VOLUME I Chapter 10 Employee Retirement Income Security Act

• Jurisdiction: South Carolina

Chapter 10 Employee Retirement Income Security ActNekki ShuttBurnette Shutt & McDaniel, PA

I. Introduction and Overview

(ERISA §§ 1 - 4402, 29 U.S.C. §§ 1001 - 1461)

The Employee Retirement Income Security Act of 1974 ("ERISA") is a federal statute governing employee pension and benefit plans which are distributed through any employer, employee organization, or organization representing employees which is engaged in commerce or in any industry or activity affecting commerce.¹ ERISA's stated purpose includes the provision of "appropriate remedies, sanctions, and ready access to the Federal courts."² It was signed into law by President Gerald R. Ford on September 2, 1974. In 1977, the Department of Labor ("DOL") published regulations at 29 C.F.R. 2650-503-1, establishing minimum requirements for benefit claims procedures.³ These regulations have been updated several times, most recently in 2018. A recent empirical study of ERISA employee benefits litigation from 2006 to 2010 concluded that cases involving long-term disability claims accounted for 64.5% of benefits litigation while lawsuits involving health care plans and pension plans accounted for only 14.4% and 9.3%, respectively.⁴

ERISA does not mandate that employers afford employees or their dependents any benefits. Rather, it requires that if an employer gives a vested benefit, then it must comply with its written plan when administering that benefit.⁵ ERISA does impose minimum and maximum defined benefit pension plan funding requirements.⁶ Minimum funding requirements were designed to provide at least a certain level of benefit security by requiring an employer to make certain minimum contributions to its plan. However, ERISA does not impose mandatory obligations on an employer for unfunded and unvested plans (e.g., excess benefit and severance pay plans).⁷

ERISA is beneficial to employers in a number of ways. First, it preempts virtually all state law and replaces it with federal law, thus allowing large multi-state employers to, theoretically, get the same results from courts no matter where suit is brought. Second, ERISA requires employees and their dependents (hereinafter "claimants") to exhaust their benefit plan's administrative appeals process prior to bringing suit, thereby, ideally, reducing litigation and litigation expenses. Third, ERISA eliminates punitive damages, jury trials, and state law causes of action such as bad faith - generally limiting plaintiffs to recovery of back benefits and other appropriate equitable remedies.

From a claimant's perspective, ERISA's administrative process is intended to provide a faster, cheaper way to remedy a denial of benefits. In practice, though, the administrative process is often so dominated by the claims administrator that a claimant who attempts to represent himself or herself without an attorney becomes easily overwhelmed. For example, in a disability claim, a claimant usually needs to submit more than his or her medical records to prove disability. The claimant must prove not only that he or she has a condition, but that it meets the plan's specific definition of disability. Often this requires a doctor or vocational expert's opinion on the claimant's functional restrictions and limitations. Over the last 40-plus years, ERISA plan insurers and claims administrators have become adept at gathering proof. Many insurers and claims administrators employ a stable of nurses, doctors, and vocational personnel to review claimant medical records and to opine as to the accuracy of diagnoses, restrictions and limitations, and medical opinions on disability. Insurers and claims administrators also employ private investigators to conduct surveillance on claimants claiming disability. As ERISA does not require claims administrators or courts to defer to treating physicians,⁸ it is generally easy for an insurer or claims administrator to counter proof submitted by a pro se claimant and his doctor.

Practice Pointer: South Carolina District Courts treat ERISA cases like appeals. Generally, the court only reviews evidence which is already in the "Administrative Record."⁹ No new evidence or testimony is allowed in the standard denial of benefits case. Thus, the best place to win an ERISA case is before you file a lawsuit. From the claimant's perspective, if an attorney can get involved in the case while the claimant still has administrative remedies to exhaust - which means while opportunities to submit evidence to the claims administrator still exist - then you are much more likely to prevail. During the administrative process, you can obtain the Administrative Record from the claims administrator; it contains all of the documents which the claims administrator considered in denying the claim. After you have the Administrative Record, you should review it and identify what you need to gather to bolster your client's case. See infra Section V.C, for a list of evidence you should consider collecting. The claims administrator's goal is always to have enough evidence in the Administrative Record to show that it acted reasonably in denying the claim. Conversely, the claimant's goal is to put evidence into the Administrative Record which establishes that the claims administrator did not act reasonably and that it was operating under a conflict of interest.

If the claims administrator still denies the claim, then you are ready to file a lawsuit. State and federal courts have concurrent jurisdiction over the standard, denial of benefits case.¹⁰ In practice though, most cases are removed to federal court under the court's federal question jurisdiction.¹¹ Once you are in federal court, all but one ofthe judges in this district use a Specialized Case Management Order to manage ERISA cases and it outlines the court's view on the standard of review, damages, non-jury, preemption, exhaustion, etc.¹²Be aware that even if the standard of review is de novo, discovery is very limited unless you can show the court that the claims process has been irregular. Remedies for ERISA violations are narrow and generally include only back benefits, reasonable attorney's fees and costs,¹³ prejudgment interest,¹⁴ and injunctive relief.¹⁵ The court can grant attorney's fees to either party in its discretion.¹⁶

II. Coverage

A. ERISA Applies Regardless of an Employer's Size

In order to have an ERISA plan, the benefits plan must cover at least one non-owner employee,¹⁷ provide pension or welfare benefits to employees, and have a plan for financing the benefits and applying for and collecting the benefits.¹⁸

B. Plans Which Are Exempted from ERISA

1. Government Entities' Benefit Plans Are Exempted from ERISA¹⁹

2. Qualifying Church Plans Are Also Exempt from ERISA²⁰

A plan will be a church plan, not subject to ERISA, when it has been established and maintained by a church or a convention or association of churches. Plans that are established and maintained primarily for the benefit of those "who are employed in connection with one or more unrelated trades or businesses" are not church plans. However, a plan that is established by a corporation that shares "common religious bonds and convictions with [a] church or convention or association of churches" qualifies as a church plan.²¹ The Fourth Circuit has established three factors for determining if a corporation shares common religious bonds and convictions with a church:

(a) Does the religious institution have any official role in the governance of the corporation?
(b) Does the corporation receive any assistance from the religious institution?
(c) Is there any denominational requirement for any employee or patient of the organization?²²

3. Workers' Compensation Plans Are Exempted

Any plan established and maintained for the sole purpose of complying with applicable workers' compensation, unemployment, or disability insurance laws is exempt

from ERISA.²³

4. Foreign Plans for the Benefit of Persons, Substantially All of Whom Are Nonresident Aliens, Are Exempted

ERISA does not apply to plans that are maintained outside of the United States for the benefit of nonresident aliens.²⁴

5. Excess Benefit Plans Are Also Exempted from ERISA

An excess benefit plan is a plan that is maintained by an employer to provide benefits in excess of limitations on contributions.²⁵ Whether the excess plan is funded or unfunded does not matter. The Fourth Circuit left open the possibility that excess plans created to provide benefits in excess of limitation on contributions and benefits imposed by other statutes would be covered under ERISA, provided they were funded, even if Section 414 of Title 26 is implicated.²⁶

C. Preemption

1. Most State Laws Are Preempted by ERISA

ERISA provides for preemption of "state laws"²⁷ which "relate to" an employee benefit plan.²⁸ ERISA's preemption power is interpreted broadly.²⁹ For example, most state law claims are preempted or displaced.³⁰ The United States Supreme Court, in trying to define the term "relate to," looked past the text of the statute and at the Congressional intent of the statute to "ensure that plans and plan sponsors would be subject to a uniform body of benefits law."³¹ In response, the Fourth Circuit has identified three categories of state laws that Congress intended ERISA to preempt:

(1) Those mandating benefit structures or benefit administrations;
(2) Those binding employers and administrators to particular choices or precluding uniform administrative practice; and,
(3) Those providing alternate enforcement mechanisms.³²

Therefore, a state law only "relates to" ERISA in so far as it falls into one of the three categories intended to be preempted by Congress.

The state courts in South Carolina have held that a state cause of action is preempted by ERISA if there is a "direct nexus" between the state law and ERISA that would inhibit the ability of a plan to function in multiple states.³³ However, causes of action that are "indirectly related to" ERISA can be...