The following is an email exchange between my attorney buddy, Jeremy Bordelon, and myself. He tells me we’ve barely scratched the surface of ERISA here. Maybe he’ll grace me with a Part 2 sometime in the next few weeks. My words are in bold. Everything else is Jeremy.
I have done a lot of benefits administration in my day, but I don’t know much about benefits LAW. I am SUPER weak on this topic. I could barely come up with any questions, so add anything you want!
Employee Retirement Income Security Act – Became Law in 1974 – Has to do with protecting employee pensions and tax effects of other benefits plans.
Well, it’s that, but it’s more than that. In the beginning of ERISA, when it was thought of as a “good thing” for employees, employers and benefits administrators were looking for any exception they could come up with to get out from under ERISA. The courts responded by ruling that nearly everything that had anything to do with an employee benefit was preempted by ERISA. So now nearly every benefit an employee gets from any private employer is governed by ERISA. Health insurance, life insurance, disability insurance, and of course pensions. Now, many employees wish they could get out from under the “protections” of ERISA, but employees are stuck with it.
Since employee pensions are largely becoming extinct, what does this have to do with other retirement options?
ERISA has a lot of rules regulating what happens when a pension plan shuts down. As the concept of a traditional “defined benefit plan” dies out, ERISA tells everyone how to wrap things up properly. As 401(k)s and other types of “defined contribution” plans have become more prevalent, ERISA provides guidance for how those need to be run as well.
Since ERISA is often substituted for “all laws regarding benefits” it includes amendments that created COBRA and HIPAA. I will probably address those in the blog at a later time. What other significant impacts does ERISA have on health plans?
The main impact that ERISA has on health plans is the limitation on remedies for the participants. As the guy who helps people get their benefits when they’ve been denied, it’s certainly the main impact on my clients! When I represent people who have had a benefit claim denied, I have to explain to them what ERISA means for them, and it’s mostly bad news. That list of bad news includes:
1) It may take a year or more to exhaust all your appeals with the administrator, and you must complete that process before being allowed to go to court to pursue your benefits.
2) If your appeals are exhausted and you do have to file suit to pursue your benefits, you will not have the right to a jury trial.
3) You will not be able to seek any extra damages for a “bad faith” denial of your claim.
4) No matter what the administrator said or did, no matter how well-supported your claim was, you cannot seek any extra damages whatsoever. It does not matter if you lose your leg because a health claim was denied. It does not matter if you lose your house because your disability benefits claim was denied. No matter what, the administrator will not have to pay more than they should have paid on your claim in the first place (aside from paying, perhaps, part of your attorney’s fees, and maybe some interest on past-due benefits).
5) In most cases, the administrator gets the benefit of the doubt, and a denial of your claim will only be overturned if it is ruled to be “arbitrary and capricious.” This means that if the administrator has any evidence at all supporting its decision, you will lose. A recent survey of benefits litigation found that claimants get benefits denials overturned in court only about 30% of the time.
Usually, the only good thing I have to tell people when I explain what ERISA means to them is this – it’s cheap to litigate in this area. This, too, bears an element of bad news, though. The main reason that it’s cheap to litigate in this area is that there isn’t much discovery allowed. As an attorney, I usually can’t get the court’s permission to do things like take depositions, serve discovery requests, or introduce extra medical evidence in support of my client’s claim. Bad for the case, good for the expense bill my client has to pay at the end.
I’ve heard people saying things like “We have to make sure this passes the ERISA test” with regards to discrimination. Is this the part about highly compensated employees setting aside and receiving a proportional amount of salary/match to other employees? Or are they referring to some other discrimination test?
That could be what they’re referring to. ERISA does have rules about equality between highly compensated employees and everyone else. On a day-to-day basis, that would probably be what you heard people talking about. There is another anti-discrimination provision in ERISA, though. It states that employers can’t take adverse actions against employees for attempting to exercise their rights under an ERISA pension or welfare benefits plan. The same section of ERISA provides for whistleblower protections, too.
What else should I know to have a reasonable understanding about this?
