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ERISA preemption.

786. What is the scope of ERISA preemption?

ERISA Section 514(a) says that the provisions of ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." The objective of this preemption clause is to provide a uniform remedy for the participants and beneficiaries of ERISA covered employee benefit plans.

An employee benefit plan is one that is established or maintained by an employer or employee organization. (3) This does not include individual retirement accounts. (4)

ERISA Section 514(c)(1) defines a state law as all laws, decisions, rules, regulations or other state action having effect of law. Any attempt by a state to alter or limit the scope of preemption under ERISA Section 514(a), through legislation, regulatory action, or otherwise, would itself be preempted by ERISA. (5) For these purposes, a "state" includes any political subdivisions, agencies or instrumentalities of the state. (6)

The United States Supreme Court, as well as United States District Courts and state courts have held in more than 300 cases that state laws and actions have been preempted by ERISA's broad reach.

The United States Supreme Court has held that a state law relates to an employee benefit plan "if it has any connection with or reference to such a plan." (7) In other words, if a claim under state law requires a review of, or reference to the plan, it would be subject to the preemption provisions of ERISA. This is particularly true where a state law has been specifically designed to have an effect upon employee benefit plans, or if the rights or restrictions it creates are based upon the existence of an employee benefit plan. (8) However, the Third Circuit has ruled that ERISA preemption only applies to claims that an HMO (under the provision of health benefits through an employee welfare benefit plan) failed to provide benefits under the plan through the authorization of medical treatment. It does not prevent a claim under state law regarding the quality of treatment received once it has been authorized by the HMO as a benefit under the employee welfare benefit plan. (1) ERISA preempts state laws invalidating beneficiary designations pursuant to divorce. (2)

ERISA preempts state laws only. It will not preempt other federal laws or regulations. Specifically, ERISA will not be interpreted in such a way as to alter, amend, modify, invalidate, impair, or supersede federal laws and regulations. (3)

The City of New York enacted an Equal Benefits Law mandating that no city agency may enter into a contract worth $100,000 or more with any service provider that fails to provide employee benefits to domestic partners of its employees equal to those provided to spouses. The city argued that the law did not mandate the extension of benefits to domestic partners of private industry employees, only that New York City would not conduct business with private entities that do not extend benefits to domestic partners. In rejecting this position, the court ruled that ERISA preempted the Equal Benefits Law because the city was attempting to act as a regulator to achieve public policy goals through dictation of the content of ERISA-covered plans. (4)

The Fourth Circuit Court of Appeals has ruled that Maryland's Fair Share Act is unenforceable due to ERISA preemption. The Fair Share Act was aimed at Wal-Mart and required employers with 10,000 or more Maryland residents on their payroll to spend, at a minimum, a specified level of total Maryland based wages on health care or insurance. As an alternative, the employer could pay the difference between what is actually spent and the Act minimum to the State Secretary of Labor. In ruling that ERISA preempted the Fair Share Act, the court noted that it violated ERISA by mandating a structure of health benefits to meet state minimums. The court also noted that the Fair Share Act, in requiring separate accounting for Maryland residents, interfered with a uniform administration of its plans, as contemplated by ERISA. (5)

The Sixth Circuit has ruled that a state law breach of contract claim based on a merger agreement, in which an acquiring employer guaranteed that the participants in an ESOP would receive funds from the employer's general assets if the ESOP's assets were not distributed as described in the merger agreement, was preempted by ERISA. (6) The court saw this case as the plaintiff seeking damages for the ERISA-regulated actions of an ERISA fiduciary, based on an alleged contract that the fiduciary had entered into before becoming a fiduciary with respect to the plaintiff. The court ruled that ERISA preempted here because the state law contract claim originally filed would have bound fiduciaries to particular choices, thereby functioning as a regulation of the ERISA plan.

As an affirmative defense, ERISA preemption will be waived if not timely asserted.

787. What are the exceptions to the broad reach of ERISA preemption?

State laws that do not directly relate to an employee benefit plan will not be subject to the preemption provisions of ERISA. In addition to state laws that do not directly relate to an employee benefit plan, the following situations are not preempted by ERISA:

1. Any state law that regulates insurance, banking or securities; (1)

2. Any generally applicable criminal law of a state; (2)

3. The Hawaii Prepaid Health Care Act; (3)

4. Certain multiple employer welfare arrangements; (4)

5. Qualified domestic relations orders and qualified medical child support orders; and5

6. Any state cause of action for the recoupment of Medicaid payments.

Further, there have been more than 200 federal and state court cases where the preemption provisions of ERISA have been ruled inapplicable to the state laws at issue. There have also been numerous cases denying ERISA preemption on the grounds that the state law at issue had only a "tenuous" relation to an ERISA covered plan. Some examples of these cases include the application of state tort laws, fraud laws, breach of contract laws, severance pay laws, prevailing wage laws, malpractice laws, escheat laws, and insurance laws. In addition, the United States Supreme Court has ruled that ERISA does not preempt state garnishment laws. (6)

ERISA does not preempt state workers' compensation laws. (7)

The United States Supreme Court has ruled that state laws that regulate insurance and are directed specifically towards the insurance industry are not preempted by ERISA. (8) Citing the Dedeaux case, the Supreme Court has ruled that state level insurance "notice-prejudice" laws (which state that an insurer cannot avoid liability for an untimely claim unless the insurer can show that it suffered actual prejudice from the delay) are not preempted by ERISA. (9)

788. What are EBSA Field Assistance Bulletins?

Field Assistance Bulletins (FAB) are technical guidance provided by the national office of the Employee Benefits Security Administration (EBSA) to its field enforcement staff to ensure that the law is applied consistently across EBSA's various regions. FAB's provide insight to the regulated community about EBSA's views on technical applications of ERISA and are available at the website of the Department of Labor--Employee Benefit Security Administration at:

(3.) ERISA Secs. 3(1), 3(2).

(4.) Labor Reg. [section] 2510.3-2(d).

(5.) DOL Adv. Op. 93-04A.

(6.) ERISA Sec. 514(c)(2).

(7.) Shaw v. Delta Airlines, 463 U.S. 85 (1983); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990).

(8.) United Wire Welfare Fund v. Morristown Memorial Hospital, 995 F.2d 1179 (3rd Cir. 1993).

(1.) In re: U.S. Healthcare, Inc., 193 F.3d 151 (3rd Cir. 1999).

(2.) Egelhoff v. Egelhoff, 532 U.S. 141 (2001), reversing, 989 P.2d 80 (Wash. 1999).

(3.) ERISA Sec. 514(d).

(4.) In the Matter of the Council of the City of New York v. Bloomberg, 36 EBC 2732 (Feb. 14, 2006).

(5.) Retail Industry Leaders Association v. Fielder, 2007 U.S. App. LEXIS 920 (4th Cir. 2007).

(6.) Hutchison v. Fifth Third Bancorp, 469 F.3d 583 (6th Cir. 2006).

(1.) ERISA Sec. 514(b)(3)(A).

(2.) ERISA Sec. 514(b)(3).

(3.) ERISA Sec. 514(b)(5)(A).

(4.) ERISA Sec. 514(b)(6)(A).

(5.) ERISA Sec. 514(b)(7).

(6.) Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825 (1988); Retirement Fund Tr. of the Plumbing, Heating & Piping Indus. of S. Cal. v. Franchise Tax Bd., 909 F.2d 1266 (9th Cir. 1990).

(7.) ERISA Sec. 4(b)(3).

(8.) Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).

(9.) Unum Life Inc. Co. of America v. Ward, 135 F.3d 1276 (1999).
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Publication:ERISA Facts
Date:Jan 1, 2010
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