Disability Insurance "Endorsed" by Employer is Subject to ERISA
April 4, 2008
Many employers make voluntary group insurance programs available to employees, such as life, disability and supplemental health insurance. If such a program falls within the ERISA definition of an “employee welfare benefit plan,” an employer generally would be subject to various ERISA requirements, such as providing a summary plan description (SPD) and providing an ERISA-compliant claims procedure, and perhaps filing Form 5500. Employers can seek to avoid these and other consequences of ERISA status under a regulation that excludes the programs from ERISA where the employer does not “endorse” the program and limits its involvement; for example, to withholding premiums from pay and forwarding them to the insurer. Numerous DOL Advisory Opinions and dozens of court cases have focused on the “endorsement” issue, and a recent court case from a U.S. District Court in New York serves as a friendly reminder to employers to put some thought into how they choose to treat employee-paid, voluntary programs.
In this case, an employee purchased long-term disability insurance and started receiving a benefit, which was later terminated. The employee sued the insurance company in state court claiming breach of contract and consumer fraud. The insurer claimed that the program was subject to ERISA such that the case was properly removed to federal court, and that the complaint should be dismissed for failing to allege any ERISA claims, since the state law claims did not fall under ERISA. Like a majority of other courts that have ruled on the issue, the court agreed that the program was subject to ERISA due to the employer’s endorsement. In this case, the employer’s name appeared on the plan document, and the employer was listed as “Contract Holder,” “Plan Sponsor,” “Plan Administrator,” and “Agent of Service for Legal Process.”
Employers allowing employee-pay-all insurance programs are advised to review the programs, commit to either ERISA or non-ERISA status, and make adjustments as necessary. ERISA status may be preferable because it can provide certain advantages to an employer, and because courts tend to find that such programs are subject to ERISA regardless. In most cases, the programs can be included with another plan for purposes of SPD disclosure and Form 5500 filing (though employers should make sure to ask for Schedule A information from the program’s insurer).