ERISA-fication of Worksite and
Voluntary Insurance Products
Eric P. Mathisen
Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
56 S. Washington St, Suite 302
Valparaiso, IN 46383
(219) 244-8666
[email protected]
John A. Sharp
Assurity Life Insurance Co.
P.O. Box 82533
Lincoln, NE 68501
(402) 437-3730
[email protected]
Eric P. Mathisen is a Shareholder in Ogletree Deakins’ Chicago, Illinois, and
Valparaiso, Indiana, offices. He has represented clients in ERISA and Non-ERISA
employee benefits matters in federal and state courts throughout the United States.
He has extensive experience defending a wide variety of complicated employee
benefits litigation matters including class action and single plaintiff suits. Mr.
Mathisen also routinely counsels and advises clients as to pre-litigation measures
that will help minimize future risk and exposure.
John A. Sharp is director and deputy general counsel for Assurity Life Insurance
Company, which offers life insurance, disability insurance, health insurance, and
annuity products in 49 states and the District of Columbia. Mr. Sharp coordinates
legal support for five Assurity operating divisions and is responsible for Assurity’s
litigation and dispute resolution efforts nationwide. Prior to joining Assurity, Mr.
Sharp spent several years with the federal judiciary and then practiced law in
Omaha, Nebraska, where he focused on insurance, commercial, and intellectual
property matters.
ERISA-fication of Worksite and
Voluntary Insurance Products
Table of Contents
I.Introduction....................................................................................................................................................5
II. Types of Policies that Implicate ERISA-fication Analysis............................................................................5
A. The Characteristics of a Group LTD Arrangement...............................................................................5
B. The Characteristics of a Worksite Policy................................................................................................6
C. The Characteristics of Individual Disability Policies............................................................................6
III. The Statutory Test For Determining the Existence of An ERISA Plan........................................................7
A. Is the Plan a “Plan, Fund, or Program” Under ERISA?.........................................................................7
B. Is the Plan “Established or Maintained” By An Employer and/or An Employee Organization?.......7
C. Is There Is An “Employer” Within the Meaning of ERISA?..................................................................8
D Are the “Benefits” Provided Under the Plan ERISA-governed Benefits?.............................................8
E. Are the Statutory Benefits Provided To “Participants” and/or “Beneficiaries” Under ERISA?..........8
IV. Navigating the DOL Safe Harbor...................................................................................................................9
V. Strategy Considerations and Potential Business and Ethical Issues Involved In ERISA-fication............10
A. Strategic Considerations When Attempting To ERISA-fy a Policy....................................................10
1. General discovery techniques for determining the existence of an ERISA plan.......................11
2. Potential areas of inquiry to demonstrate the existence of an ERISA plan................................12
B. Potential Business and Ethical Issues During the ERISA-fication Process........................................14
VI.Conclusion.....................................................................................................................................................15
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 3
ERISA-fication of Worksite and Voluntary Insurance Products
I.Introduction
For many of us, “ERISA-fication” or “ERISA-fy” has come to serve as the terminology for the process
of trying to establish that a welfare benefit arrangement constitutes an employee welfare benefit plan under
ERISA, as opposed to a state-law regulated insurance policy. The implications of successful ERISA-fication are
significant and include: (1) federal court jurisdiction; (2) limited remedies and no extra-contractual damages;
(3) no jury trials; (4) a potentially deferential standard of review; and (5) limited discovery.
This paper will outline the criteria for establishing an ERISA-governed plan, with a focus on litigation strategy and potential business and ethical issues that may arise when pursuing ERISA-fication. The principles discussed are generally applicable to disability, health, and life insurance policies and even some aspects
of self-funded benefit plans. For another discussion and analysis of recent cases, please reference the excellent
article at http://dritoday.org/feature.aspx?id=515.
II. Types of Policies that Implicate ERISA-fication Analysis
Much of this paper and the case law focuses on disability policies. However, the characteristics of the
policies and basic principles of ERISA coverage apply equally to life, health, and disability policies where the
coverage is provided as a benefit of employment.
