My wonderful friend Jeremy Bordelon was kind enough to answer some basic ERISA questions for me a while back. You might say he gave me just enough rope to hang myself. He really freaked me out about how much of this I don’t know — and don’t understand even when it’s being explained to me. I feel like, should I ever become some kind of HR bigwig at a huge firm, I’m going to inevitably be led away in handcuffs to ERISA jail. What’s worse, rather than some evil mastermind, I’m going to come across as one of those idiots on TV who didn’t even realize they were pregnant. I’ll be screaming, “But I didn’t know!” while they throw me in a cop car. Ugh.
That’s where my new friend Andrew Douglass comes in. He is also an ERISA attorney and offered to answer more questions for me. Jeremy gave me just enough info in Part 1 to have more questions and now I’ve been somewhat reassured by Andrew in Part 2. Read on for ERISA Part 2: The Return…if you dare.
My attorney friend, Jeremy Bordelon, answered a few questions in my first post. I know ERISA started out as a way to benefit employees, but it sounds like a nightmare now. How did anyone ever think this was a good thing?
The enactment of ERISA was, in large part, a response to tragic events during the 1960s when employer bankruptcies wiped out pension plans, retiree medical coverage, and other benefits without any recourse for the affected employees. In 1974, Congress responded by creating, for the first time, a comprehensive framework to provide greater protections to employees and more certainty to employers in sponsoring their benefit plans. Of course, there are still tensions between employers and employees with respect to their benefit plans, but I think ERISA has generally been very successful in its stated aims.
The 5 points he made about denial of health and disability claims – those seem completely punitive and unreasonable. If my bone cancer treatment is denied and I lose my leg, then find out it wasn’t supposed to be denied, there is NO RECOURSE?! Has ERISA been hijacked by insurance lobbyists? How did this come to be this way?
In my view, ERISA has not been hijacked by insurance lobbyists or any other special interest groups. Instead, I think ERISA has matured significantly since its enactment in 1974. For example, a recent development in the last few years is the Supreme Court’s seminal decision in Amara v. CIGNA, in which the Court allowed employees to pursue equitable remedies against their employers if they could prove they were provided misleading information about their benefit plans. The Amara decision will be huge in the coming years in situations similar to the one you posited in your hypothetical example. Well that’s a relief!!
The “ERISA test” about highly compensated employees – can you explain to me how that’s an issue to begin with? If employees have an opportunity to contribute and be matched up to 6% of their salaries, for example, and everyone does…obviously the CEO is going to have a higher 6% than the receptionist. I’m obviously misunderstanding something here because that seems too obvious to be a problem.
One of the goals of ERISA is to ensure that broad-based retirement plans do not discriminate in favor of highly-compensated employees. In tandem with various testing provisions in the tax code, ERISA generally requires a retirement plan to have minimum “coverage” (i.e., the categories of eligible employees cannot be skewed in favor of highly-compensated employees) and to provide non-discriminatory benefits. In response to your hypothetical, a uniform contribution for all employees (when expressed as a percentage of compensation) is generally non-discriminatory. This is the case even if, as you noted, a highly-compensated employee ends up with a higher contribution when expressed as a dollar amount.
I asked Jeremy what else I should know to have a reasonable understanding of ERISA and he responded with the truly terrifying (from an HR perspective) tale of Krohn v. Huron Memorial Hospital. How would you answer that question? What other finer points should I know?
It takes many years to fully understand ERISA’s detailed statutory scheme. I’ve been working in the employee benefits world for 18 years, and I’m still learning new things. My recommendation is to talk with as many people in the benefits world as possible. Make a point to sit down with an actuary, benefit plan auditor, investment advisor, or other benefits professional as often as possible. You’ll be amazed at how your understanding of ERISA will increase!
Anything else you’d like to add re: ERISA?
There are tons of free resources available to HR professionals that explain the requirements under ERISA, the tax code, and other laws that apply to employee benefit plans. For example, the DOL and IRS have both, in recent years, expanded their websites and outreach programs to provide information geared to both employees and employers regarding benefit plans.
W. Andrew Douglass has been practicing law in employee benefits and executive compensation matters for 13 years. Prior to becoming an attorney, he worked as a pension actuary for a large public accounting firm. There can be no doubt, now though, that he is an ERISA nerd through and through. His words, not mine. His favorite TV show of all time is The Wonder Years. Excellent choice! “I’ve always related to Kevin Arnold and the ups and downs that came with growing up in the 1960s and 1970s. That said, there was no way I was cool enough as a kid to have Winnie Cooper as a girlfriend!” When he goes to a non-buffet Chinese restaurant, he orders off the “secret” menu because he’s cool like that…or actually, spicy, like that.
His official bio can be found at: http://www.seyfarth.com/W.Douglass, or you can reach him on Twitter: @theERISAguy. See? ERISA nerd. I believe I shall keep him on speed dial for when I need bail money in ERISA jail.