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Can my disability insurance policy be exempt from ERISA?

One of the first things our disability insurance attorneys will do with every disability claim is to determine whether or not the disability insurance policy is governed by ERISA. Check out our video to learn why ERISA is an unfair law for disability insurance claimants. The analysis to determine if a disability plan is exempt from ERISA is complicated when a disability claimant received their policy through their employer. If you purchased your disability policy from an insurance agent or through an organization that is not your employer, then your disability policy is Exempt. If you are a government or church employee, then your disability plan is exempt from ERISA.

Most disability plans offered through employers are governed by ERISA unless the disability plan meets all four elements of the federal Safe Harbor Regulations. The safe harbor regulation provides that:

The terms ’employee welfare benefit plan’ and ‘welfare plan’ shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which:

  1. No contributions are made by an employer or employee organization;
  2. Participation in the program is completely voluntary for employees or members;
  3. The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
  4. The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.

In most cases the employer will be involved in the design and implementation of the disability insurance plan. The employer’s actions will often cause the plan to fail the 3rd prong of the Safe Harbor regulation, which will then make the disability plan subject to ERISA. The investigation into determining ERISA exemption is very specific and detailed, but in some cases it could turn out that your plan may be exempt from ERISA. Our law firm was successful in taking FEDERAL EXPRESS to court and proving that their short term disability insurance plan was exempt from ERISA.

There are some other factors that may cause a claim to be exempt from ERISA, but this summary should provide a basic understanding of the complicated issues involved in determining ERISA exemption. Contact us for a free consultation if you have specific questions about your disability insurance policy.

There are 2 opinions so far. Add your comment now.

Jazmin:

I was told by the Insurance department (in Colorado) that my short term disability policy is not governed by any state regulatory agency because it is “self-funded”- my employer holds and pays the funds for claims while the third-party administrator, Cigna, merely handles the paperwork and claim decisions. I was told that there is absolutely no oversight or recourse for employees because this type of policy operates outside of insurance regulations, including ERISA, but according to the criteria listed here it seems to be wrong.
The short-term disability (and LTD) plan is provided by my employer with no premiums (no paycheck deductions or enrollment). Also, the ‘policy’ provided to me has extremely simplistic language and states that an employee is considered ‘disabled’ if the person is unable to complete their job duties due to a medical condition. Of particular concern to me is that Cigna stated they need approval of my employer to (1) provide me a copy of the actual policy, and (2) allow me to appeal a decision (regardless of how much time has passed since denial). My employer and Cigna are unable to give me any criteria or basis on which they make these decisions. (This is not the actual claim decision (approval/denial), but the decision whether a claimant can even submit an appeal). My employer says the approval or denial is completely decided by Cigna based on Cigna’s standard criteria for disability; however Cigna states that my employer sets the criteria and Cigna is only responsible for forms (employer may not handle medical records for HIPAA reasons). This seems outrageous and unbelievable to me.
What is the relationship between ‘self-funded’ disability policies and ERISA? Can a disability insurance plan really be virtually immune from any laws or regulations?

Attorney Stephen Jessup:

Jazmin, self-funded policies typically fall under the umbrella of ERISA, unless it is not a disability policy so much as a payroll practice of the employer- which requires in depth examination to determine. Please feel free to contact our office to discuss how we may be able to assist you.

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