ERISA Documentation
Creation and Distribution

However, certain self-insured or uninsured plans, such as sick pay, short term disability, paid time off, overtime, jury duty, and vacation pay, may be exempt if benefits are paid:

• as a “normal payroll practice,”
• to currently employed individuals (i.e., not retirees, COBRA participants, or dependents),
• without prefunding or using insurance,
• entirely from the employer’s general assets, AND
• without employee contributions.

*Voluntary individual or group insurance plans, in which the employees pay all of the cost, and the employer’s role is limited to withholding premiums through payroll deduction and remitting them to an insurer, may be exempt from ERISA—depending on the extent of employer involvement. However, even minimal “sponsorship or endorsement” (e.g., a company’s name on the brochures) by the employer may destroy this exemption. A voluntary individual or group insurance plan qualifies under the Voluntary Plan Safe Harbor if:

• it is funded by group or group-type insurance,
• it is completely voluntary,
• there are no employer contributions, AND
• the employer does not endorse the plan.

ERISA generally does not apply to:

• Cafeteria plans, §125 Plans, POPs (Premium Only Plans), Premium Conversion Plans, Pre-tax Premium Plans (However, the benefits funded by them are often subject to ERISA. NOTE: These plans must be referenced in the plan document and SPD if they are funding an ERISA Plan)
• Dependent Care Assistance Plans (DCAPs, or Dependent Care FSAs)
• Health Savings Accounts (HSAs) (if employer involvement is limited. DOL FAB 2004-01, 2006-02)
• Paid Time Off Plans (PTO)
• Adoption Assistance Plans
• State mandated benefits, e.g., STD (if not enhanced beyond mandated benefits)
• Educational Assistance or Tuition Reimbursement Plans
• On-site Medical Clinics (if providing First Aid only—not treatment, e.g., flu shots)

First of all, compliance is not optional; it’s the law! Second, employers who comply can avoid costly DOL penalties. Third, many states allow participants and beneficiaries to bring “bad faith” claims against insurers and administrators who deny benefits. In a state court, plaintiffs can collect the benefits that were denied plus compensatory damages, such as punitive or treble (triple) damages. Trials in state courts are decided by juries, which often favor the individual participant over a corporation or insurance company.

However, ERISA is a federal law which preempts state law. ERISA limits damages to the unpaid benefits and does not provide for jury trials. Having a plan that is in compliance with ERISA will help an employer avoid a lawsuit in a state court, and perhaps several different state courts. Being out of compliance creates exposure in either state or federal court.

In state court, every aspect of a case is subject to a “de novo” review, which disregards any previous decisions made in the matter, including issues that were not even in dispute. However, ERISA has a higher standard of review for overturning decisions of a plan administrator. In federal court, an administrator’s decision to deny a claim must be “arbitrary and capricious” before it can be overturned.

Many employers think “It’s not going to happen to me.” However, it happens all the time. Here is a brief list of court cases, awards, and DOL fines related to employers not being in compliance with ERISA laws pertaining to welfare benefit plans: