J.J. Conway
J.J. Conway Law
Years ago, I was asked to put on a webinar for a bar association. The program was designed to serve as a kind of primer on ERISA law. The statute was perplexing to many, so the sponsoring section thought it might be useful to discuss the law’s function or, at least, attempt to demystify it. Thinking about how to approach the topic, I recalled how lawyers and non-lawyers alike had bemoaned a statute that, quite frankly, has been responsible for paying my mortgage.
So, I thought an appropriate title for the program might be, “Hitting You When You Least Expect It, A Guide to ERISA for Non-ERISA Lawyers.” I did the webinar, and the materials were uploaded to the internet by the association. These were the early days of webinars, so I have no idea how many attendees were actually online, if any, frankly.
A few months later, I began receiving random email messages from all around the United States asking me about various ERISA problems. A lot of them. I didn’t make much of a connection until one day I was searching for an ERISA article, and the seminar paper popped up as the No. 1 search when you typed in the term, “ERISA Guide.” (It was a good ride at number 1, but those days are over, and the article is hard to find anywhere now.) What I realized though is that ERISA is intimidating, and most people don’t like ERISA.
Perhaps this is unsurprising given its near-universal unpopularity and uncertain passage at its outset. The move to enact ERISA — originally conceived as a pension law — began in 1963 following the closure of the Studebaker Automobile Corporation in South Bend, Indiana. The failure of the automaker left employees who had given their work lives to the company with little to no retirement income. Prominent politicians of the day, most notably New York Senator Jacob K. Javits, introduced bills that ultimately became ERISA. ERISA was signed into law by President Gerald Ford in 1974 on Labor Day.
ERISA established an insurance program for retirement plans, operating much like the FDIC does for consumer bank accounts. The insurance program, known as the Pension Benefit Guaranty Company, insured employee pensions if any employer went bankrupt or had to discontinue its retirement plan. The ERISA statute created fiduciary standards in the administration of benefit plans; ensured greater access to information for employees; and launched a regulatory framework designed to monitor the financial health of private pension plans.
It took more than a decade to secure ERISA’s passage, and the reason for this was simple. ERISA seemed to be opposed by nearly everyone. Employers opposed it. Unions opposed it. Government employers fought hard to keep ERISA or ERISA-like protections out of their retirement plans.
Now, nearly fifty years after ERISA became law, with an epidemic of underfunded public worker pension plans throughout the U.S., the resistance to the funding requirements and other benefit protections of ERISA, which exempt governments from compliance, might be proving unfortunate for public sector employees.
One of ERISA’s strengths is that it aims to avoid future financial problems by requiring disciplined employer contributions and forcing plan administrators to abide by fiduciary standards. ERISA provides a mechanism for ensuring that pension plans and 401(k) plans are well-managed, secure, and cost-effective. It imposes a personal liability standard on trustees and fiduciaries.
Government pension plans, by contrast, particularly state and local plans, have suffered from chronic underfunding problems and a lack of oversight, which has led to serious, even corrupt, mismanagement.
The two pension plans for the City of Detroit are illustrative. The members of these plans – one for general service government employees and one for the police and fire department – paid a big price for the lack of monitoring and oversight that would have been standard under ERISA. Like Studebaker before it, the Detroit Bankruptcy demonstrated that public pensions are vulnerable. There, pensioners endured cuts in benefits and the loss of cost-of-living allowances, something particularly relevant in these high-inflationary times. Bad as that sounds, it could have been worse.
There are other peculiarities. In Michigan, for example, state employees have their retirement and other benefits administered by the State of Michigan’s Office of Retirement Services (ORS). The retirement program operates under statutory rules and state regulatory authority. The rules for public employees are, again, more onerous than those for employees in the private sector.
One such example is in the realm of disability benefits or disability retirement claims. Michigan’s benefit plan for public employees requires a disability benefit be payable only if certified by a physician that is chosen by the State. Statutorily that is the only way in which the benefits are payable to an employee. A public employee’s benefits hinge on whether or not that physician (often a consultant provided by an outside vendor) agrees or disagrees with the employee that they are disabled. Even if the employee could produce ten supportive opinions of a claim, by law, if the lone physician for a Michigan plan does not agree, no benefits are payable.
ERISA, by contrast, would allow a private sector employee considerably more latitude to challenge the weight of the evidence against the claim and offer more legal tools to challenge an arbitrary denial. ERISA provides a more even-handed regulatory framework and more legal options available to private sector employees to secure their benefits. It certainly seems that, if a government employee becomes disabled from working, under no circumstances should that employee have less protection (or fewer protections) than a counterpart working in the private sector.
The contrast between ERISA’s regulatory protections and lack of ERISA protections is stark. With other employee-rights movements underway nationwide, the area of government worker benefits oversight may be ripe for change. With a tight labor market, employee benefit plans are becoming more important. One would hope that these factors would lead state governments to rethink decisions made fifty years ago and pass reform legislation that, at a minimum, shores up government employee benefit plan rights.
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John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and founder of J.J. Conway Law in Royal Oak, Michigan.
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