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Pluses and minuses of ERISA protection

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While many consultants and insurers say voluntary benefit plans should be governed by the Employee Retirement Income Security Act because of the liability protections it provides to employers, not all employers agree.

If a plan member is dissatisfied with how a claim is handled by a benefit plan that is governed by ERISA, he or she can bring suit only in federal court and damages are limited to unpaid benefits and attorneys fees.

For plans not governed by ERISA, disgruntled members can sue in state court, which can lead to awards of compensatory and punitive damages.

Employers must file summary plan descriptions and the Form 5500 series with the U.S. Department of Labor to obtain ERISA protection for voluntary benefit plans. That can be time-consuming and add costs to administering a plan that is not supposed to cost employers a dime.

Moreover, ERISA protection is available only for so-called "welfare plans" such as health care and pension benefits, so voluntary programs such as insurance for pets, automobiles or legal expenses would not qualify. This could put the onus on employers to segregate administration of certain plans that in many cases are underwritten by a single insurer.

"There are good and bad things about coverage under ERISA," said Mark Holloway, a senior vp at Aon Consulting in Winston-Salem, N.C. "You have to do the reporting and disclosure."

Employers that fail to do so face financial consequences, including penalties and fines that would be levied by the DOL, he said.

"If you've got an ERISA plan and treat it as such, but you don't file 5500, you'd go under the delinquent filer program," he said.

Employers also must meet requirements under the Consolidated Omnibus Budget Reconciliation Act for voluntary benefits that are health-related, and there are penalties for failing to send COBRA notices to employees in a timely manner, Mr. Holloway added.

Punitive damage protection

On the plus side, however, "if someone sues and it's an ERISA plan, all the state law remedies as far as bad faith, punitive damages, fall under the boards," Mr. Holloway said. "They can get benefits and attorney fees, but that's it."

"I really can't see any good reason why an employer might not want their voluntary benefit plans to be governed by ERISA," said Mary Ericson, assistant vp of regional accounts and consumer segment leader at Hartford Life Insurance Co. in Simsbury, Conn. "ERISA affords the employer a lot of protections. The only potential benefit would be not having to do some of the reporting requirements and the filings like 5500 forms or SPDs," or summary plan descriptions.

"But, in essence, if they are offering any kind of health or benefit plan, they've got to go through an ERISA process anyway, so the additional work to include a life or disability product is probably minimal and, conversely, the pitfalls of trying to structure non-ERISA can be pretty deep," Ms. Ericson said.

Approximately 43% of Hartford Life's book of business is voluntary benefits and "99% of our clients structure their voluntary benefit plans as ERISA unless the employer is not governed by ERISA," such as public entities, Ms. Ericson said.

While consultants and insurers tout the benefits of ERISA protection for voluntary benefits, not all employers are convinced they outweigh the required additional work.

"I understand the theories put forth by these so-called experts," said Ray Brusca, vp-benefits at Black & Decker Corp. in Towson, Md. "However...they don't live and breathe this stuff day in and day out like employers do. The reality is, there's so much extra work you have to do in terms of (Labor Department) filings...you've got to weigh that vs. possibly using ERISA as a legal shield in the eventuality that you get sued."

Black & Decker offers group universal life administered by Marsh & McLennan Cos.' Marsh@WorkSolutions and insured by Metropolitan Life Insurance Co. of New York, as well as auto and homeowner insurance, also underwritten by MetLife.

"When you get down to having to issue plan documents, having to issue notices of material modifications, having to issue (Health Insurance Portability & Accountability Act)-this and HIPAA-that, and all of the other legislative requirements, I think it would add exponentially to not only the burden (of administering voluntary benefits) but also reduce the likelihood of companies even wanting to offer those benefits," said Mark Kitchen, director of benefits at Marsh Supermarkets L.L.C. in Indianapolis, which is not affiliated with MMC.

"Once you get outside of your core benefit offering, I would, as a benefit manager, look at the burden to the department and the administrative hassle vs. the employee gain and worth of those programs and not want to get into that business unless it would be a definite advantage," Mr. Kitchen said.

Marsh Supermarkets offers all employees most of the products underwritten by Columbus, Ga.-based Aflac Inc. and a limited medical plan for part-time associates. The supermarket chain also administers via payroll deduction a handful of legacy voluntary benefit plans that haven't had any open enrollments over the past several years.

"Most employers run the other way when they hear the word ERISA," said Henry Saveth, an attorney at Mercer Human Resource Consulting in New York. "Twenty or 30 years ago, employers used to see it as a matter of life and death because they hated ERISA. But now it's not so bad, it just requires a little extra reporting work, and the ERISA protections could be seen as favorable to the employer."