Chapter 20 - § 20.4 • EMPLOYEE RETIREMENT INCOME SECURITY ACT

• Jurisdiction: Colorado

§ 20.4 • EMPLOYEE RETIREMENT INCOME SECURITY ACT

The regulation of employee benefit plans began relatively early in the 20th century. Congress first sought to encourage private employers to establish retirement plans for their employees by providing in the Revenue Act of 1921 a tax deduction for contributions to these plans. Later in the same decade, additional tax laws permitted the employer's tax-deductible contributions on behalf of its employees to accumulate tax free in trust until distributed in the form of benefits to these employees. Because there were no rules for the accruals of these "tax-qualified plan" benefits, some employers made larger plan contributions for their executives and other highly compensated employees. Thus, in the Revenue Acts of 1938 and 1942, Congress restricted tax-qualification to retirement plans (i.e., tax-qualified pension, profit-sharing, and stock bonus plans) that did not discriminate as to benefits or eligibility in favor of highly compensated employees.

The numbers of employer-sponsored retirement and welfare plans significantly increased with the post-World War II economic expansion. Although federal laws and sometimes conflicting state laws had been enacted to protect the interests of the participants and beneficiaries in those plans, by the 1960s a consensus had formed that these interests were not sufficiently protected and that comprehensive employee benefit regulation was needed. In 1973, comprehensive legislation was introduced in the House and Senate that formed the basis of what was enacted the next year as the Employee Retirement Income Security Act of 1974, which is popularly known by its acronym "ERISA."

This section focuses on some important principles of the antiretaliation and antidiscrimination provisions of ERISA § 510, 29 U.S.C. § 1140. A detailed description of ERISA is beyond the scope of this work.

Practice Pointer
Once having committed to a covered plan, ERISA prohibits employers from discriminating against employees on the basis of actual use or perceived use of company benefits. Vaszlavik v. Storage Tech. Corp., 175 F.R.D. 672, 684 (D. Colo. 1997) (citing Gavalik v. Cont'l Can Co., 812 F.2d 834 (3d Cir. 1987)); Vaszlavik v. Storage Tech. Corp., 183 F.R.D. 264 (D. Colo. 1998).

§ 20.4.1—ERISA Coverage

ERISA applies "to any employee benefit plan if it is established or maintained—(1) by an employer engaged in commerce or any industry or activity affecting commerce; or (2) by any employee organization or organizations representing employees engaged in commerce or any industry or activity affecting commerce; or (3) by both." 29 U.S.C. § 1003(a). ERISA defines the term "employee benefit plan" or "plan" as a welfare benefit plan, a pension benefit plan, or a plan that provides both welfare and pension benefits for employee participants or their beneficiaries. 29 U.S.C. § 1002(3). The existence of an ERISA employee benefit plan is a question of fact determined in light of all the surrounding circumstances, Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982); Peckham v. Gem State Mut. of Utah, 964 F.2d 1043, 1047 (10th Cir. 1992). Factors courts consider include issues of whether the subject arrangement or practice benefits "employees" or "beneficiaries," whether the level of employer involvement with the plan is sufficient to be considered "established or maintained" by an employer, and whether the degree of formality and ongoing administration is such that the arrangement or practice rises to the level of a "plan." E.g., Karls v. Texaco Inc., 139 F. App'x 29, 30 (10th Cir. 2005) (unpublished opinion); Deboard v. Sunshine Mining & Ref. Co., 208 F.3d 1228, 1237-39 (10th Cir. 2000); Cox v. Lincoln Nat'l Life Ins. Co., 2010 U.S. Dist. LEXIS 134517 (D. Colo. Dec. 9, 2010); Halprin v. Equitable Life Assurance Soc'y of U.S., 267 F. Supp. 2d 1030, 1035-36 (D. Colo. 2003).

