Is a supplemental life plan offered to employees subject to ERISA’s requirements even if employees pay the full premiums post-tax?

The answer will depend on what “offered to” employees means. Unless the employer’s actions vis-à-vis the supplemental plan stay within the “voluntary plan safe harbor” or another exemption applies, the benefit will be subject to ERISA. Generally, ERISA applies to any employer-maintained plan, fund, or program providing medical, dental, vision, prescription drug, health FSA, HRA, accident, disability, or death benefits. Despite ERISA’s far-reaching application, certain types of plans and programs are exempt from ERISA. Governmental plans (including state, city, county and public school plans) and church plans are exempt. Programs maintained solely to comply with state law requirements for workers’ compensation, unemployment compensation or disability insurance and payroll practices that pay benefits solely out of the employer’s general assets are also exempt.

In addition, ERISA’s regulations provide a safe harbor from the law’s application for certain insurance arrangements where the employer maintains minimal involvement (referred to as the voluntary plan safe harbor). Under these arrangements, coverage must be voluntary, and employees must pay the full premium. Further, the employer’s role must be limited to allowing an insurer to offer and publicize a program to employees, collecting premiums through payroll deductions, and remitting these premiums to the insurer. The employer must not put any conditions on an employee’s election of benefits nor profit from the program.

Importantly, the employer must not “endorse” the program. Practically speaking, this is the most difficult safe harbor requirement to satisfy. Unfortunately, endorsement is not clearly defined in the regulations. However, from a series of court cases and DOL advisory opinions, we know that the following actions may be seen as an endorsement:

• Recommending the program
• Selecting the insurer
• Negotiating terms
• Allowing premiums to be paid pre-tax through the cafeteria plan
• Linking coverage to employee status
• Using the employer’s name (i.e., the “ABC Company Supplemental Life Plan”)
• Assisting employees with enrollment and claims
• Saying ERISA applies

These endorsement factors – alone or in combination – could push the program outside the voluntary plan safe harbor. Employee perceptions regarding employer endorsement are particularly important. Since it is not easy to predict what a reviewing court or the DOL will view as an endorsement, an employer wishing to maintain a voluntary safe harbor must be very careful in their communications regarding the program. For example, enrollment materials should make clear that the coverage is not an employer-sponsored ERISA plan (in contrast to other available benefits), and employee questions about the program should be redirected to the insurer.

Accordingly, the fact that an employee pays their premiums post-tax is not a conclusive factor in whether ERISA applies. The plan must be scrutinized for employer endorsement. Offering supplemental life coverage in association with the employer’s other benefits (including basic life with the same insurer) is strong evidence of endorsement, thereby falling outside the voluntary plan safe harbor. This means the supplemental life benefit is subject to ERISA’s plan document, summary plan description, Form 5500 reporting, disclosure, claim procedures, and fiduciary requirements. But a detailed factual analysis of the offered coverage in question is necessary to say with certainty whether ERISA’s voluntary plan safe harbor requirements are met. Since the consequences of ERISA noncompliance are significant and the endorsement determination is highly-fact specific, employers should seek a determination from their legal counsel before relying on the safe harbor to conclude ERISA does not apply.