ERISA’s Voluntary Plan Safe Harbor Exception
By O.C.A. Benefit Services, LLC
One of the first tasks that each employer who establishes an employee welfare benefit plan
through O.C.A.’s ERISA Summit is to decide which employee welfare benefits should be
offered through this new plan. The new welfare plan is intended to be subject to the Employees
Retirement Income Security Act of 1974 (“ERISA”), which imposes a number of administrative
obligations on benefit plans within its purview.
Not all benefit plans maintained by employers are subject to ERISA.
For example, plans
maintained pursuant to a state mandated disability or workers compensation law are not subject
to ERISA. Educational assistance and dependent care reimbursement arrangements are typically
not subject to ERISA. Likewise, certain arrangements that are considered by the Department of
Labor to be "payroll practices" are exempt. See our ERISA Compliance Manual for a more
detailed overview of the specific types of benefits that are subject to and exempt from ERISA.
Another important exception from ERISA--one that is the focus of this alert-- is the voluntary
group insurance exception (“Voluntary Plan Safe Harbor”). Under the Voluntary Plan Safe
Harbor, certain fully-insured benefits offered or made available to employees will NOT be
subject to ERISA if all four of the following conditions are satisfied:
(1)
No contributions are made by an employer or employee organization;
(2)
Participation in the benefit plan is completely voluntary for employees;
(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, to collect premiums through payroll deductions 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.
When there is employer involvement in the establishment and administration of a benefit
arrangement, an ERISA plan will be found notwithstanding the fact that the benefit is funded
solely by the employee. The level of employer involvement necessary to fail the Voluntary Plan
Safe Harbor has been the subject of many court cases. Courts typically refer to this as
“endorsement” by the employer. An important factor of endorsement cited by several courts in
making a determination as to whether an arrangement falls short of the Voluntary Plan Safe
Harbor is whether the employer/plan sponsor has treated the arrangement as being a part of its
benefits program. For example, one court held that an employer was sufficiently involved in the
establishment and maintenance of an insurance premium payment program offered to its
employees because the employer had encouraged the employees to participate in the program by
handing out a booklet describing the plan as a supplement to the employer's other benefit plans.
Courts have identified other instances of “endorsement” that when considered alone or in
connection with other instances of endorsement have caused a plan to fall outside the safe
harbor. Below we have a brief chart that gives a summary of the relevant case law that have held
that plans did NOT satisfy the safe harbor and the factors of endorsement cited by each in reach
their conclusion.
If you have any benefits that are voluntary in nature but that you do not consider to be sponsored
or maintained by you, we strongly encourage you to review this summary and the chart below
with your legal counsel to determine whether such benefits are, in fact, maintained by you and as
a result, are likely subject to ERISA.
Practice Pointer: If an arrangement fails the Voluntary Plan Safe Harbor, it may still not be subject to
ERISA. It depends on whether the arrangement is a “plan, fund or program sponsored and maintained by
the employer”. See the ERISA Compliance Manual for more details.
The following represent the factors cited by the various courts as “endorsement” for purposes of determining whether an
arrangement satisfied ERISA’s voluntary plan safe harbor.
125
Plan
Buteroi
Gaylorii
Custeriii
Nicholasiv
Postmav
Adamsvi
Hrabevii
Stoudemireviii
BrundagePetersenix
Schneiderx
Hansenxi
i
Picked
the
Insurer
Identi
fy
Empl
oyer
As
Plan
Admi
nistra
tor
Decide
s key
Terms
such as
eligibili
ty









Policy
incorpora
ted into
SPD

Retained
power to
alter
Compen
sation
for
Tax
purposes
Emp
loyer
Cont
ribut
ion
Identified
as
ERISA
Plan
Identified
As
Part of overall
package/other
communications
Discount
as a
Result of
being
Employee









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Butero v. Royal Macabees Life Insurance Company, 174 F. 3d 1207 (11th Cir. 1999)
Gaylor v. John Hancock Mutual Life Insurance Company, 112 F.3d 460 (10th Cir. 1997)
iii
Custer v. Pan American Life Insurance Company, 12 F.3d 410 (4th Cir. 1993)
iv
Nicholas v. Standard Insurance Company, 2002 U.S. App. Lexis 21279 (6th Cir. 2002)
v
Postma v. Paul Revere Life Insurance Company, 222 F.3d 533 (7th Cir. 2000)
vi
Adams v. UNUM Life Insurance Company, 200 F. Supp.2d 796 (N.D. Ohio 2002)
vii
Hrabe v. Paul Revere Life Insurance Company, 951 F. Supp. 997 (M.D. Ala. 1996)
viii
Stoudemire v. Provident Life and Accident Insurance, 24 F. Supp.2d 1252 (M.D. Ala 1998)
ix
Brundage-Petersen v Compcare Health Services Insurance Corp.,
ii
Employer
Negotiated
terms



x
xi
Schneider v. UNUM Life Insurance Company, 149 F.Supp.2d 169 (E.D. Penn 2001)
Hansen v. Continental Insurance Co., 940 F.2d 971 (5th Cir. 1991)