ERISA Glossary

Administrative Services Only (ASO) – An arrangement in which an insurance company provides claims paying assistance to a self-funded plan, such as claims adjudication, forms and enrollment, and perhaps arranging for stop loss insurance, but does not assume any insurance risk to plan participants or beneficiaries.

Arbitrary and Capricious  When applied in terms of a review of a claims denial, the phrase is tantamount tothe least demanding form of judicial review. In effect, the Court must onlydetermine whether, in light of the plan’s provisions, the plan administrator’sdecision was rational. [W]hen it is possible to offer a reasoned explanation,based on the evidence, for a particular outcome, the outcome is not arbitraryor capricious. Though extremely deferential, the standard does not permit thereviewing court to merely rubber stamp the administrator’s decision.See, Jones v. Metropolitan Life Ins. Co., 385 F.3d 654 (6th Cir.2004)

Beneficiary – The term “beneficiary”means aperson designated by a participant, or by the terms of an employee benefitplan, who is or may become entitled to a benefit thereunder. See, 29 U.S.C.1002 (7)(8).

Church Plan – A “church plan” is a plan established and maintained by a church for its employees.  A church plan includes a plan maintained by an organization the principal purpose of which is the administration or funding of the plan for the employees of a church, if such organization is controlled by or associated with a church (“principal-purpose organizations”).  An “employee of a church” includes an employee of a church-affiliated organization.

Complete Preemption – Complete Preemption arises under the section 502 civil-enforcement provisions of ERISA when a state-law cause of action duplicates, supplements, or supplants one of the remedies provided in that section.  See Aetna Health Inc. v.. Davila, 542 U.S. 200, 207-08, 124 S.Ct. 2488, 2495 (2004). If an individual, at some point in time, could have brought his claim under ERISA § 502, and where there is no other independent legal duty that is implicated by a defendant”s actions, then the individual’s cause of action is completely pre-empted by ERISA Section 502.  See Davila, 542 U.S. at 210. In the case of complete preemption, a claim which comes within the scope of ERISA Section 502, even if pleaded in terms of state law, is in reality based on federal law.  Complete preemption permits removal to federal court because the cause of action “arises under” federal law.

Conflict Preemption – Conflict preemption arises when state-law claims are asserted that relate to any employee benefit plan described in section 1003(a) of this title and are not exempt under section 1003(b) of this title.” See, 29 U.S.C.A § 1144(a). A state-law claim may “relate” to a benefit plan even if the state law is not specifically designed to affect such plans and the effect is only indirect. Once the defense of conflict preemption is raised, § 1144(a) governs the law that will apply to the state-law claims, regardless of whether the case is brought in state or federal court.  N.B. Conflict preemption is insufficient to produce federal removal jurisdiction.

Employer – The term “employer” means any personacting directly as an employer, or indirectly in the interest of an employer,in relation to an employee benefit plan; and includes a group or association ofemployers acting for an employer in such capacity. See, 29 U.S.C. §1002(5) The term implies a bona fide group or association ofemployers acting in the interest of its employer-members to provide benefitsfor their employees.

ERISA – The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

Fiduciary – ERISA defines a person or entity as a plan fiduciary if that person: (1) exercises any discretionary authority or discretionary control respecting management of the benefits plan, or disposition of its assets; or (2) has any discretionary authority or discretionary responsibility in the administration of the benefits plan.

Fiduciary Duties – ERISA imposes duties on fiduciaries by statute which incorporate principles from the law of trusts. These responsibilities include:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
  • Carrying out their duties prudently;
  • Following the plan documents (unless inconsistent with ERISA);
  • Diversifying plan investments; and
  • Paying only reasonable plan expenses.

 29 U.S.C. Section 1104(a).

A fiduciary that breaches the foregoing duties “shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.” Nonetheless, a fiduciary will not be liable if the breach was committed “before he became a fiduciary or after he ceased to be a fiduciary”. See, 29 U.S.C. Section 1104(a).

Form 5500 – Each year, pension and welfare benefit plans generally are required to file an annual return/report regarding their financial condition, investments, and operations. The annual reporting requirement is generally satisfied by filing the Form 5500 Annual Return/Report of Employee Benefit Plan and any required attachments.  

