likewise, benefits for employees of strictly religion-based institutions or in some instances, religiously affiliated healthcare systems, are not governed by ERISA. Benefits for employees of American businesses who may be working outside the United States are also not subject to ERISA unless the same plan covers U.S. employees.
Key Legal Differences in ERISA vs. Non-ERISA Plans
When ERISA applies, it may dramatically alter the rights and protections afforded to participants (employees) and their dependents. Jury trials are disallowed in ERISA casesERISA prohibits jury trials in these cases, and ERISA claims may differ in other respects from other insurance claims such as auto or homeowner’s insurance. Ironically, ERISA was intended to afford greater protection to employees and their beneficiaries, but in some instances, those protections may be weaker than employees would have under state law.
Administrative and Appeals Processes
ERISA claims are typically more complex than non-ERISA claims involving the same type of benefits. For example, in most instances, claimants must submit, and exhaust claim appeals specified in the benefit plan before being allowed to bring a lawsuit. In the non-ERISA context, a benefit denial may trigger the right to immediately go to court to sue to recover benefits.
ERISA claim appeals are governed by a detailed set of regulations issued by the U.S. Department of Labor which are intended to make sure the benefit claim appeal is both full and fair. The regulations provide that claimants are entitled to obtain a copy of the benefit claim file free of charge. The regulations also provide that no one who has participated in the initial claim decision is allowed to take part in the claim appeal. Further, in claims involving medical judgments, appropriate specialists in the field of medicine at issue must be utilized to provide medical opinions. Thus, a gynecologist is not permitted to offer opinions on a case involving cardiovascular impairment in a disability claim or a determination of medical necessity in a health benefit claim.
Courts may bar claimants who fail to complete the required appeal process before filing suit from pursuing their claims, regardless of the merits.
Litigation and Remedies
In addition to the absence of jury trials, ERISA claims are subject to other procedural differences. One example has to do with the deadlines to bring a lawsuit that may be significantly shorter than state statutes of limitations for similar claims. ERISA plans may also contain choice of venue provisions that require lawsuits to be brought in a specific jurisdiction, which may not be convenient for the claimant.
The most significant difference between ERISA and non-ERISA procedures, though, is that ERISA plans may contain generous provisions that insulate the plan and claim administrators from meaningful reviewThe most significant difference is that ERISA plans may contain generous provisions that protect plan and claim administrators from meaningful review.. Unless the claimant can show the decision was arbitrary and capricious, meaning not just incorrect but completely unreasonable or unsupported by the evidence, the court will uphold the denial.
In addition, damages are limited with respect to ERISA-governed claims. Claimants are not permitted to a monetary recovery for emotional distress experienced as the result of an unjust denial. Nor are penalties or punitive damages recoverable. Remedies are limited to the benefit at issue and, in the discretion of the court, attorney’s fees and prejudgment interest if money is owed.
Fiduciary Obligations
Another difference between plans governed under ERISA and those that are not is that the parties who administer the plans owe a fiduciary duty to plan participants and their beneficiaries. The Supreme Court has explained that ERISA’s fiduciary duty requires benefit plans to apply “higher-than-marketplace quality standards” in administering benefits. ERISA’s fiduciary duties don’t require payment of every claim. However, they do require plan administrators to give claimants the same consideration they give to their own interests. That point is especially relevant with insured plans and means that insurers cannot put profits above thoroughly investigating claims. Plan administrators must seek out available additional information. This duty exists even when the claimant fails to provide this information.
Transparency and Participant Rights
ERISA also places a high burden of disclosure on plan administrators. This means that benefits cannot be adjudicated under rules that have not been disclosed. ERISA also requires that plan participants be provided with a “summary plan description” that sets out the plans terms and conditions that need to be met in order to receive benefits or which may disqualify a claimant from receiving benefits.
The failure to meet ERISA’s disclosure requirements may result in a court overturning a benefit denial. In Cigna Corp. v. Amara, the Supreme Court ruled against Cigna. The company had failed to disclose the consequences of converting a retirement benefit to a cash-balance plan. Similarly, failures to adequately disclose fees charged to participants in employer-sponsored 401(k) benefit plans have led to multimillion dollar settlements.
In the non-ERISA context, there are fewer disclosure requirements or consequences for non-disclosure.
Special Considerations Applied to Different Types of Benefits (Health, Disability, and Retirement)
Most rules applicable to ERISA-governed benefits are uniform for all types of claims. However, the Department of Labor’s claims and appeals regulation includes more stringent rules for health and disability claims. Those rules take into consideration that health benefit eligibility determination may need to be made more expeditiously than other types of benefits. Retirement benefits claims also require plan administrators to take measures to ensure that claim reviews are full and fair.
Non-ERISA claims lack the same degree of uniformity as ERISA claims. There may not be appeal rights, and even when appeals are permitted, claimants may not have the right to receive a copy of the claim documentation which handicaps their ability to present a fulsome argument to rebut the basis of a claim denial. That shortcoming is especially problematic with claimants being able to meaningfully challenge health and disability benefit denials.
Determining ERISA Plan Status: How to Know if ERISA Applies
It is not always easy to know whether a benefit plan is subject to ERISA. Just because a representation of ERISA coverage is made or even if the plan has filed a Form 5500 with the Department of Labor, which is required of ERISA plans, does not make it certain that ERISA applies. If a plan denial is going to be appealed, and especially where litigation is filed, it is critical for claimants to know in advance whether their claim is governed by ERISA. Since most ERISA cases are heard in federal court, knowing in advance that the court has appropriate jurisdiction avoids problems later. Claimants often need expert input from an experienced attorney to determine ERISA’s applicability. If ERISA applies, claimants need to understand what steps to take to overturn an unfavorable benefit determination.
Related Article: How Can I Tell If My Benefit Plan Is Governed by ERISA?Recent Legal Developments and Impact
ERISA law is constantly evolving due to the complexity of the law and the breadth of ERISA’s scope. The Supreme Court usually takes at least one ERISA case every year, and the ensuing decisions from the Court have had wide-ranging consequences. A major topic of litigation both in the Supreme Court and in the lower courts has to do with the choices of investment options for participants in 401(k) plans. Another is whether plan participants are being charged excessive fees by the managers of their retirement assets. That litigation has already enabled participants to recover losses they should not have incurred and have saved participants millions of dollars in fees that have improperly eroded their retirement savings.
When to Seek Legal Guidance for an ERISA or Non-ERISA Claims
Participants and beneficiaries should contact an attorney if they believe their benefit plans are not being managed properly or administered according to the plan’s terms. While legal consultations may involve a fee, early legal advice can prevent costly mistakes, protect appeal rights, and help recover benefits that were wrongfully denied.
If the plan has denied a benefit claim, it is critical to act immediately. Most plans impose short deadlines for appeals, and the process can be both technical and time-sensitive. An attorney who focuses on ERISA and employee benefits law can guide you through every step of your appeal or lawsuit.
The attorneys at DeBofsky Law have decades of experience handling complex benefit disputes. If you need help asserting your rights or challenging a claim denial, contact us to schedule a consultation.
