A federal district court, in Stolebarger v. Prudential
Insurance Company of America, ruled that long-term disability
("LTD") benefits were covered by ERISA because the employer
had "endorsed" the coverage.
Law. ERISA preempts most state laws that relate to
ERISA-covered employee benefit plans except for state laws that
regulate insurance, banking, or securities.
Notwithstanding the above, under ERISA's safe harbor provision, an
insurance policy will not be considered ERISA-covered if the policy
satisfies the following four criteria:
- No contributions are made
by the employer or employee organization.
- Participation in the
program is voluntary.
- The sole functions of the
employer with respect to the program are, without
"endorsing" the program, to permit the insurer to
publicize the program, to collect premiums through payroll
deduction, and to remit them to the insurer.
- The employer receives no
consideration in connection with the policy other than
reasonable compensation for administrative costs it
Background. An employee
was diagnosed with depression and began to experience serious anxiety
attacks that prevented him from performing his work. With
medication and treatment, the employee resumed some administrative
work, but after attempting to resume work in his regular occupation,
it was clear that he could not continue.
The employee was placed on disability leave and filed a claim
with the insurer for LTD benefits. The employee had obtained
LTD coverage under a policy offered by the insurer through his
The insurer denied the employee's claim for LTD benefits because it
determined he was able to perform his job functions. The
employee then sued under both ERISA and state law (which provided
greater penalties than ERISA). In response, the insurer asked
the court to dismiss the employee's state law claims saying they were
preempted by ERISA.
District Court. Upon reviewing the matter, the district
court noted that an employee benefit plan is not exempt from ERISA
coverage if it fails any part of ERISA's safe harbor provision.
Here, the court found that the employer had endorsed the LTD plan
because the insurance contract and certificate of coverage identified
the employer as the plan sponsor, plan administrator and agent for
service of process. Moreover, the court observed that the
summary plan description defined the plan as the "[Employer's]
Long Term Disability Plan" and stated that the LTD plan was
governed by ERISA. Accordingly, the court determined that ERISA
applied to the LTD plan and, in turn, dismissed the employee's state
Employer Takeaway. In view of Stolebarger,
employers seeking to avoid the application of ERISA to similar
arrangements are advised to refrain from: (i) including statements as
to ERISA's application in plan documentation, correspondence, or
communications with employees; and (ii) saying that they sponsor or
administer the plan, or indicating that the plan is part of the
employer's benefit package.