It is rare that any disability insurance claimant has ever heard of ERISA until it comes time to file a disability claim. ERISA is a federal law that was intended to offer affordable employee benefits and protect employees. ERISA accomplished the goal of affordable employee benefits, but unfortunately the ERISA regulations have been construed by the courts in such a way that ERISA favors insurance companies. In every disability claim, we try to prove that a claim is not governed by ERISA so that our clients can have the best chance of collecting benefits. To learn more about why ERISA is an unfair law, please watch this video.
Individual v. Group Disability Insurance Policies
Generally speaking there are two types of disability insurance policies: “Group” and “Individual.” A Group policy is a policy provided by an Employer which is usually subject to ERISA, and an Individual policy is purchased independent of your employer usually through an insurance agent and is not subject to ERISA. More than 85% of the people with disability coverage have a group policy governed by ERISA.
Five Requirements For A Disability Policy To Fall Under ERISA
So is your policy subject to ERISA? Like many things in the world of disability insurance policies, the answer is not always clear cut with respect to “Group” disability insurance policies. Federal courts throughout the country have stated that there are five requirements in order for a group disability policy to fall under ERISA:
- A “plan, fund, or program”
- established or maintained
- by an employer or employee organization, or both
- for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits
- to participants or their beneficiaries.
In reviewing this list it becomes somewhat clearer that an ERISA governed disability policy is one that is sponsored by an employer. Generally, these policies are part of a benefits package, and may or may not require a small portion of the premium be paid by the employee while the remainder is paid by the employer. The above analysis is further scrutinized to determine the true nature of employer relationship with the policy and the way in which the policy is offered.
What are “Safe Harbor” Regulations and How do They Apply to Disability Insurance Policies
The Department of Labor has issued what are known as “safe harbor” regulations providing “that group insurance offered to workers through their place of employment will not be deemed an ERISA plan if the insurance program satisfies certain enumerated criteria.” So how does one determine if a policy falls within the “safer harbor” regulation? The ERISA statute provides four criteria for a policy to be considered not governed by ERISA under the “safe harbor” regulation. Failure to meet all four criteria means the Group policy is subject to ERISA. The four factors are:
- No contributions are made be an employer or employee organization;
- Participation in the program is completely voluntary for employees or members;
- 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
- 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 checkoff.
For example, most short term disability plans provided through Aflac fall into all 4 criteria and therefore are not governed by ERISA.. You may have experienced a situation where your HR advises you that an Aflac representative will be in the office to discuss signing up for coverage; that if you sign up for it you will be solely responsible for paying the premiums; that it is completely voluntary and you don’t need to sign up for the coverage; that if you do sign up for it, the premiums can be paid out of your pay check; and that the employer does not stand to gain financially from the arrangement.
Is the Analysis Over? Not yet!
If only this was the final portion of the analysis as to the whether ERISA would apply to your policy it would seem simple enough”¦ well maybe. The above noted factors have been further scrutinized by Courts to determine if the disability policy at issue in litigation is governed by ERISA or by a state law action. Courts point to a seven prong analysis to try to make this determination:
- The employer’s representations in internally distributed documents;
- The employer’s oral representations;
- The employer’s establishment of a fund to pay benefits;
- Actual payment of benefits;
- The employer’s deliberate failure to correct known perceptions of a plan’s existence;
- The reasonable understanding of the employees; and
- The employer’s intent.
These last seven factors result in even more uncertainty as to the ultimate question of whether a disability policy from your employer really is an ERISA governed plan. Unfortunately there is no finite, cookie-cutter answer, and it is often necessary to gather numerous documents from your employer in order to obtain a final answer. In most cases that result in litigation, the necessary documents can be obtained during the litigation of the claim.
At the end of the day, the claimant still has a good chance to win their case, but the odds are much better if the claim is not governed by ERISA. If you have questions regarding your disability insurance policy, the disability attorneys at Attorneys Dell and Schaefer, will always provide you with a free initial consultation.