The Employee Retirement Income Security Act of 1974, or ERISA, is a complex federal statute that applies to nearly all employee benefit plans, subject to a few narrow exceptions. Combining aspects of contract law, trust law, administrative law, and common law, ERISA is famously complex, earning it the moniker: “Everything Ridiculous Imagined Since Adam.” Florence Nightingale Nursing Service Inc. v. Blue Cross and Blue Shield, 832 F. Supp. 1456, 1457 (N.D. Al. 1993), aff’d, 41 F.3d 1476 (11th Cir. 1995).
ERISA can be intimidating, even for lawyers. This article will endeavor to provide a practical overview of ERISA, followed by some pointers for how to spot and address ERISA problems that commonly arise in the employment law context.
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ERISA: A Brief Overview
ERISA was originally enacted in 1974 to protect pension plan participants and beneficiaries following the catastrophic collapse of the Studebaker pension plan in 1963. The statute requires employers to hold pension benefits in trust and imposes upon them fiduciary duties to invest prudently and to administer plans solely in the interest of plan participants and beneficiaries.
During the drafting process, Congress expanded ERISA to apply not only to pension benefits but also to welfare benefits, even though the latter need not be held in trust and are exempt from the statute’s vesting provisions.
ERISA applies to all employer-sponsored benefit plans except government and church plans, although church plans can opt into ERISA’s protections. Short term disability plans, if they are administered through payroll (known as a “payroll practice”) are also exempt from ERISA. Stock option plans and employee incentive programs are exempt from ERISA, though most other deferred compensation arrangements (including top hat plans) fall under ERISA’s purview.
ERISA preempts all state laws that “relate to any employee benefit plan,” except for criminal laws and laws which regulate insurance, banking, and securities. 29 U.S.C. §1144. Employers can avoid being subject to state insurance law by “self-funding” their plans through a trust or through their general assets.
ERISA’s Requirement of a “Full and Fair Review”
The ERISA statute provides, at 29 U.S.C. §1133, that claimants are entitled to written notice that a claim for benefits has been denied and an opportunity for a “full and fair review” by the fiduciary denying the claim. Courts have interpreted that provision to give rise to a “duty to exhaust administrative remedies” prior to filing suit, even though nowhere in the text of the ERISA statute does it say appeals are mandatory.
The U.S. Department of Labor has promulgated regulations interpreting what constitutes a “full and fair review.” 29 C.F.R. §2560.503-1. Among other things, claimants have the right to request, free of charge, reasonable access to copies of all documents, records, and other information “relevant” to their claim for benefits. The ERISA statute also requires plan administrators to comply with a request for plan documents within 30 days or face a statutory penalty of up to $110 per day for noncompliance. 29 U.S.C. §§1024(b), 1132(c).
Plan administrators must provide claimants with “at least” 180 days to submit an appeal. 29 C.F.R. §2560.503-1(h)(3). Claimants who submit a late appeal run the risk of having their appeal denied and having their lawsuit dismissed for failure to exhaust, although plan administrators may, in their discretion, accept a late appeal if the claimant provides an explanation. Upon receipt of an appeal, the plan administrator must issue a decision within 45 days, but it can request a one-time extension of up to 45 days, for a total of 90 days. A plan administrator’s failure to comply with these timelines generally enables a claimant to proceed directly to court.
Common ERISA Mistakes Employment Lawyers Make
A common mistake employment lawyers make in the ERISA context is failing to include a carveout for disability and other employee benefits in a severance agreement, settlement agreement, or other release. Such releases typically include a laundry list of employment statutes and claims to which the employee must release his or her rights in exchange for a payout. Such agreements also often release not only the employer but also the employer’s benefit plans, fiduciaries, insurers, and agents.
Releasing one’s right to bring a lawsuit under the Title VII of the Civil Rights Act of 1964, Family Medical Leave Act, or other employment law statute generally does not pose a problem if the employment relationship has ended or is ending. However, ERISA is unique in that ERISA claims may arise long after the employment relationship is over. For instance, a terminated employee who is receiving health insurance pursuant to COBRA may have an ERISA claim against his or her health insurance company over a denied medical service. Similarly, a lawsuit by a participant in an employer-sponsored disability plan would arise under ERISA, even if the participant is no longer an employee.
For this reason, the prudent course is to strike ERISA from the list of released statutes, particularly if the case is not one that involves a dispute over employee benefits. If that is not an option, the next best course is strike the words “General Release” from the agreement and clarify that the release does not apply to prospective claims (i.e., claims which arise after the date of the agreement).
Additionally, where the client is receiving or anticipates applying for employer-sponsored disability benefits, it is advisable to include express carveout language to the following effect: “Nothing in this agreement shall be construed as a release of the undersigned’s right to bring a civil action under ERISA, 29 U.S.C. § 1001 et seq., to enforce the undersigned’s right to disability benefits.” The forgoing language may be further modified to apply only to suits against the employee benefit plan and/or disability insurer, or only to claims for denied benefits arising under 29 U.S.C. §1132(a)(1)(B). Failure to include such language in the release could result in dismissal of a subsequent lawsuit over those benefits. See, e.g., Keister v. AARP Benefits Committee, 410 F.Supp.3d 244 (2019) (dismissing ERISA lawsuit where claimant signed a severance payment); Unum Life Ins. Co. of America v. Cappello, 278 F.Supp.2d 228 (2003) (same).
Yet another consideration is that many disability plans consider severance payments and employment law settlements to be “other income” subject to deduction. For this reason, if you are representing a claimant who is also seeking employer-sponsored disability benefits, it is imperative that you first obtain copies of the short-term and long-term disability plans to ensure that the payment in question will not reduce your client’s disability benefits. Otherwise, the settlement payment will be cancelled out by the consequent loss of disability income, resulting in a very unhappy client.
This article only scratches the surface of all the myriad ways in which ERISA can complicate employment law claims. If you are representing a client in a matter that presents ERISA questions, do not hesitate to contact DeBofsky Law for a consultation. Our firm regularly counsels employment and other lawyers on ERISA matters. We would be happy to look at your unique situation and offer guidance, where appropriate.