ERISA Long Term Disability Plans Defined. Most people who carry long term disability insurance obtain it by participating in a plan offered by their employers. Although it is possible to obtain long term disability insurance directly from an insurer (called “private” or “individual” disability insurance), those policies are prohibitively expensive for most people. But employers can offer reasonably priced long term disability insurance to their employees as an employee benefit, which is how the vast majority of us obtain LTD insurance.
Congress enacted the Employee Retirement Income Security Act (ERISA) in 1974 to regulate and protect employee benefits offered by employers. ERISA is a supremely complex statutory scheme that regulates all employer benefits. Employer benefits fall into two categories: employee welfare benefit plans (defined at § 1003(1)) and employee pension plans (defined at § 1003(2)). Welfare benefit plans include all kinds of medical benefits, sickness, death, unemployment and, for our purposes, disability benefits. Pension benefits include any retirement plans, i.e. pensions, but also cover any kind of employee deferred income plans.
The statute itself is divided into three subchapters: SUBCHAPTER I: Protection of Employee Benefit Rights (§1001 -§1191(c)), SUBCHAPTER II: Jurisdiction, Administration, Enforcement, Joint Pension Task Force, etc. (§1201 – 1242) and SUBCHAPTER III: Plan Termination Insurance (§1301 – 1461). SUBCHAPTER I is in turn broken into two subtitles, Subtitle A (General Provisions) and Subtitle B (Regulatory Provisions). The General Provisions subtitle contains Congressional findings (§1001), Definitions (§1002) and Coverage (§1003). The Coverage section mandates that “this subchapter shall apply to any employee benefit plan if it is established or maintained—(1) by any employer engaged in commerce or in any industry or activity affecting commerce; or (2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or (3) by both.” So taking the definition of welfare benefit plans and the coverage language together, any disability benefit plan established or maintained by an employer or an employee organization or both is subject to the ERISA statute.
The ERISA statute does contain important exceptions, or categories of employers that can establish or maintain employee benefit plans without having them subject to ERISA. You can learn more about those exceptions at our article entitled “LTD Disability Plans Not Subject to ERISA.” But the basic takeaway here is that long term disability benefits purchased directly from an insurer are simple contracts not subject to ERISA, but long term benefits obtained through an employer or an employee organization like a union must be closely examined to determine whether or not they are subject to ERISA.