19.1 INTRODUCTION
19.101 Overview. The Employee Retirement Income Security Act of 1974 (ERISA) 1 established federal regulations for two types of employee benefit plans: employee pension benefit plans (pension plans) and employee welfare benefit plans (welfare plans). Applicable rules include:
| 1. | Reporting and disclosure requirements for both types of plans; 2 | ||
| 2. | Requirements that pension plans comply with minimum standards for participation, vesting, benefit accrual, payment, and funding; 3 | ||
| 3. | Standards of conduct for fiduciaries of both types of plans; 4 | ||
| 4. | Prohibition of certain transactions involving plan assets; 5 | ||
| 5. | Preemption of state laws relating to both types of plans; 6 | ||
| 6. | Civil and criminal enforcement of ERISA obligations; 7 and |
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| 7. | Additional requirements for plans that are qualified for tax purposes. Title II of ERISA amended the Internal Revenue Code (I.R.C.) 8 to provide tax-favored treatment for tax-qualified plans, plan sponsors, participants, and beneficiaries. In many respects, the requirements for tax qualification under the I.R.C. duplicate the ERISA title I provisions. |
19.102 Administrative Agencies. Three federal agencies administer and enforce ERISA: the Department of Labor, the Department of the Treasury's Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). 9 The PBGC administers certain programs intended to protect covered pension plans against losses of benefits upon plan termination or insolvency. 10 The Multiemployer Pension Plan Amendments Act of 1980 11 added special provisions for multiemployer plans (generally, union plans) governing employer withdrawal, merger or transfer of plan assets or liabilities, minimum contribution requirements, and enforcement provisions. 12 In addition, the Department of Health and Human Services issues regulations with respect to ERISA health care plans under the Patient Protection and Affordable Care Act (hereafter "PPACA," "Affordable Care Act," or "ACA"). 13
19.103 Coverage. Generally, ERISA covers privately sponsored pension and welfare plans, 14 but not all of ERISA's substantive rules apply to all such plans. 29 U.S.C. § 1003(b) excludes the following from ERISA coverage: (i) benefit plans maintained by federal, state, or local governments; 15
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(ii) plans maintained primarily by churches or church associations; 16 (iii) plans maintained outside of the United States for nonresident aliens; and (iv) plans maintained solely for the purpose of complying with workers' compensation, unemployment compensation, or disability insurance laws.
In Advocate Health Care Network v. Stapleton, 17 the U.S. Supreme Court ruled that religiously affiliated hospitals sponsoring defined benefit plans need not have been originally established by churches to satisfy ERISA's "church plan" exemption. Advocate Health Care Network involved three church-affiliated hospitals that maintain defined benefit pension plans for their employees. The plans were established by the hospitals themselves and not by churches. Current and former employees of these hospitals filed class actions alleging that their employers' plans failed to satisfy ERISA's churchplan exemption and were thus subject to ERISA requirements. The courts of appeals for the Third, 18 Seventh; 19 and Ninth circuits 20 all ruled that the hospitals' plans were not exempt from ERISA because the plans had not been established by a church.
The Supreme Court reversed the courts of appeals, holding that ERISA does not require an exempt "church plan" to have been originally established by a church. The Court reasoned that certain amendments to the exemption made by Congress in 1980 brought within the church-plan definition all pension plans maintained by certain church-associated entities (referred to as "principal-purpose organizations") whose main function is to fund or manage a benefit plan for the employees of churches or church affiliates, regardless of whether such plans were established by a church.
In Morgan County War Memorial Hospital v. Baker, 21 the court held that there was no federal jurisdiction over a suit seeking a declaratory ruling that the plaintiff hospital had authority to terminate its pension plan and retain the residual assets. The pension plan was a government plan to which ERISA does not apply. The fact that the pension plan was a "qualified"
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retirement plan under the I.R.C. did not create federal court jurisdiction and no issue of federal law was dispositive of the plaintiff's claim.
