Disability Benefits: ERISA plan or Payroll Practice?

[Guest Charlie Stevens]

What of a short-term disability plan that pays 60% of the employee's wages for 26 weeks? I understand that ERISA exempts from coverage "payroll practices" including payment of an employee's NORMAL COMPENSATION for periods in which the employee is physically unable to work, and where such benefits are paid by the employer out of its general assets. But what if it is not 100% that is paid but a smaller amount and what if there are waiting periods to satisfy before benefits commence. This would not appear to be a typical salary continuation plan or sick day plan provided by the employer. Furthermore, many employers with these arrangements have cast them as ERISA plans, providing SPDs, filing 5500s, etc. If treated as an ERISA plan, will ERISA serve the employer as a shield in the event of employee litigation in state court?

------------------

Charlie Stevens

Michael Best & Friedrich LLP

[KIP KRAUS]

Charlie:

I have always been under the same assumption that std or salary continuation from general assets is not considered an ERISA plan. As far as participation, eligibility, waiting periods and % of pay requirements,I would argue that ERISA still does not apply. I know of no ERISA regulations, other than Highly compensated discrimination rules, that would care how benefit is set up. In any event, I feel sure that to benefits paid from general assets rule is the desiding factor.

[Guest Charlie Stevens]

But why, philosophically, should the source of funding be the dispositive factor in whether an STD plan is an ERISA plan or a payroll practice. There are certainly a fair number of plan-like attributes to many self-funded STD plans including fiduciary duties, claims review procedures, reporting and disclosure, etc. In fact, ERISA is likely to be a more appropriate governing law for such plans than for an insured STD plan. Does anyone know what courts have said about this and/or what other employers are doing.

------------------

Charlie Stevens

Michael Best & Friedrich LLP