By: Peter Casciano, Esq.
Am I covered under ERISA or must I file my claim in State court?
The Employee Retirement Income Security Act (ERISA) sets standards for “welfare benefit plans” set up by private employers. If you have an ERISA claim, federal court has the exclusive jurisdiction to hear your claim.
An Employee Welfare Benefit Plan is broadly defined as:
- A plan, fund or program,
- By an Employer
- To provide benefits
- To participants or beneficiaries.
I typically find myself litigating claims in federal court because an employer’s long term disability (LTD) plan, set up through an insurance carrier, has denied my client’s initial application for LTD benefits.
It is logical for the claimant to go straight to the Plan document and review the terms to see if it is a Plan covered by ERISA. Either the Plan or the insurance company’s denial letter may contain a phrase similar to this: “If you disagree with our decision on the claim, you have a right to bring a civil action under ERISA Section 502(a).” Do not be misled by this phrase; chances are the proper investigation was not done prior the inclusion of this language into the Plan or denial letter.
The truth is, there are exceptions when a plan, normally covered under ERISA, is not provided with ERISA protection. Here, I’d like to describe only one exception: the payroll practice exception. This comes into play when a Plan is set up to provide long term disability benefit coverage to employees, but if any money is paid to disabled employees, those funds come directly from the employer, not the insurance company or a trust fund. Why does this matter? The reason is because an employer’s specific payroll practices are not an area that ERISA was designed to oversee. Looking to the list from the definition above, the courts have found that a payroll practice is not a “plan, fund or program” as defined in ERISA.
Other common examples of “payroll practices” not covered by ERISA are (a) the payment of vacation benefits out an employer’s general assets, or (b) the payment of premium rates to employees working during holidays or weekends. Whether the arrangement qualifies as a payroll practice, or is covered by ERISA, is a fact driven inquiry that changes based on your specific circumstances. Please consult an experienced attorney who is familiar with this type of work.
The upshot is that there are different procedures, statutes of limitation and standards of review (among myriad other issues) between state court and federal court. You must know the proper jurisdiction and forum so that you can win the benefits you deserve.