ERISA expressly excludes governmental plans, certain church plans, plans maintained for the exclusive purpose of complying with state-mandated insurance laws (namely, workers' compensation, disability insurance, and unemployment compensation laws), foreign plans, and unfunded excess benefit plans. 29 U.S.C. § 1003(b). In August 2006, Congress clarified the definition of an ERISA-exempt governmental plan to include a plan established and maintained by an Indian tribal government, a subdivision of an Indian tribal government, or an agency or instrumentality of either so long as that plan covers only employees substantially all of whose services are in the performance of essential governmental functions but not in commercial activities. Pension Protection Act of 2006, Pub. L. No. 109280, § 906(a)(2)(A), 120 Stat. 780 (codified as amended at 29 U.S.C. § 1002(32)). See also Dobbs v. Anthem Blue Cross & Blue Shield, 600 F.3d 1275 (10th Cir. 2010); Dobbs v. Anthem Blue Cross & Blue Shield, 475 F.3d 1176, 1177-78 (10th Cir. 2007); cf. N. Arapaho Tribe v. Burwell, 90 F. Supp. 3d 1238 (D. Wyo. 2015) (the exemption from ERISA does not permit an Indian tribal government to cherry pick the parts of law to apply to employees who perform essential governmental functions).

Department of Labor regulations exclude from ERISA coverage a plan covering only partners or sole proprietors, as well as a plan covering only an individual and his or her spouse with respect to a trade or business wholly owned by the individual or by the individual and his or her spouse. 29 C.F.R. § 2510.3-3(c); see Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1 (2004).

Welfare Benefit Plans

The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program that was or will be established or maintained by an employer, by an employee organization, or by both, to the extent that such plan, fund, or program was established, or is maintained, for the purpose of providing its participants, or their beneficiaries, through the purchase of insurance or otherwise: (1) "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or pre-paid legal services"; or (2) any benefit described in § 186(c) of the Labor Management Relations Act (other than pensions on retirement or death, and insurance to provide such pensions). 29 C.F.R. § 2510.3-1(a)(2).

An agreement to pay severance benefits is only subject to ERISA regulation if it creates benefits requiring "an ongoing administrative program to meet the employer's obligation." Lettes v. Kinam Gold Inc., 3 F. App'x 783, 786 (10th Cir. 2001) (unpublished opinion) (quoting Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987)). Thus, a severance pay plan is an ERISA plan if the plan's benefits are triggered by many events, as opposed to a one-time event, and it requires regular periodic payments. Id. ERISA-covered severance pay programs can be either a welfare benefit plan, Stone v. Travelers Corp., 58 F.3d 434, 437 (9th Cir. 1995), Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir. 1984) (overruled on other grounds), or a pension plan, 29 C.F.R. § 2510.3-2(b). If it is covered by ERISA, a severance pay program is typically designed to be a welfare benefit plan.

The Department of Labor regulations refine ERISA's definition of "welfare benefit plan" by itemizing certain arrangements that do not constitute an ERISA welfare benefit plan. Because these arrangements also do not fall within the definition of an ERISA pension benefit plan, they are exempt from ERISA. 29 C.F.R. § 2510.3-1(b)-(k). The notable exempted arrangements for the purposes of ERISA § 510 are certain payroll practices, including leave pay and short-term disability benefits paid from the employer's general assets, and tuition reimbursement programs. These regulations also provide a safe-harbor exemption from ERISA coverage for a group insurance plan made available by an employer or employee organization if: (1) the employer or employee organization does not make any contributions to the plan; (2) participation in the plan is voluntary; and (3) the only functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program, collect premiums, and remit them to the insurer. The employer or employee organization cannot receive any consideration in connection with the program other than reasonable compensation for administrative services actually rendered in connection with payroll deductions. 29 C.F.R. § 2510.3-1(j).

Practice Pointer
Welfare benefit claims typically involve health, disability, or severance benefits.

Pension Plans

The terms "employee pension benefit plan" and "pension plan" mean any plan, fund, or program established or maintained by an employer, by an employee organization, or by both, to the extent that, by its express terms, or as a result of the surrounding circumstances, the plan, fund, or program provides retirement income to employees, or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan, or the method of distributing benefits under the plan. 29 U.S.C. § 1002(2). Totally employee-funded individual retirement accounts in which participation is completely voluntary are not employee benefit pension plans. 29 C.F.R. § 2510.3-2(d). Bonus programs are not employee benefit pension plans unless the bonus payments are systematically deferred to the termination of covered employment or beyond so as to...