Guest Article

(From the March 22, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Department of Labor to Address ERISA Preemption of State Health Reform Efforts in Proposed Regulations

The Department of Labor has notified the Office of Management and Budget (OMB) that it proposes to issue regulations regarding when health care reform efforts on the part of state and local governments are subject to ERISA preemption.

On February 22, 2010, the Department of Labor filed notice with the OMB that it proposes to amend its current regulation - § 2510.3-1 - to clarify the definition of "employee welfare plan" under ERISA. The notice states that the purpose of the amendment is to identify certain practices that do not implicate "employee welfare plans" for purposes of Title I of ERISA. The Department explained:

The Department is likely referencing a case now before the U.S. Supreme Court in a request for review. The case involves San Francisco's Health Care Security Ordinance, which requires employers to either provide minimum health care expenditures for their employees or pay an amount to a government-run health program for the uninsured. The Ninth Circuit Court of Appeals has upheld the law, reasoning that it is not preempted by ERISA. The Department of Labor, in an amicus brief filed with the Ninth Circuit, took the opposite position - arguing that the ordinance is indeed preempted by ERISA. The Supreme Court has not yet decided whether to hear the case, but has asked the Solicitor General to file a brief expressing its views.

Subject to certain exceptions, ERISA § 514(a) preempts "any and all state laws insofar as they may now or hereafter relate to an employee benefit plan." An "employee benefit plan" is broadly defined as either an employee welfare plan or an employee pension plan. If, as indicated in the OMB notice, the Department identifies certain practices as not constituting "employee welfare plans," state regulation of those practices would not be preempted by ERISA.

Currently, the Department's regulation carves out from the definition of "employee welfare plan" certain employer payroll practices (such as the payment of compensation for sick days or vacation days), certain on-premises facilities for employees (such as dining, recreation or medical facilities), certain holiday gifts, employee discounts, voluntary group benefit programs, and others. As a result, the states are generally free to regulate these matters (e.g., state laws regulating the accrual or payment of vacation or sick days) without implicating ERISA preemption. According to the OMB notice, the Department's proposed regulation is anticipated to be released by September 2010.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.