A. The Characteristics of a Group LTD Arrangement
A voluntary group LTD arrangement is a group long term disability policy where coverage exists for
employees who contribute all or a portion of the premium cost. The coverage is voluntary because employees
contribute all or a portion of the cost of the premium. Employees and their attorneys frequently argue that
this coverage is not governed by ERISA because participation was voluntary and the employee paid for it “out
of his/her own pocket.” Plaintiffs therefore attempt to establish that the insurance arrangement is not “established or maintained” by the employer and/or that it falls within the narrow DOL safe harbor. Common characteristics of this coverage include the following:
● A group insurance policy is issued to the employer.
● The employer considers policies from different insurers, comparing costs and coverage options
and selects the insurer who will issue the policy.
● The employer completes the application for the policy.
● The group policy covers one or more classes of eligible employees. The employer typically
decides which employees will be eligible to participate.
● The employer may have to guarantee that a minimum number of employees will participate in
the policy or risk losing the coverage altogether.
● The employer typically makes decisions regarding the scope of coverage, including whether there
should be a waiting period for coverage; the length of the waiting period; the length of any elimination period (which may be coordinated with a short term disability program also sponsored
by the employer); the levels of coverage available; whether the policy will include “own occupation” coverage; and the length of time “own occupation” coverage will apply.
● The employer is billed on a periodic basis via a list bill for all covered employees and pays the
premiums directly to the insurer.
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 5
● The employer may perform certain administrative functions, such as distribution of insurance
booklets/certificates to covered employees, communication to employee regarding the availability of coverage, informing the insurer on an ongoing basis which employees are eligible for
coverage and which employees cease to be eligible for coverage. The employer may hold benefits
meetings to explain the coverage and may also assist employees in applying for benefits.
B. The Characteristics of a Worksite Policy
Worksite insurance products have their roots in individual insurance products. There has been some
change and evolution in worksite products so that some are a “hybrid” between group and individual insurance policies, and the terms “worksite benefits” and “voluntary benefits” are often used interchangeably. Thus,
worksite products may in fact BE individual products, or at least have characteristics akin to individual policies, such as broader portability rights post-employment. Worksite policies can provide a wide array of benefits but have historically included coverage for: critical illness, accident and sickness, cancer treatment, and
permanent life/universal life/whole life/permanent term. The premiums are typically paid by the employee
and the insurer or broker provides enrollment and administrative services. Premiums are often still deducted
from payroll and may be discounted for participating employees.
C. The Characteristics of Individual Disability Policies
Some employers, particularly with high income or minimal employees, may choose to fund disability
benefits through the purchase of one or more individual policies of insurance. Individual policies are medically underwritten and generally provide higher benefit levels and coverage options than are available under
most group policies.
ERISA does not regulate the funding mechanisms for covered benefits. The statutory definition of an
employee welfare benefit plan merely states that such benefits may be funded “through the purchase of insurance or otherwise.” 29 U.S.C. §1002(1). Thus, it makes no difference whether an ERISA plan is funded with a
group insurance policy or with one or more individual insurance policies. Common characteristics of arrangements involving individual policies are as follows:
● The policies are issued directly to covered employees.
● The employer may (or may not) be involved in deciding the type of coverage that will be made
available to employees and the insurer(s) that will issue the policies.
● Policies purchased at or around the same time may provide virtually identical coverage to the
covered employees, not unlike would be the case with a group LTD policy.
● There may be a significant discount on the premium cost where a group of policies is purchased
at the same time.
● Insureds may be able to acquire greater coverage benefits than would otherwise be available
where a group of policies is purchased at the same time.
● Premiums for policies purchased as a group are typically billed in a “list bill” with the employer
paying the premium directly to the insurer and obtaining reimbursement for some or all of the
premiums from the employees.
● Individual policies may be purchased in coordination with group disability coverage. This is
more likely offered for higher compensated employees who supplement group disability coverage available to all employees.
6 ■ Life, Health, Disability and ERISA ■ April 2016
III. The Statutory Test For Determining the Existence of An ERISA
Plan
An “employee welfare benefit plan” under ERISA is defined as:
any plan, fund or program which was heretofore or is hereafter 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, hospital, or
hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits.
