ERISA Issues Affecting Employers
ERISA is the Federal law governing employer-sponsored benefit plans, including health, life, pension and disability plans, established for employees. These plans can be self-funded or insured. Typically, employers engage a third party to administer the plan, such as an insurance company responsible for deciding whether to pay the benefits under the policy.
Can a Plan Create Subrogation Rights?
The answer is a resounding “maybe.” In 2002, the U. S. Supreme Court held that an employer’s health plan could not bring an ERISA claim against an employee for reimbursement of medical costs when the participant had recovered those same expenses from a third party in a separate personal injury lawsuit. The plan contained a typical reimbursement provision permitting the plan to recoup these costs if the participant recovered from a third party. The court held that although ERISA authorizes suits to obtain equitable relief to enforce the terms of a plan (including, presumably, the right of subrogation), the suit was improper because what the employer sought was the repayment of money, which is not “equitable relief.”
A 2005 decision from the Federal Court of Appeals in Richmond suggests that if the money recovered in the personal injury action has not been spent, but remains in an account controlled by the plan participant, the plan may seek reimbursement through enforcement of its subrogation rights. The U.S. Supreme Court is currently reviewing this decision and has an opportunity to provide guidance to plan sponsors and administrators about how to protect their rights to reimbursement.
The impact from these cases is very real. For example, sponsors of self-funded plans apparently should now monitor litigation filed by plan participants for personal injuries where the medical bills have already been paid by the employer’s plan. The plan will need to attempt to intervene in the case, prior to the payment of any judgment damages or settlement funds to the plan participant, in order to preserve its ability to be reimbursed for medical expenses already paid.
Plan Administration Pitfalls—Participants’ Requests for Plan Documents
Employers who administer their own plans (frequently through their human resources departments) may receive requests for plan-related documents from employees (or their participating family members). When an employee makes such a request in writing, the employer is required by ERISA to furnish within 30 days of the request, the current summary plan description and any other documents under which the plan is established or operated. The failure to do so can result in a penalty of up to $110 per day.
The penalties associated with ignored or neglected requests for plan documents can quickly add up. Employers, therefore, should carefully review any such requests in a timely manner.