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Court Finds Employer Met ERISA's Voluntary Plan Safe Harbor, Despite Payment of Premiums Through Cafeteria Plan


Voluntary benefits that are sold directly to employees may be subject to ERISA as employer-sponsored plans, or may be exempt under the voluntary plan safe harbor, which allows for only minimal involvement by the employer. The plaintiff in this case purchased a short-term disability policy after seeing a presentation by the insurer at his workplace. He later sued under state law after his claim for benefits was denied. The insurer argued that the state-law claims were preempted because the plan was subject to ERISA. The court disagreed, holding that the arrangement met the voluntary plan safe harbor. (As background, a plan falls within the safe harbor if 1) the employer makes no contributions; 2) participation is completely voluntary; 3) the employer’s involvement is limited to permitting the insurer to publicize the program and to collecting and remitting premiums; and 4) the employer receives no consideration for collecting and remitting premiums, other than reasonable compensation.)

The insurer claimed the plan did not meet the safe harbor requirements because the employer’s involvement went beyond that allowed by law. For example, the insurer claimed that the employer endorsed the plan by selecting this particular insurer. But the court found that there was no evidence that this employer went beyond permitting the insurer to publicize the program, distinguishing a case where the employer’s use of a consulting firm when selecting an insurer took the plan outside the safe harbor. Notably, in contrast to other courts, this court held that collecting premiums through the employer’s cafeteria plan did not take the plan out of the safe harbor.

Ballard v. Leone, 2012 WL 665987 (D. Md. 2012)

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