29 U.S.C. §1002(1). “ERISA is clearly a statute of general application, one that envisions inclusion within its
ambit as the norm.” Cvelbar v. CBI, Ill, Inc. 106 F.3d 1368, 1376 (7th Cir.), cert. denied, 522 U.S. 812 (1997).
Based on the statutory definition, there are five criteria that are necessary for the existence of an ERISA plan:
(1) A plan, fund or program, (2) established or maintained, (3) by an employer or by an
employee organization, or by both, (4) for the purpose of providing medical, surgical, hospital
care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or
other training programs, day care centers, scholarship funds, pre-paid legal services or severance
benefits, (5) to participants or their beneficiaries.
See, e.g., Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 537 (7th Cir. 2000) (quoting Ed Miniat, Inc. v. Globe
Life Insurance Group, 805 F.2d 732, 738 (7th Cir. 1986)).
A. Is the Plan a “Plan, Fund, or Program” Under ERISA?
A benefit plan must be a reality. The general rule is that a plan, fund, or program is a reality if it
“implies the existence of intended benefits, intended beneficiaries, a source of financing, and a procedure to
apply for and collect benefits.” See, e.g., Donovan v. Dillingham, 688 F.2d 1367, 1372 (11th Cir. 1982).
These factors are typically demonstrated by the insurance policy(ies) and its terms for an insured
plan. Generally, the policy sets forth the intended benefits (e.g., life, health, and/or disability); the intended
beneficiaries (one or more classes of eligible employees of the employer who are covered by the policy(ies));
a source of funding (payment of premiums and insurance coverage to pay for benefits); and procedures for
applying for and collecting benefits (usually described in the policy and/or the certificate of coverage). Thus,
the existence of a policy satisfies the first factor. The determination of whether the benefit plan is governed
by ERISA is a question for the court. See, e.g. Clark v. Unum Life Ins. Co., 95 F. Supp.3d 1335, 1347 (M.D. Fla.
2015). Whether the employer intended to establish an ERISA plan is not determinative. Clark, 95 F. Supp.3d at
1347-1348.
B. Is the Plan “Established or Maintained” By An Employer and/or An
Employee Organization?
“No single action in itself necessarily constitutes the establishment of the plan.” Johnson v. Paul
Revere Life Ins. Co., 241 F.3d 623, 629 (8th Cir. 2001); McCann v. Unum, 921 F. Supp.2d 353, 369 (D.N.J. 2013).
The most common indicator of an ERISA-governed plan is evidence that an employer paid all or part of the
premiums for the coverage or otherwise facilitated the payment of premiums. See, e.g., Postma v. Paul Revere,
223 F.3d at 537 (employer’s payment of premiums for disability insurance coverage for a period of time demonstrates that employer established or maintained the plan under ERISA even though the employer later
discontinued paying premiums); Johnson v. Paul Revere, 241 F.3d at 629 (employer’s facilitation of premium
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 7
payments by paying premiums on individual disability policies in lump sum was evidence of establishment of
ERISA plan); Taylor v. American Insurance Company, 2012 U.S. Dist. Lexis 150108 (D. Ariz. 2012).
An employer’s acceptance of ongoing responsibility to maintain the life, health, and/or disability
policies in exchange for a premium discount may also be sufficient to demonstrate that the employer established or maintained the plan. See, e.g., Postma, 233 F.3d at 537 (employer’s agreement to maintain policy in
exchange for premium discounts is evidence that the employer established or maintained the plan); McCann,
921 F. Supp.2d at 369 (finding the employer assumed some responsibility for the plan by engaging the broker
to contact the employees concerning the supplemental insurance offering); see also 26 C.F.R. §54.4980B-2
(Q&A 1) (“[A] group health plan is maintained by an employer . . . even if the employer . . . does not contribute to it if coverage under the plan would not be available at the same cost to an individual but for the
individual’s employment-related connection to the employer . . . .”). Issuance of the policy(ies) as part of
a comprehensive employee benefit program sponsored by the employer may also serve as evidence of the
employer’s establishment and/or maintenance of an ERISA plan. Evidence that an insurance policy was purchased as part of a comprehensive benefit program demonstrates that the policy is established or maintained
by the employer for purposes of ERISA. For example, in Postma, the Seventh Circuit held that a disability
policy was established or maintained by an employer and was governed by ERISA where “the disability policy was part of a broader benefits package maintained by [the employer] for its employees.” 223 F.3d at 538.
