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Wednesday, December 7, 2016

ERISA – Word You Need to Know

 By Thomas Eden

SunTrust Bank employed Kelly Foster as a Mortgage Loan Closer. In January and August 2012, Foster submitted claims for short-term disability benefits for missing work due to a variety of ailments. Her claims were denied based upon a failure to provide sufficient “objective medical documentation” in support of her claims. SunTrust terminated Foster on September 25, 2012, because of her absences from work. Foster then appealed denial of her short-term disability benefits claim. In October 2013, Foster submitted a claim for long-term disability benefits which was also denied.

In July 2014, Foster sued under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a), to enforce her rights under both the short-term and long-term disability benefit plans. The Bank and its third party administrator moved for summary judgment based upon the fact that the short-term disability plan was an ERISA-exempt payroll practice and thus not reviewable under ERISA. The U.S. District Court independently found that since the short-term disability plan was paid from SunTrust’s general assets and was “entirely separate” from the Employee Benefits Plan, it was “properly characterized as a payroll practice” and exempt from ERISA.

On November 29, 2016 the DC Circuit Court of Appeals agreed and affirmed the dismissal of her federal claim as excluded from ERISA under this regulation: “The Department of Labor exempts from ERISA certain ‘payroll practices,’ including: ‘payment of employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons.” (citing 29 C.F.R. Section 2510.3-1(b)(2)).

Common Sense Counsel: This case is a great lesson for employers on the difference between a “Payroll Practice,” and Short Term Disability Benefits Governed by ERISA. ERISA is a term all employers and employees will come to know and appreciate in the coming month as President Elect Trump says he will “repeal and replace with something terrific” the Affordable Care Act (AKA Obama Care). The only multistate vehicle through which he can readily achieve this goal is through ERISA, which governs all employer sponsored group health insurance. ERISA has its own set of regulations on notice, claims adjudication, fiduciary duty and many other topics.

In 1945, Congress expressly acknowledged in the McCarran-Ferguson Act that regulation of “the business of insurance” was best left to the individual states. Since that time, the argument is regularly made that state regulation is “inefficient, costly and burdensome.” It is often asserted that the 50+ individual jurisdictions a nationwide carrier has to work with represent a “patchwork” of rules and standards – an agonizingly difficult and redundant regulatory system, one that adds costs and denies consumers the creativity of the free market to quickly develop and market innovative insurance products. So look for this to play out beginning in January 2017.

There is specific discretionary language, and plan exhaustion requirements, which should not only appear in your ERISA Plan documents, but also in your Employee Handbook. Handbooks should be reviewed every 2 years, or whenever a new President takes office. 

Tommy Eden is a partner working out of the Constangy, Brooks, Smith & Prophete, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at teden@constangy.com or 334-246-2901. Blog at www.alabamaatwork.com