How Can a 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. 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.