Yes or No: Which Welfare Benefit Plans are (and aren’t) subject to ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. The Department of Labor (DOL), through its Employee Benefits Security Administration (EBSA), enforces most of ERISA’s provisions. Violating ERISA can have serious and costly consequences for employers that sponsor welfare benefit plans, either through DOL enforcement actions and penalty assessments or through participant lawsuits.

Many employment plans or programs that provide nonretirement benefits to employees are considered employee welfare benefit plans that are subject to ERISA. To qualify as an ERISA plan, there must be a plan, fund or program that is established by the employer for the purpose of providing ERISA-covered benefits (through the purchase of insurance or otherwise) to participants and their beneficiaries.

ERISA generally applies to the following common employee benefits, regardless of whether they are insured or self-funded:

  • Medical, surgical or hospital benefits;
  • Dental benefits;
  • Vision benefits;
  • Prescription drug benefits;
  • Health reimbursement arrangements (HRAs);
  • Health flexible spending accounts (FSAs);
  • Accidental death and dismemberment (AD&D) benefits;
  • Group life insurance benefits;
  • Death benefits (other than life insurance);
  • Wellness programs (when medical care is provided);
  • Employee assistance plans (EAPs) (when medical care is provided);
  • Disability benefits, both short-term disability and long-term disability, if insured or funded other than as a payroll practice; and
  • Disease-specific coverage (for example, cancer policies that provide medical benefits)

WHICH WELFARE BENEFIT PLANS ARE NOT SUBJECT TO ERISA?

Certain welfare benefit plans that would otherwise fall under ERISA have been specifically exempted by DOL regulations. These exemptions include:

  • A safe harbor exemption for certain payroll practices; and
  • A safe harbor exemption for “voluntary plans.”

In addition to these exemptions, certain benefit arrangements do not fall under ERISA’s definition of a welfare benefit plan.

ERISA generally does NOT apply to the following arrangements:

  • Adoption assistance plans;
  • Liability or casualty insurance plans;
  • Health savings accounts (HSAs)—if the employer’s involvement is limited and employee participation is voluntary;
  • Commuting benefits (that is, transportation allowance, free parking and mass transit passes);
  • Dependent care assistance programs (DCAPs);
  • Professional development classes (unfunded);
  • Pet insurance;
  • Scholarship programs (unfunded);
  • Section 125 premium-only plans (although the plans benefit components may be subject to ERISA);
  • Sporting event tickets or discounts;
  • Tuition reimbursement;
  • Health, fitness or exercise club membership—if the program does not offer medical care;
  • Unemployment compensation provided solely to comply with state law; and
  • Financial/retirement planning programs;
  • Workers’ compensation benefits provided solely to comply with state law.

If an employee benefit plan is exempt from ERISA, the plan’s sponsor does not have to comply with certain requirements that are designed to protect plan participants and ensure plan solvency. On the other hand, an ERISA exemption also means that the plan sponsor does not enjoy certain protections afforded to employers under the law. Most significantly, employers that sponsor ERISA plans are generally protected against lawsuits for punitive and other types of damages under state laws with respect to their benefit plans.