A recent decision by an Ohio federal court illustrates an important distinction between two regulatory exemptions from ERISA’s definition of an “employee welfare benefit plan.” These are the exemptions for “payroll practices” and for “voluntary insurance arrangements.” The “Disability Absence Plan” (or “DAP”) at issue in Langley v. DaimlerChrysler Corp. was held to fall within the payroll practices exemption, despite a level of employer involvement that likely would have undermined any reliance on the exemption for voluntary insurance arrangements.
The Langley case arose when a production supervisor for DaimlerChrysler learned of threats allegedly made against her life and immediately began what she described as a “stress leave.” She also sought benefits under DaimlerChrysler’s DAP, which paid totally disabled employees their full salary for nine months, followed by 70 percent of their salary for three more months. All payments were made from DaimlerChrysler’s general assets.
The employee’s claim for benefits under the DAP was denied, as was her administrative appeal. She then filed suit for benefits under ERISA. DaimlerChrysler sought to have her suit dismissed on the ground that the DAP fell within the regulatory exemption for payroll practices, and was therefore not subject to ERISA. The court agreed that the DAP met the regulatory requirements for the payroll practices exemption – i.e., a continuation of no more than 100 percent of an employee’s regular pay, with all payments made from the employer’s general assets.
The employee argued, however, that the exemption was unavailable because DaimlerChrysler’s own summary of the DAP characterized it as an ERISA benefit. The court rejected this argument, holding that an employer’s mere characterization of a payroll practice as an ERISA benefit does not make it so. Quoting from a prior decision by the Eleventh U.S. Court of Appeals, the Langley court noted that allowing an employer to determine a benefit’s ERISA status merely by applying an ERISA or non-ERISA label “could lead to a form of ‘regulation shopping.’” That is, an employer could either avoid ERISA’s fiduciary obligations by labeling the benefit non-ERISA, or take advantage of ERISA’s preemption of state laws by labeling it an ERISA benefit.
While the Langley court’s analysis appears sound, its holding should not be applied outside the context of the payroll practices exemption. Many employers provide disability benefits through insured arrangements, often paid for entirely through employee premiums. Where this is so, the arrangement may fall within a regulatory exemption for “voluntary insurance arrangements.”
To constitute a “voluntary insurance arrangement,” however, there must not be any employer “endorsement” of the arrangement. Thus, an insured disability plan that includes the type of ERISA language found in the DAP’s summary might very well be subject to ERISA. In this respect, the exemption for voluntary insurance arrangements does allow an employer to engage in a certain amount of “regulation shopping.”