19.104 Types of Plans.
A. Pension Plans. An "employee pension benefit plan" or "pension plan" is defined as
any plan, fund or program which . . . is . . . established or maintained by an employer or by an employee organization, or by both, to the extent that . . . [it] (i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond. 22
Department of Labor (DOL) regulations exclude from ERISA coverage individual retirement accounts (IRAs) and annuities described in I.R.C. § 408(a) and (b), and the type of individual retirement bond described in I.R.C. § 409, as long as they do not receive employer contributions and the employer is not actively involved with the account or annuity. 23 In Garratt v. Walker, 24 the court held that a doctor's "simplified employee pension" account under I.R.C. § 408(k)(1) was an employee benefit plan as defined in 29 U.S.C. § 1002(2) and was governed by ERISA.
B. Welfare Plans. An "employee welfare benefit plan" or "welfare plan" is defined as
any plan, fund, or program which . . . is . . . established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits,
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apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in [29 U.S.C. § 186(c) (section 302(c) of the Labor Management Relations Act of 1947)] (other than pensions on retirement or death, and insurance to provide such pensions). 25
The DOL determined that a cafeteria plan established under I.R.C. § 125 was not a welfare benefit plan under section 3(1) of ERISA 26 because it did not provide benefits under ERISA but rather served as a funding vehicle. 27
In Kemp v. International Business Machines Corp., 28 the court held that the provision of certain educational assistance benefits did not constitute an employee welfare benefits plan under ERISA.
In Arnold v. CSX Hotels, Inc., 29 some retirees mistakenly received life insurance coverage from their former employer, who terminated this coverage when the oversight was discovered. The retired employees filed suit alleging state law claims of breach of contract, negligence, and misrepresentation. The Fourth Circuit found that because an ERISA welfare plan could be established, the claims fell within the scope of ERISA civil remedies and removal to federal court was proper. A court has held that an individualized settlement agreement providing a former employee and spouse with retiree medical benefits can constitute a one-person ERISA benefit plan. 30
In contrast, when the employer's involvement was limited to permitting the insurer to publicize its life insurance program and deducting premiums for employees who elected to purchase coverage, the court found
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there was no ERISA plan, relying on the safe harbor provisions of DOL regulations. 31
In Casselman v. American Family Life Assurance Co. of Columbus, 32 the Fourth Circuit held that ERISA governed a supplemental insurance policy with a sickness rider purchased by two employees, noting that the employer endorsed the policy by determining its eligibility criteria and selecting the insurance company that provided the policy.
In response to these and other cases, a 2019 amendment to the regulations created a new safe harbor for health reimbursement arrangements (HRAs) and certain other arrangements that reimburse individual health insurance coverage to clarify that, if certain conditions are satisfied, these types of situations are no longer considered to be covered by ERISA. 33 The purchase of the individual health insurance using HRA funds must be completely voluntary for the employees; the employer must not select or endorse a particular issuer or type of coverage, nor can the employer receive any consideration in connection with such a plan; and the employee must be notified annually that this health insurance is not subject to ERISA. 34
19.105 Fiduciaries. In general, a person is a plan fiduciary to the extent he or she (i) exercises discretionary authority or control over plan management or any authority or control over management or disposition of plan assets; (ii) renders or has the responsibility of rendering investment advice regarding plan assets for a fee or other compensation; or (iii) has any discretionary authority or responsibility in plan administration. 35 An attorney who represents an ERISA plan and performs ministerial functions for the plan is not generally an ERISA fiduciary. 36
In Mertens v. Hewitt Associates, Inc., 37 the United States Supreme Court, citing their decision in Massachusetts Mutual Life Insurance Co. v.
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Russell, 38 stated that "[f]iduciaries [under ERISA] are assigned a number of detailed duties and responsibilities, which include 'the proper management, administration, and investment of [plan] assets, the maintenance of proper records, the disclosure of...