As demonstrated by the decision in Clark, courts will also find the establishment or maintenance elements
are met when an employer provides individual policies as its benefits offerings. Clark, 95 F. Supp.3d at 13501351.
C. Is There Is An “Employer” Within the Meaning of ERISA?
An “employer” is defined as “any person acting directly as an employer, or indirectly in the interest
of an employee, in relation to an employee benefit plan.” 29 U.S.C. §1002(5). Assuming that an actual employment relationship is demonstrated, this criterion is rarely in dispute.
D Are the “Benefits” Provided Under the Plan ERISA-governed Benefits?
A plan is only governed by ERISA where it provides statutory benefits. The ERISA statute governs many types of employee benefits, including health, life, disability, death, and other benefits. 29 U.S.C.
§1002(1) (defining the benefits that may be included in an employee welfare benefit plan under ERISA). If a
plan provides one or more of these types of benefits, it satisfies criterion (4) of the statutory definition.
E. Are the Statutory Benefits Provided To “Participants” and/or
“Beneficiaries” Under ERISA?
ERISA defines a “participant” as “any employee or former employee of an employer . . . who is or may
become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such
employer.” 29 U.S.C. §1002(7). The statute defines a “beneficiary” as “a person designated by a participant, or
by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.” 29 U.S.C.
§1102(8). There is typically no dispute that common law employees are covered by the plan. This factor is satisfied if the employer’s program provides benefits to participants or beneficiaries. However, where the plan only
covers owners of the employer, there is frequently a dispute whether the owners are “participants” or “beneficiaries.”
8 ■ Life, Health, Disability and ERISA ■ April 2016
IV. Navigating the DOL Safe Harbor
In the “Safe Harbor” exemption, the Department of Labor has addressed the issue of when group
insurance arrangements are exempt from ERISA coverage by promulgating a regulation that specifically
excludes certain types of group insurance arrangements from the definition of employee welfare benefit plans.
29 C.F.R. §2510.3-1(j). The safe harbor focuses on when and to what extent an employer may be involved in
with an employee benefit program without establishing or maintaining it. McCann, 921 F. Supp.2d at 364. In
relevant part, the regulation states as follows:
For purposes of Title I of the Act and this Chapter, 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 an 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.
However, the Department of Labor has stressed that in order for this exemption to apply, the employer’s role must be strictly limited:
The functions of the employer or employee organization must be limited to publicizing the
program and handling premium payments through payroll deductions or dues checkoffs. The
employer . . . must not hold out the program as a benefit of employment or membership.
Notice of Proposed Rule Making, Dated June 9, 1975. In subsequent comments on these regulations, the
Department of Labor stated that there must be an absence of employer involvement:
[The] requirement of employer neutrality is the key to the rationale for not treating such a program as an employee benefit plan, namely, the absence of employer involvement.
40 F.R. 34525 (August 15, 1975).
The Department of Labor has continued to stress the absence of employer involvement for the
exemption under §2510.3-1(j) to be applicable. In Opinion Letter No. 77-54 (August 8, 1977), the Department
of Labor determined that the regulation was inapplicable simply because the employer collected premiums
in a manner other than a payroll deduction, negotiated with the insurer, and assisted members with claims.
In Opinion Letter No. 80-22A (April 17, 1980), it found that the regulation was not satisfied when the Trust
selected insurance plans, reserved the right to terminate them, and sent out literature under its own auspices.
Department of Labor Regulations, the Notice of Proposed Rule Making, and subsequent comments,
all clearly indicate that the Department of Labor’s view is that all four criteria must be met before a plan will
be exempt from ERISA. A majority of courts have agreed and have held that all four criteria must be met
before exempting a plan from ERISA See, e.g., Thompson v. American Home Assur. Co., 95 F.3d 429 (6th Cir.
