PERSPECTIVE: UNDERSTANDING THE LEGISLATIVE INTENT OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA)
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal statute designed to protect the well-being of employees and their beneficiaries in employee benefit plans. The term “employee benefit plan” is defined as one which provides to employees “medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability [or] death [1].
ERISA is a uniform federal regulatory scheme; however, ERISA does not regulate the substantive content of benefit plans. ERISA also created a course of action for employees to file claims and set standards for remedies available under the statute.
The case of Pilot Life Insurance v. Dedeaux reinforced the significance of ERISA. In Pilot Life Insurance, the employee filed a claim for health benefits that were ultimately terminated by the employer. The benefits the employee received were regulated by ERISA.
“Under the civil enforcement provisions of §502(a) of ERISA a plan participant or beneficiary may sue to recover benefits due under the plan, to enforce the participant’s rights under the plan, or to clarify rights to future benefits [2].” The cause of action created under this provision is a breach of fiduciary duty.
The employee in Pilot Life Insurance filed on two counts (1) a common law tort claim and (2)a contract claim asserting the employer violated a “bad faith” state law in terminating employee’s benefits; however, the employee did not bring forward any claims created under the ERISA statute. The District Court granted summary judgement citing the pre-emption clause of ERISA.
Section §514(a) of ERISA provides, with enumerated exceptions, that ERISA shall supersede “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. This section is better known as the pre-emption doctrine.
In Shaw v. Delta Airlines, the Supreme Court noted:
The limited legislative history dealing with §514 is entirely consistent with Congress’ goal of ensuring that employers would not face “conflicting or inconsistent State and local regulation of employee benefit plans [3]. Congress applied the principle of pre-emption “in its broadest sense to foreclose any non-Federal regulation of employee benefit plans,” creating only very limited exceptions to preemption [4]. “The question of whether a certain state action is pre-empted by state law is one of congressional intent; the purpose of Congress is the ultimate touchstone [5].”
The employee in Pilot Life Insurance filed an appeal from the District Court’s decision. The question presented to the Court of Appeals is whether the saving clause, that exempts the pre-emption clause, applies to the employee’s claim. The saving clause delineated in §514(b) referred to as the deemer clause states no employee benefit plan “shall be deemed to be an insurance company for purposes of any law of any State purporting to regulate insurance companies.
The Court of Appeals recognized that the saving clause is applied if the state law “regulates insurance” meaning “a law must not just have an impact on the insurance industry but must be specifically directed toward that industry [6].”
The Court of Appeals upheld employee’s claim citing the saving clause of ERISA and reversed the District Court’s decision based upon Metropolitan Life.
The Supreme Court acknowledged Metropolitan Life’s guidance in determining whether the saving clause applies either by (1) a “common sense view or by (2) interpreting the phrase “business of insurance” under the McCarran-Ferguson Act.
The common sense view of the understanding of the meaning of the state law is that the law “which regulates insurance” is within the plain language of §514(b)(2)(A) and is therefore saved from pre-emption of §514(a) [7].
The McCarran-Ferguson Act states: “The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.” The Supreme Court noted the term “business of insurance” under the McCarran-Ferguson Act is determined by: “First, whether the practice has the effect of transferring or spreading a policyholder’s risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry [8].”
The Supreme Court noted, “our understanding of the saving clause must be informed by the legislative intent concerning the civil enforcement provisions provided by ERISA.”
The Supreme Court does not agree with the Court of Appeals interpretation of “business of insurance” as applied to this case and determined the state law cited in this case is one of “bad faith” not interpreted as regulating insurance and therefore not supported by the saving clause.
The Supreme Court emphasized Congress’s intent in interpreting the ERISA doctrine by stating:
“The policy choices reflected in the inclusion of certain remedies and the exclusion of others in the federal scheme would be completely undermined if ERISA-plan participants and beneficiaries were free to obtain remedies under state law that Congress rejected in ERISA [9].”
The predictability of the ERISA doctrine is reflected by the legislative history of Congress in creating a regulation with provisions that are explicitly stated with narrow exceptions. Understanding congressional intent also helps to ensure the regulation is being interpreted in a way that aligns with its original purpose. The case law reinforces the objective of the ERISA doctrine in protecting and promoting employee benefit plans.
[1] Metropolitan Life v. Massachusetts, 471 U.S. 724 (1985).
[2] Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).
[3] Shaw v. Delta Air Lines, Inc., 463 U. S. 85 (1983).
[4] Id.
[5] Id.
[6] Metropolitan Life v. Massachusetts, 471 U.S. 724 (1985).
[7] Id.
[8] Id.
[9] Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987).