What happens when state statutes impose duties on third parties administering ERISA plan benefits?

That issue was addressed this last week in the July 9, 2010 case of Pharmacy Care Management Association v. District of Columbia, 2010 WL 2696524 (July 9, 2010)(Imposing requirements upon third party service providers that administer pharmaceutical benefits for an employee benefit plan will “function as a regulation of an ERISA plan itself” and therefore are preempted. Op. at 8.).

The opinion provides some useful analysis on a variety of issues.

Facts: The Pharmacy Care Management Association (PCMA) is a trade association. It challenged a District of Columbia law that required benefit managers to act as fiduciaries, pass on discounts, and disclose information containing conflicts of interest. PCMA contended the law was preempted by ERISA.

HELD: District of Columbia Circuit Court of Appeals. District of Columbia law was preempted.

RATIONALE.

  1. A state law “relates to” [employee benefit plan (EPB)] if it [1] has a connection with or [2] reference to such a plan.”
  2. The District of Columbia government contended such regulations are not preempted, relying upon garden variety breach of contract or medical malpractice cases in which courts from other jurisdictions held ERISA did not preempt such claims. But none of the cases cited actually involved a state law regulating a third party administering employee benefits on behalf of the plan. Op. at 6.
  3. Some cases suggest a state law regulating a third party’s performance of administrative functions on behalf of a plan could be preempted. Op. at 6.
  4. This state statute provisions “touched upon ‘a central matter of plan administration’… and are preempted if they also have an impermissible effect upon an [employee benefit plan.]”
  5. The Supreme Court has not prescribed a standard for determining whether a state law sufficiently constrains an employee benefit plan’s decision-making to be deemed preempted. Op. at 8.
  6. Imposing requirements upon third party service providers that administer pharmaceutical benefits for an employee benefit plan will “function as a regulation of an ERISA plan itself” and therefore are preempted. Op. at 8.
  7. What is a plan administrator? Plan administration includes “determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of funds for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements.” Op. at 5.