What Is an ERISA Disability Plan?
In 1974 Congress passed the Employee Retirement Income Security Act (ERISA) to reduce corruption in retirement and benefits plans. These benefits include disability plans in which employers arrange a method whereby a disabled employee can obtain funds to support himself. ERISA governs many disability plans and provides rules and regulation as to what disabilities are covered, the effects of modifying the plans and the drawbacks of the plans.
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Preemption
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ERISA preempts state law, meaning that states cannot regulate ERISA disability plans. Any lawsuit directed against an employer for failure to pay an employee her ERISA covered disability insurance in violation of state law will be dismissed by the courts.
Disability
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ERISA disability plans cover only those disabilities provided for in the disability policy. Federal law imposes no requirement on providers of ERISA disability plans to cover all types of disabilities. For example, an employer who provides an ERISA disability plan may deny coverage to a disability caused by a preexisting condition. Check your ERISA disability plan to see what types of disabilities are covered and what aren't.
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Application
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ERISA applies to certain types of disability plans. It covers only those plans provided by private employers. It excludes disability plans provided to employees of churches and the government (whether local, state or federal). It also excludes disability plans provided by workers compensation. Furthermore, ERISA excludes disability plans in which participation is voluntary, none of the disability funds came from the employer or a union, the plan was not approved by the employer or a union, and there wasn't any compensation (except for a reasonable payroll deduction) provided to the employer or a union.
Drawbacks
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ERISA disability plans contain certain drawbacks that facilitate the denial of disability benefits. ERISA allows the administrator of the plan to deny a disability claim. A disability claimant cannot obtain damage awards under state law and is limited to obtaining only the disability amount promised in the plan.
Modifications
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ERISA disability plan modifications will affect some but not all claims. When a claim has been filed, any modifications to the plan made after the filing is ineffective. Thus if you filed your claim for a disability plan that promises you up to $10,000 in disability payments, the insurance company cannot then restrict your payments to $5,000 merely because it and the employer modified the amount to a different number (i.e. $5,000) after you filed your claim. However, such modifications made before the claim has been filed can affect the claim.
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