1996); Shiffler v. Equitable Life Assurance Society, 838 F.2d 78 (3d Cir. 1988); United States v. Blood, 806 F.2d
1218 (4th Cir. 1986); Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236 (5th Cir. 1990);
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 9
Brundage-Peterson v. Compcare Health Services Insurance Corp., 877 F.2d 509 (7th Cir. 1989); Silvera v. Mutual
Life Insurance Company of New York, 884 F.2d 423 (9th Cir. 1989); Kanne v. Connecticut General Life Insurance
Co., 867 F.2d 489 (9th Cir. 1988). But see Kidder v. H & B Marine, 932 F.2d 347 (5th Cir. 1991) (while language
of federal regulation compels reading that the four conditions are jointly sufficient for exclusion from ERISA,
it does not compel reading that conditions are also individually necessary for exclusion); McCann v. Unum,
921 F. Supp.2d at 364, 366 (“a determination that one or more of the Safe Harbor criteria are not satisfied does
not compel the conclusion that the claim . . . is governed by ERISA.” Nonetheless, the court ultimately concluded that ERISA applied and the safe harbor provisions were not met, in part, because the plaintiff received
a benefit in the form of a discount on premiums that he would not have received but for his employment.) The
decision Rosen v. Provident Life and Accident Insurance Co., 2015 U.S. Dist. LEXIS 6586, *29 (N.D. Ala. 2015),
in demonstrates the fact sensitive nature of the inquiry where a 12 percent premium discount was not an
employer contribution sufficient to place the plan outside of the safe harbor provisions.
V. Strategy Considerations and Potential Business and Ethical Issues
Involved In ERISA-fication
A. Strategic Considerations When Attempting To ERISA-fy a Policy
There are several tactical decisions that need to be made at the outset of defending a lawsuit involving voluntary, worksite, and/or individual policies sold in the workplace setting. Upon receipt of a suit alleging state law claims, in-house counsel and outside counsel should promptly gather available information and
analyze potential ERISA pre-emption arguments. The initial question is whether to remove the case to federal court if the lawsuit was filed in state court or if discovery must be conducted in order to avoid a remand.
If possible, the suit can be removed based on both diversity and ERISA grounds so as to allow any necessary
discovery to occur in the federal court action. Another alternative is to remove the case and file a motion to
establish application of ERISA with a request for an appropriate time to conduct necessary discovery.
A similar tactical decision must be made when determining whether to raise the ERISA-fication and
pre-emption arguments by a motion to dismiss or summary judgment motion. See, e.g. Suarez v. Provident
Life and Cas. Insurance Co., 2015 U.S. Dist. LEXIS 28101, *10 (D.N.J. 2015) (Explaining that the policy may be
an ERISA plan but that the plaintiff did not have the burden of proving his alternative theory at the pleading
stage. The determination of whether the “policy is an ERISA plan will likely involve detailed factual inquiry
that is more appropriately undertaken at the summary judgment phase.”); Berkshire Life Ins. Co. v. Kerry, 2015
U.S. Dist. LEXIS 5010 (M.D. Fla. 2015). In the group context where there are clear plan and policy documents
confirming the existence of an ERISA plan and likely allegations in the complaint about the plan or policy
being sponsored by the plaintiff ’s employer, it is often appropriate to move to dismiss state law claims at the
pleading stage. Attaching and referring to the policy and plan documents is generally accepted even at the
motion to dismiss phase and should not result in converting the motion to dismiss to a motion for summary
judgment. Even in the summary judgment context, the factual disputes may be significant enough to allow the
plaintiff to survive a summary judgment motion. See, e.g. Baker v. Colonial Life & Accident Insurance Co., 2014
U.S. Dist. LEXIS 60955 (W.D. Wash. 2014).
In contrast, it may often be necessary to assemble the necessary evidence (as discussed below) to
support a summary judgment motion when dealing with voluntary/worksite policies. It can be perilous to
immediately proceed with a motion to dismiss – limited to the allegations in the complaint and the policy
documents. While the court may simply deny the motion to dismiss and find the claims can move forward, it
is also possible the court makes an adverse legal determination that controls the rest of the case.
