THE LAW

        Employee benefit plans are governed by a law known as ERISA or the Employee Retirement Income Security Act of 1974.  There are two types of  employee benefit plans.  One is an “employee welfare plan,” and the other is “an employee pension benefit plan.”  ERISA Section 3(3), 29 U.S.C. 1002(3).  An “employee welfare benefit plan” is any “plan, fund, or program” which is “established or maintained by an ‘employer’” or an “employee organization” (union etc.) or both for the purpose of providing benefits to employees such as medical, dental, disability, vacation, etc.  ERISA Section 3(1), 29 U.S.C. 1002(1).   Long term disability (“LTD”) plans provided by the employer or employee organization or union are employee welfare benefit plans and are covered by ERISA.

1. What Are the Exemptions from ERISA?

The following are exempt from ERISA regulations:

1. plans provided through a governmental entity such as a city, state, or county government or through a “public” district such as a school district, hospital district, water district, etc. in which the public elects the governing board. 29 U.S.C. 1003(b)(1) and 29 U.S.C. 1003(b)(2). However, if employees of a governmental entity receive their long term disability benefits through their union, the plan is ERISA regulated;

2. plans maintained for purposes of compliance with workers compensation or unemployment compensation; 29 U.S.C. 1003(3);
3. plans of religious organization in which the plan is properly registered with the Internal Revenue Service; 29 U.S.C. 1003(2);
4. plans with no participants other than the owner of a business or the partners in partnership and their wives or husbands.  29 C.F.R. 2510.3-3(b), 2510.3-3©)(1)(2).  However, coverage of even one non-owner employee may be sufficient to bring a policy within ERISA scope.

2. What Types of Long Term Disability Plans Are There?

             Long term disability plans may be either self-funded or insured.  A self-funded plan is funded directly by the employer.  The plan must name a plan administrator, must have a written document that complies with the regulations of ERISA as set forth in the Code of Federal Regulations, and must be registered with the United States Department of Labor.  In Northern California, such plans include those such as the Hewlett Packard Company Income Protection Plan, the Sun Microsystems Long Term Disability Plan, and the Advanced Micro Devices Long Term Disability Plan.  The plan documents establishing these plans are drawn up by attorneys who specialize in ERISA and employee benefit plans and are generally very inclusive and detailed when compared to plans provided through insurance companies.  The self-insured plans generally provide the employer with discretion to interpret the terms of the plan and make benefit determinations.  These self-insured plans usually use an outside company to administer the plan such as Voluntary Plan Administrators (“VPA”) and Matrix.  Some self-funded plans offer both long term and short term disability benefits.  Short term disability benefits supplement state mandated minimum State Disability Insurance benefits if the injury is not work related.
            The other type of plan is one in which the employer purchases a long term disability plan from an insurance company.  In this type of plan, the employer need not fund the plan or appoint a plan administrator although many of these plans list the employer as the “plan administrator.”  The employer simply pays the insurance premium.   In fact, with few exceptions, it is the insurance company that acts as both the insurer and the “plan administrator.”  Courts have recognized that there may be a conflict of interest where the insurance company serves as both the insurer and plan administrator (both pays benefits and makes determinations whether employees are entitled to benefits) and, it is sometimes possible to get a heightened standard of review by the court (which is a better standard of review for the employee) in cases where there is some evidence of the conflict of interest.
             In an ERISA long term disability case, the proper defendant is the plan itself and the insurer.  In the case of either a self-insured plan or insured plan, it is improper to sue the employer in its role as an employer.