Excerpted from Oklahoma Employment Law Letter, written by attorneys at the law firm Doerner, Saunders, Daniel & Anderson, LLP

The Employee Retirement Income Security Act of 1974 (ERISA) was enacted by Congress to promote the interests of employees and their beneficiaries in employee benefit plans. To that end, ERISA imposes participation, funding, and vesting requirements on certain pension plans. In addition, it sets various uniform standards for benefit plans, including rules covering reporting, disclosure, and fiduciary responsibility. Let's take a look at some of the law's safeguards.

Mooring in rough seas

To achieve its objectives, Congress included various safeguards in ERISA to prevent abuse and secure the rights and expectations generated by the law. To fall under ERISA, a plan must be an employee benefit plan established or maintained by an employer. Determining what is or isn't such a plan is the subject of much litigation and can leave you feeling as though you're sailing on a rough sea. Under the broad reach of the law, many types of arrangements have been found to be pension plans subject to ERISA's requirements.

Under regulations issued by the U.S. Department of Labor (DOL), however, certain group or group-type insurance programs aren't subject to ERISA regulation because of what's known as the "safe harbor" provision. To moor in the safe harbor and escape ERISA's wake, a group or group-type insurance program offered by an insurer to employees or members of an employee organization must meet the following requirements:

• No contributions are made by an employer or employee organization.
• Participation in the program is completely voluntary for employees or members.
• The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, (1) to permit the insurer to publicize the program to employees or members and (2) to collect premiums through payroll deductions or dues checkoffs and remit the premiums to the insurer.
• The employer or employee organization receives no consideration in the form of cash or anything else of value in connection with the program, other than reasonable compensation (excluding any profit) for administrative services actually rendered in connection with the payroll deductions or dues checkoffs.

The second and fourth requirements are self-explanatory and have generated little controversy. An employee must be under no obligation to participate in the program, and you can't be compensated - through the payment of money or in some other fashion - in connection with the program, other than to be compensated for actual expenses for making payroll deductions or dues checkoffs. The first and third requirements of the safe harbor provision have spawned much litigation in the courts, however.

Storms of litigation

The first requirement - that no contributions be made by an employer or employee organization - seems at first blush to be straightforward. But an issue arises when the premiums paid by the employee are "discounted" because of employer contributions to other programs. For instance, you may offer health insurance coverage for an employee and her dependents. Your company may pay some or all of the premiums for the employee's health insurance, but she must pay for the dependent coverage herself. What might a court say about that arrangement?

Under those circumstances, courts have "bundled" the programs together and held that the employer's contribution to the employee's health insurance coverage is enough to prevent use of the safe harbor provision because:

1.       the employee can't obtain dependent coverage unless she was also covered; and

2.       the premium for the dependent coverage is lower as a result of the employer's contribution to the employee's coverage.

To meet the first requirement of the safe harbor provision, the plan or policy must be offered independently of your other benefit plans so that your payment of some or all of the costs of the other plans has no effect on the premium the employee pays for the plan or policy at issue.

The third requirement has also produced a storm of litigation. The question is, how far can you go in performing administrative functions in connection with the plan or policy before you have sailed out of the safe harbor? It's clear that if you make decisions about eligibility or render interpretations of policy language, the plan or policy will no longer reside in the safe harbor. Minimal involvement, however - like merely forwarding a claims form to an employee - will not be enough to take the plan or policy outside the safe harbor.

Smooth sailing

There are certainly times when you'll want to allow an insurer to publicize and offer a group or group-type insurance policy (supplemental life insurance or disability insurance, for example) without invoking ERISA and the attendant duties imposed on your company. In those cases, you'll want to dock in the safe harbor provided under DOL's regulations and avoid ERISA's rough seas.