10 ■ Life, Health, Disability and ERISA ■ April 2016
In this context, an analysis of the claim review process and any representations made to the claimant must be analyzed at the outset. It is not uncommon to find communications from the insurer to the claimant stating that “ERISA does not apply” or the “claim is not governed by ERISA.” There may also be internal
claim notes or checklists addressing whether the policy is governed by ERISA. And, even where there are not
affirmative representations about the application of ERISA, the claim analyst may not include language in the
denial letter concerning the claimant’s ERISA rights because it was assumed that ERISA did not apply. While
not conclusive, these actions can be damaging and often need to be addressed when seeking to ERISA-fy a
policy.
To avoid or minimize these issues, in-house counsel should be familiar with the claim review process
and suggest that the claim analyst refrain from offering opinions about whether ERISA governs a policy without all of the necessary facts and information. In addition, many companies structure the claim process so
that every claim is reviewed using the more stringent ERISA claim regulations and all adverse decision letters
include some notice that the claimant “may” have certain rights under ERISA.
A more sophisticated plaintiff ’s bar and better educated judges require that defense counsel be ready
to marshal admissible evidence to support the ERISA-fication argument. Judges appear to be more reluctant
to dispose of these issues at the pleading stage. Thus, it is no longer sufficient to simply provide some sales or
underwriting documents. Courts are increasingly conducting evidentiary hearings in order to assess fact sensitive issues and will want to hear from the employer when there are questions regarding maintenance and
possible endorsement of the policy. Formal paper discovery and depositions of the employer may be necessary
because: (1) the employer is uncooperative; (2) supportive of the plaintiff; or (3) concerned about its own liability and potential violations of ERISA reporting and record keeping. The later sections of this paper discuss
the types of information and discovery to seek from the employer and other sources.
1.General discovery techniques for determining the existence of an
ERISA plan
ERISA cases generally involve little or no discovery, particularly where the litigation is subject to an
arbitrary and capricious standard of review. But when the existence of an ERISA plan is disputed, extensive
discovery may be necessary. A typical framework for such discovery is as follows:
● Defense and in-house counsel should obtain all relevant documents from the insurer, including
claim files, policy forms, application files, underwriting files, and sales files. In some cases, the
latter files may not be located at the home office and/or there may be a second sales file located
in insurer regional sales offices or broker/enrollment firm locations.
● Talk to employees of the insurer, including any sales people who may have had direct contacts
with the broker and/or employer.
● Contact the agent/broker. There are two purposes for making this contact. First, counsel will
want to determine whether the agent/broker is cooperative. Having already reviewed the claim
file, defense counsel may already have a good idea of whether or not this is true. Second, the
agent/broker may have file materials and/or knowledge of the sale of the policy(ies) that may be
relevant to the issue of ERISA governance.
● Contact the employer if the employer is viewed as friendly and is not represented by the plaintiff ’s attorney. Again, you will want to determine whether the employer will be cooperative
or whether the employer will be one of your opponents in the litigation. Many employers will
cooperate and may readily agree that the insured arrangement is part of an ERISA-governed
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 11
employee welfare benefit program. Other employers, particularly small employers, may not
cooperate and may even be actively assisting the plaintiff.
● Obtain all documents from the plaintiff and the employer that are related to any benefit programs offered by the employer, including any documents related to the insured arrangement at
issue.
● Obtain an affidavit from the employer if possible. The affidavit should describe the employer’s
overall employee benefit program in detail, including the insured arrangement at issue in the litigation.
● Depose the employer if necessary. If the employer is antagonistic or otherwise not willing to
cooperate informally, you will have no choice but to proceed with a deposition. If the employer
is a larger entity, someone from the human resources department is the most likely person with
knowledge of the program. If the employer is a smaller entity, an office manager-type employee
may have the most knowledge, even if that person is at a clerical level. Many clerical level
employees who take care of the details of these arrangements have more knowledge than higher
level employees.
2.Potential areas of inquiry to demonstrate the existence of an ERISA
plan
A threshold issue in demonstrating the existence of an ERISA plan is to show that there is an employment relationship. Typically, this is not very complicated. However, in the case of small closely-held and/or
family-owned organizations, employment relationships may not be as simple as they would otherwise appear.
