Understanding ERISA and Long Term Disability

The Employee Retirement Income Security Act (ERISA) was enacted on September 2, 1974. It was created to protect the interests of employees and their beneficiaries in regards to their benefit plans. In addition to protecting employees' pension and retirement benefits, there are also some important ERISA disability rules that should be understood.

Understanding the Employee Retirement Income Security Act

ERISA was a federal statute that established rules for pension plans. It also:

• Contains rules concerning the effects of federal income tax on transactions in employee benefit plans.
• Requires the full disclosure to employees of any information about their retirement plan.

The act also set forth standards of conduct for fiduciary relationships that employers have to employees and established plans for remedies and access to the court system.

There are several government agencies that interpret and enforce ERISA. These include:

• The Department of the Treasury (primarily the Internal Revenue Service)
• The Department of Labor
• The Pension Benefit Guaranty Corporation

What Does ERISA Cover?

Coverage of the ERISA extends to pension plans and health benefit plans, including health insurance and long term disability insurance. Pension plans are not required by ERISA, but they are regulated by ERISA if they are created.

• ERISA does not require a minimum benefit level, but it does require that the employee vest an employee’s pension plan after a certain number of years.
• There are minimum funding requirements that have been established for these plans.
• ERISA also imposes rules for how the benefits are to be paid out. One example is the plan must pay the spouse of an employee a "joint-and-survivor annuity." This gives benefits to a surviving spouse unless the couple waives this coverage.
• ERISA also created the Pension Benefit Guaranty Corporation to cover payments if the plan has insufficient assets to provide benefits.

Health insurance is also not required by ERISA, but is regulated if it is offered by an employer.

• Recent changes to the ERISA include the Consolidated Omnibus Budget Reconciliation Act of 1985, which gives an employee the right to continue coverage for a certain amount of time after an event that would cause termination, like losing his job.
• Another change made to ERISA is the Health Insurance Portability and Accountability Act of 1996, which states that an employer cannot refuse benefits for certain pre-existing conditions. It also keeps an employer from refusing benefits based on health status, disability or genetic information.

Long Term Disability and ERISA

Because ERISA governs all employee benefits, if you have long term disability insurance, any claim you make under that policy is covered by ERISA. This is true whether the premiums are paid by you, your employee or both.

• Under the rules set forth by ERISA, if you have been denied benefits, then you have the right to file a lawsuit.
• The court will review the case to see if you should have been paid benefits.

Although this sounds good, there are some drawbacks. One major drawback is the time limit. ERISA rules provide a time frame during which you may file a claim or an appeal. Under these rules, you may not be eligible if you file a claim after you have been fired. You may not be eligible if you don’t file an appeal within 180 days.

Another negative effect of ERISA is the fact that your appeal will be handled by an administrative law judge and will not go to trial. This may make the appeal more efficient, but it may not be fair. Punitive damages were also eliminated, so no matter how badly you were treated by your insurance company, you will only recover benefits and perhaps part of your lawyer fees.

If you have a dispute with a disability insurance provider that you believe is governed under ERISA or impacted by ERISA, it is in your best interest to speak with a qualified and experienced attorney. Your lawyer can help you to understand what your options are and what potential recourse you may have under ERISA rules.