When does ERISA govern short term disability payments?
Take a look at this recent case, Behjou v. Bank of America et. al, [PDF] __ F.Supp. 3d __ (N.D. California May 1, 2012).
FACTS: Behjou brought short term disability and long term disability claims under the Bank of America (BOA) ERISA plan. When the benefits were denied, Behjou commenced a lawsuit, asserting ERISA and state law claims (emotional distress, insurance violations and failure to pay wages). BOA argued the state law claims were preempted by ERISA. Plaintiff argued the short term disability benefits were NOT governed by ERISA and, therefore the state law claims were not preempted by ERISA. The parties cross-moved for summary judgment.
ISSUE: Whether the short term disability claim is governed by ERISA, therefore preempting the state law claims.
HELD: Summary Judgment for Plaintiff: The State law claims were not preempted by ERISA because ERISA did not apply.
A regulation of the Secretary of Labor excludes certain “payroll practices” from the application of ERISA. Op. at 4. The regulation states that an ERISA plan shall not include “[p]ayment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons….” 29 C.F.R. Section 2510.3-1(b)(2)(emph. added).
To determine application of the regulation, the Court looks to the “actual methods of payment.” The payments need only “closely resemble” wages or salary to constitute “normal compensation.” Op. at 5.
If the payment of benefits “come[s] in regular paychecks, in amount tied to the employee’s salary and not to the variable performance of a fund” then it is more likely “normal compensation” and outside of ERISA. Op. at 4-5.
With regard to whether the payments come from the employer’s “general assets,” the “salient query” is the source of the payments.
The plan documents in this case actually state that short term disability payments are paid out of Bank of America’s “general assets.” Op. at 5.