Potential areas of inquiry could include the following:
● The name and form of the business (i.e. corporation, proprietorship, partnership).
● The identity of the owner(s)/shareholder(s) of the business.
● The identity of the officers of the business (if a corporation).
● The number of employees, their names, positions, dates of employment, and current addresses.
● Identify the person(s) who did the hiring.
● Whether the employees of the business were paid by salary, hourly, or otherwise.
● Whether the business withheld taxes (i.e. state and federal income, social security, etc.) from the
employees’ paychecks.
● Whether the business withheld other sums from employees’ paychecks and, if so, identify what
these sums were for.
● Whether employees received W-2’s from the business.
● Whether employees had written job descriptions and a description of the employees’ duties.
● Whether employees worked regular hours assigned by the business, worked part-time or fulltime.
● Whether the business provided supplies, tools, etc., needed for the employees’ work.
● Whether the employees worked at the offices of the business or elsewhere. (If elsewhere, describe
the circumstances of this work--i.e. were they assigned to work outside of the office by their
supervisor.)
● Whether the employees were permitted to perform tasks for other employers (i.e. could they
market their services on their own).
12 ■ Life, Health, Disability and ERISA ■ April 2016
● Whether the employees were supervised in their work and the circumstances of the supervision
or were they free to choose their own methods of performing their work.
● Whether the business published an employee handbook or less formal means of communicating employment policies to employees (if in writing, see if you can get a copy of the written
document(s)).
It is also helpful to determine what benefits were offered to employees of the employer organization
and in what context those benefits were offered. Some suggested areas of inquiry are as follows:
● What types of benefits were available to employees (e.g., health, life, disability, accidental death,
pension, etc.), and were such benefits part of an overall “comprehensive” package of offerings
made to employees.
● Whether these benefits were offered to all employees or, if not available to all employees,
describe the classes of employees who were eligible for these benefits.
● Describe how these benefits were communicated to employees (e.g., in writing via memos or formal booklets/plan documents).
● Identify who communicated the benefits to employees.
● Determine whether the benefits were part of an individual or group insurance arrangement. If
so, identify the insurance carrier and whether the carrier changed at any point. If the carrier did
change, describe the process involved and identify all areas of employer involvement (e.g., meetings with insurance agents, completion of forms, etc.) and which employee performed these
tasks. If the benefits were part of an association arrangement (i.e. were acquired through some
form of trade association), identify the association. If not insured, identify who paid benefits.
● Identify all documents having any relation to employee benefits (e.g., insurance booklets, claim
forms, enrollment forms, informal memos, correspondence, etc.)
● Determine the date, time, place, persons involved, and content of any meetings or conferences
regarding employee benefits.
● Determine whether benefits were mandatory/automatic or voluntary. If voluntary, determine the
factors that might affect whether an employee would opt for the benefits.
● Determine who paid for cost of benefits (e.g., did employer pay all or part of cost of premiums
and/or did employees pay for all or part of cost of premiums).
● Determine method of payment of cost of benefits (i.e. did employer send in checks or did
employees pay premiums directly).
Finally, one must demonstrate employer involvement in establishing and/or maintaining the insurance arrangement, not only to escape the DOL safe harbor exemption, but also to show affirmatively that the
program satisfies the statutory criteria of an employee welfare benefit program. Sample areas of inquiry could
include the following:
● Determine whether an employee(s) was assigned to deal with employee benefits issues as part of
his/her duties. Also, assuming a positive response to each of the following questions, identify the
employee(s) who performed the tasks or made the decisions listed on behalf of the employer and
as part of his/her job duties for the employer. Determine whether these duties were part of a formal job description.
● Determine whether the employer determined what benefits to make available to its employees.
● Determine whether the employer made the decision whether the benefits would be insured.
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 13
● Determine whether the employer made the decision as to what insurer would provide coverage
for the various benefits.
● Determine whether the employer made the decision as to which employees would be eligible for
coverage/benefits.
● Determine whether the employer made the decisions as to the levels of benefits, deductibles,
coinsurance, etc., available to employees.
