District Court Finds Employer’s Benefit Plan Is Governed By ERISA, And Did Not Fall Within The Safe-Harbor Exception

In Steigleman v. Symetra Life Ins. Co., No. CV-19-08060-PCT-ROS, 2023 WL 7413668 (D. Ariz. Nov. 9, 2023), Arizona District Judge Roslyn O. Silver granted judgment to Symetra Life Insurance Company  finding that the long-term disability policy at issue was governed by ERISA.

Plaintiff was an insurance agent who, from 2008 to 2018, owned and operated an insurance agency (“Agency”) having between one and four employees during that time frame. Plaintiff was a member of a nonprofit organization – The Agents Association (“TAA”) – formed to represent the common interest of agents selling Farm Bureau insurance products, which she sold. TAA, through its own broker, offered group benefits to its members consisting of various insurance coverages including short and long-term disability and life insurance. Some coverages, such as the LTD benefits offered by Symetra, were available to members and their staff and families. The eligibility requirements for such coverage were dictated by TAA. Plaintiff and the Agency, thus, used some of the TAA coverages in offering its employees a benefits package, thus delegating administration of the employees’ benefits to TAA. The Agency paid 100% of the premiums for all benefits. From the perspective of the Agency’s employees, the coverages provided by TAA were benefits of their employment.

The sole dispute in this action was whether the Agency established or maintained an “employee welfare benefit plan” as that term is defined under ERISA. The Court noted the test laid out by the Ninth Circuit in Delaye v. Agripac, Inc., 39 F.3d 235, 237 (9th Cir. 1994) (determining whether benefits are being provided pursuant to an “employee welfare benefit plan” comes down to the “relatively simple test … does the benefit package implicate an ongoing administrative scheme?”). The Court further explained that an ongoing scheme may involve a responsibility to pay benefits on a regular basis or periodic demands on an employer’s assets that create a need for financial coordination and control. It noted that an ongoing scheme often requires an employer to exercise “more than a modicum of discretion” in operating the scheme and remarked that discretionary decision-making is the hallmark of an ERISA plan.

With regard to the Agency’s conduct, the Court found that it indeed had an ongoing administrative scheme regarding employee benefits that required the exercise of discretionary decision-making. Plaintiff decided the Agency needed to offer a benefits package to recruit and retain staff. To that end, the Agency established or maintained a scheme involving the selection of certain coverages from TAA. The Agency exercised discretion in determining which of the TAA coverages were of sufficient quality to endorse to the Agency employees, and the Agency’s employees gained access to group-type disability insurance coverage through TAA.

The court next addressed the safe harbor regulation which provides: “a group or group-type insurance program offered by an insurer to employees or members of an employee organization” will not be deemed an ERISA plan if: (1) No contributions are made by an employer or employee organization; (2) Participation [in] the program is completely voluntary for employees or members; (3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and (4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs. 29 C.F.R. § 2510.3-1(j).

The Court found that while the Agency met the second and fourth requirements, it failed the other two. The Agency paid 100% of its employees’ premiums for certain TAA coverages. And, the Court found that the Agency’s actions led every reasonable employee to view the TAA coverages as “part and parcel of the [Agency’s] own benefit package.” Thus, the Agency endorsed the program within the purview of the third prong of the safe harbor regulation. The Court found that the Agency’s benefit plan was indeed governed by ERISA. Because Plaintiff previously stated that she did not want to pursue any ERISA-based claims, judgment was entered in favor of Symetra.

As this case demonstrates, the manner in which your employer offers long-term disability benefits can affect the law governing any benefit dispute. If your insurance company has denied or terminated your disability claim, contact us for assistance.