Risk Insider: Bill Minick

ERISA Protections in “Option” Injury Benefit Plans

By: | January 25, 2016

Bill Minick is president of PartnerSource, a risk management consulting firm specializing in workers’ compensation alternatives. He can be reached at [email protected]

In the debate over state alternatives to workers’ compensation, the role of federal law in protecting workers’ rights has come into focus. But even those calling themselves workers’ compensation experts have publicly stated they are unfamiliar with an important one, the Employee Retirement Income Security Act of 1974 (ERISA).

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Here is a brief primer:

Workers’ compensation systems are governed by state laws. But employers and claim administrators must also comply with certain federal laws, like the ADA, FMLA and OSHA.

Similarly, state lawmakers can specify all requirements for whether and how employers can sponsor an occupational injury benefit plan as an alternative to workers’ compensation. Private employers that sponsor these “option plans” must also comply with the above federal laws, as well as ERISA.

Federal regulation of employee benefit plans first started in 1921 and continued into the 1940s and 1950s as Congress passed the Taft Hartley Act and the Welfare and Pension Plan Disclosure Act.

In the 1960s, there were examples of significant employer defaults in benefit payment obligations and a lack of regulatory enforcement mechanisms to right those wrongs. This laid the groundwork for passage of ERISA in 1974.

ERISA doesn’t require employers to sponsor employee benefit plans. It only applies to plans that are voluntarily sponsored by employers.

Retirement plans, health plans, disability plans, dental, vision, and option plans are all examples of employee benefit plans generally subject to ERISA.

ERISA’s primary function is to provide a well-established system of employee protections.

ERISA does this by imposing disclosure, fiduciary and dispute resolution requirements on employers.

• The disclosure rules require a written plan document articulating definitely determinable benefits available under the plan and the process for obtaining those benefits.

• The fiduciary rules require employers to act in the best interests of employees covered by the plan and make consistent, reasonable and prudent decisions in claims administration.

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• The dispute resolution process is administrative in nature in order to keep costs, and the burden of resolving disputes, low for employees. ERISA has a formal claims procedure that requires a full and fair review. Employees are able to pursue a no-cost administrative appeal under ERISA for any benefit denial, and ultimately to seek a review in state or federal court.

• There are civil and criminal penalties available if an employer fails to meet the disclosure or fiduciary requirements. Employees and beneficiaries also have the right to sue any fiduciary of an ERISA plan (for personal liability) in state or federal court, or file a complaint with the U.S. Department of Labor if they believe there has been a breach of fiduciary duty. (Complaints can also be filed with state regulators for employer violation of state option plan requirements.)

In historical context, ERISA was crafted to ensure employee rights and to bolster the ability of employees, regulators and courts to hold employers accountable for their obligations.

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The R&I Editorial Team can be reached at [email protected]om.