Governmental Plan – The term “governmental plan”means a plan established or maintained for its employees by the Government ofthe United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. The term also includes any plan to which the Railroad Retirement Act of 1935, or 1937 [45U.S.C.A. § 231 et seq.] applies, and which is financed by contributions required under that Act and any plan of an international organization which is exempt from taxation under the provisions of the International OrganizationsImmunities Act [22 U.S.C.A. § 288 et seq.]. See, 29U.S.C. § 1002(32) The question is one of federal, not State law, andrequires evaluation under one of several tests depending on the venue.

Participant – The term participant means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible subdivision thereof any such benefit. See, U.S.C. 1002 (7).

Plan Administrator – The term can mean (i) the person specifically so designated by the terms of the instrument under which the plan is operated; (ii) if an administrator is not so designated, the plan sponsor; or (iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.

Rule # 1: The administrator is the person or entity identified in the plan documents.[29 U.S.C. 1002 Section 16(A)(i)]

Many documents will identify the plan administrator and the query may end there. On the other hand, if none is so identified, two default rules are supplied in cascading fashion, as follows:

Rule #2: If Rule #1 does not apply, the plan sponsor is the administrator for purposes of the statute. [29U.S.C. 1002 Section 16(A)(ii)]

Once again, ERISA defines the term. The statute defines a plan sponsor as:

(i) the employer in the case of an employee benefit plan established or maintained by a single employer, (ii) the employee organization in the case of a plan established or maintained by an employee organization, or(iii) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.

29 U.S.C. 1002 Section 16(B)

Rule #3: If neither Rule #1 nor Rule #2 apply, the administrator is “such other person as the Secretary may by regulation prescribe.” [U.S.C. 1002 Section 16(A)(ii)]

Preemption – Section 514(a) of ERISA preempts all state laws insofar as they relate to employee benefit plans covered by Title I of ERISA subject only to certain exceptions expressly provided in section 514(b) of ERISA, was enacted to ensure that ERISA’s substantive standards would uniformly apply to all plans to protect plan participants and beneficiaries, to promote the development of employee benefit plans, and to assure uniform regulation of such plans. Congress intended through section514(a): to ensure that plans and plan sponsors would be subject to a uniform body of benefits law; the goal was to minimize the administrative and financial burden of complying with conflicting directives among States or between States and the Federal Government . . ., [and to prevent] the potential for conflict in substantive law . . . requiring the tailoring of plans and employer conduct to the peculiarities of the law of each jurisdiction. See also, “Complete Preemption” and “ConflictPreemption”, supra.

Third Party Administrator – A third party administrator or “TPA” is an entity that processes or adjudicates claims for an employee benefit plan. A TPA may provide additional services to an employee benefit plan or employer, such as collecting premiums, contracting for PPO services, providing utilization review of claims, and similar ancillary services to the operation of the employee benefit plan.

Welfare Benefit Plan – The terms “employee welfare benefit plan” and “welfare plan” mean any plan, fund, or program established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186(c) of this title [Title 29] (other than pensions on retirement or death, and insurance to provide such pensions).

Well-Pleaded Complaint Rule – As a general rule, determining whether a particular case arises under federal law turns on the well-pleaded complaint rule. Under this rule, determining whether federal question jurisdiction exists, permitting a removal to federal court, must be determined from what appears from the plaintiff’s statement of claims, “unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose. Thus, the existence of a federal defense normally does not create statutory “arising underr jurisdiction and a defendant may not [generally] remove a case to federal court unless the plaintiff’s complaint establishes that the case arises under federal law.

On the other hand, when a federal statute wholly displaces the state-law cause of action through complete pre-emption, the state claim can be removed. In other words, when the federal statute completely pre-empts the state-law cause of action, the plaintiff’s claims, even if pleaded in terms of state law, are treated as if based upon federal law. Applying this exception to the well-pleaded complaint rule, the U.S. Supreme Court has held that “any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.” AETNAHealth, Inc. V. Davila (02-1845) 542 U.S. 200 (2004).