● Determine the specific activities the employer engaged in related to employee benefits (e.g.,
meetings and telephone conferences with insurers) and who at the employer did these tasks as
part of his/her job duties.
● Determine whether the employer had any involvement in drafting plan documents, including
any informal memoranda discussing employee benefits.
● Determine whether the employer distributed plan documents to employees and/or answered
employee’s questions regarding employee benefits and/or served as a contact person for plan
insurers.
● Determine whether the employer enrolled new employees into employee benefit programs and
terminated departing employees from employee benefit programs and kept records of such
enrollments and/or terminations.
● Determine whether the employer maintained enrollment, claim, or other employee benefit
forms and assisted employees in completing these forms.
● Determine how premiums for benefits were paid and by whom. Establish as close a nexus as
possible between payment of premiums for the policy at issue and the payment of premiums for
other insurance coverages. For example, did the employer pay the premiums on the various coverages? Did the same person pay the premiums (i.e. actually write the checks) on all of the policies? Were the premiums paid at the same time (in other words, did some employee sit down
and write the checks for the premiums at one sitting)? Were the premiums paid from the same
bank accounts? Were premium payments kept in the same ledger book or charged to the same
account in each employer’s accounting records? Were deductions taken on each employer’s tax
returns for these various premiums?
B. Potential Business and Ethical Issues During the ERISA-fication Process
Legally speaking, it is almost always preferable to ERISA-fy a policy rather than litigate a benefit
claim under state law. However, a determination that a policy is an ERISA plan may mean that the employer
or plan sponsor failed to undertake necessary actions under ERISA that could result in penalties, fines, or litigation. Further, especially with important clients or sensitive broker relationships, the insurer may not wish to
take a position that the employer views as adverse/problematic. Thus, there are situations, some of them nonlegal in origin, when defense counsel may need to forego an ERISA-fication arguments despite the significant
benefits ERISA may provide.
An example of the various factors that may limit the ability to advance a pre-emption argument
generally involve business/customer relations or ethical/conflict issues. Defense counsel should consult with
in-house counsel to clarify the scope of representation and information concerning any potential customer
relationship issues that may not be set forth in the claim file or other claim related documents. Similarly, even
where the employer is not a party to the litigation, defense counsel should determine whether his or her firm
has conflict of interest if an ERISA pre-emption argument is advanced. Some of these issues can be deter14 ■ Life, Health, Disability and ERISA ■ April 2016
mined and discussed at the outset of the litigation. Other issues and conflicts may not arise until additional
discovery and investigation is undertaken. Further analysis is required before seeking to ERISA-fy a policy
under the following, non-exclusive, situations:
● An employer threatens to terminate the relationship or there are other business and customer
relations issues (particularly for large, ongoing customers) if an ERISA per-emption argument
is successful and contrary to the position urged by the employer. This is particularly likely if the
determination opens up the potential of penalties, audits, or additional administrative costs to
the employer.
● Potential exposure or complaints against the agent or broker from a disgruntled employer may
also have implications for the insurer.
● There were specific discussions or representations to the employer that the policy was not governed ERISA.
● The employer completed application and underwriting materials indicating that the policy was
not considered an ERISA plan.
● A sophisticated employer is represented by counsel who attempted to design the policies and
benefit offerings to be exempt from ERISA.
● Defense counsel is retained to represent the insurer and the employer or plan and the employer
denies the policy is governed by ERISA.
● The employer is not a party to the litigation but is a client of defense counsel’s firm and the
employer denies the policy is governed by ERISA.
VI.Conclusion
The ERISA-fication of a voluntary, worksite, or individual policy can completely change the complexion of a lawsuit and often result in dismissal or a reasonable resolution. A successful ERISA-fication argument
requires planning and cooperation between in-house counsel and outside counsel. Significant, formal discovery may also be necessary. The analysis is fact sensitive and judges expect well-developed, admissible evidence
before finding that a policy is governed by ERISA. Defense counsel should not pursue this journey without
consideration of the steps and analysis outlined above.
ERISA-fication of Worksite and Voluntary Insurance Products ■ Mathisen and Sharp ■ 15