Well, on the employer side, there are a few things HR folks need to know. In addition to making sure people are enrolled properly, making sure premiums are paid properly, and making sure claims are forwarded to third-party administrators properly, the HR pro’s biggest and most important job is providing information. For failure to provide plan documents on request, the plan administrator (usually the employer) could be subjected to penalties of up to $110 per day. These penalties do not go against any third-party administrators, only the “plan administrator” itself. If the Department of Labor is asking for information, the penalty for a late response could be up to $1,100 per day.
HR pros can also run into problems just answering (or not answering) employee questions. Plan fiduciaries (employers as plan administrators, insurers as claims administrators) have an obligation to convey complete and accurate information material to the participant’s (or beneficiary’s) circumstances. This includes answering questions the participant didn’t think to ask. For failure to do so, participants can’t currently get money damages in court, but that may change. (DOL guidance suggests money damages should be available, but currently the courts aren’t following that guidance). “Equitable remedies” (non-money damages) available for these errors can be substantial, though, including a complete re-write of the Plan to comply with the faulty information given.
For example, consider the case of Krohn v. Huron Memorial Hospital. Mrs. Krohn was a nurse who worked at the hospital. She was in a coma after a car accident. When her husband asks about short term and long term disability benefits, he’s told by HR that the Krohns would be better to stick with the benefits offered by their auto insurer than to file applications for the employee disability benefits plans. The HR person was under the partially mistaken understanding that 1) auto insurance usually pays more than STD, and 2) that you can’t get both at once. Based on this advice, Mrs. Krohn did not apply for STD or LTD. What she should have done was apply for LTD. Even if she couldn’t receive both benefits at the same time, she would at least have a live claim. Instead, Mrs. Krohn returns to hospital HR four years later, when her auto insurance benefits are exhausted, asking if she can now file a claim for LTD benefits. The third-party carrier refuses to consider such a late claim. Mrs. Krohn has no way under ERISA to force them to do so (she’s long since missed the deadline to apply under the strict terms of the plan). Instead, she sues the hospital for providing inaccurate or incomplete info about the plan.
The court held that the hospital had a duty to make sure that the Krohns understood everything they needed to know about her benefits, even if the Krohns didn’t know the right questions to ask. The “duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful.” Because of the bad advice Mrs. Krohn got from HR, the hospital wound up having to pay 20+ years of LTD benefits itself, because the third-party insurer was covered by the fact that the claim was not filed on time.
I expect that cases like Krohn would probably keep HR people awake at night. I mean, to a certain extent, the courts expect you to be mind-readers. You’re supposed to know what information plan participants need, even when they don’t really know themselves, or else your company could be on the hook for benefits you thought were insured by a third party. Don’t get me wrong – for every case like Mrs. Krohn’s, there are probably a dozen others where the employee gets nothing. But I don’t think any responsible HR professional wants that to happen, either. Talk to your employees and do your best to keep them informed about the terms of their benefit plans. Hopefully issues like these can be avoided entirely.
*GULP* This is the part of HR that makes me get overwhelmed and want a nap. I just like helping people. Ugh. This whole employment law bit is both incredibly boring and scary. I just know I’m gonna get arrested for something one day. More study needed!!
Jeremy Bordelon has worked at the Chattanooga, Tennessee law firm of Eric Buchanan & Associates (http://www.buchanandisability.com/) since 2004. He’s worked his way up from paralegal to junior partner (so far). While working for the firm, Jeremy earned his Bachelor’s degree in Legal Assistant Studies from the University of Tennessee at Chattanooga. He then earned his law degree from the University of Tennessee College of Law in 2009, magna cum laude. Jeremy is admitted to practice before all State and Federal courts in Tennessee, as well as the United States Courts of Appeals for the 6th and 11th Circuits. He has successfully handled hundreds of social security disability, private disability insurance and ERISA long-term disability benefits cases. Prior to law school, Jeremy served eight years in the U.S. Navy as an enlisted Cryptologic Technician, achieving the rank of Petty Officer First Class.
In his spare time, he enjoys road cycling, woodworking, and sailing with his lovely wife. He likes his steaks medium rare, and he’s never seen LOST or The Wire! His fave character on The West Wing, though, is Josh Lyman so that’s an acceptable substitution.