Appeals Court Upholds Supremacy Of ERISA Over State Disability Laws

By Cyril Tuohy

InsuranceNewsNet

Retirement income benefits administrators are not required to offer benefits to employees who qualify for such coverage only under state laws, a federal appeals court has ruled.

In its decision, the three-judge appeals panel in Cincinnati cited previous rulings in which courts found that preemption provisions in the Employee Retirement Income Security Act (ERISA) took precedence over “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.”

By granting ERISA broad powers, Congress meant to ensure that benefit plans would remain subject to a uniform body of benefits law, the justices for the U.S. Court of Appeals for the Sixth Circuit said in their decision upholding a lower court ruling.

The lower court found that under the Supremacy Clause of the U.S. Constitution, Nationwide’s Benefits Administrative Committee was required to comply with ERISA rather than the Wisconsin Family and Medical Leave Act.

Granting the short-term benefits under the Wisconsin law, contrary to ERISA, would interfere with the administration of Nationwide’s benefit plan in the 49 states where the company operates, the appeals court found in its ruling.

“State laws have this effect when they subject plans ‘to different legal obligations in different States,’ “ which was the case with the Wisconsin law, the court ruled.

The case, titled Joan Sherfel v. Reggie Newson, began in 2007 when Katharina Gerum, one of about 32,000 Nationwide employees around the country, filed a complaint against the carrier after she was denied additional short-term disability benefits in accordance with the Wisconsin law. (Sherfel was a member of Nationwide's Benefits Administrative Community and Newson was secretary of Wisconsin's Department of Workforce Development.)

The request for additional benefits came after Nationwide granted Gerum an initial six weeks of short-term disability following the birth of her baby. Gerum claimed she was entitled to the extra benefits because the Wisconsin Supreme Court had held that ERISA did not preempt the Wisconsin law.

In addition, an investigation by the Wisconsin Department of Workforce Development found there was probable cause to believe that Nationwide’s denial of short-term disability benefits was a violation of the Wisconsin law.

An administrative law judge upheld Wisconsin’s law and ordered Nationwide to pay Gerum the extra benefits.

Nationwide objected, filed suit in U.S. District Court for the Southern District of Ohio in Columbus, and sought an injunction on the grounds that ERISA preempted the Wisconsin Act.

The court ruled in favor of Nationwide.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.