State-Mandated Employee Benefits: Conflict with Federal Law?

Article excerpt

Jason Ford

Over the past three decades, States have passed a wide range of laws that affect employee benefit plans.[1] For example, more than 700 laws mandating provisions in health insurance plans have been enacted since 1965. Most recently, the focus has been on increased efforts requiring provisions for employee leave, particularly for parental obligations. For the most part, these mandates are influential in shaping the extent and characteristics of employer-provided benefits unique to each State.

Federal controls, however, also exist in laws that affect employee benefit plans, thereby limiting the extent and nature of State regulation. Under the U.S. constitutional system, when the Federal Government acts within the scope of its delegated powers, such action supersedes or preempts conflicting State legislation.

The Employee Retirement Income Security Act (ERISA) of 1974, as amended,[2] is the preeminent Federal law regulating private[3] employee benefits. The act requires that employees receive detailed information on their welfare (such as vacation and severance pay) and pension plans, and holds employers responsible for providing those benefits. It also stipulates conditions designed to ensure that the benefit plans remain financially sound and specifies schedules governing the vesting of pension benefits-that is, provisions guaranteeing employees the right to their benefits.

The States still have the authority to pass and enforce some forms of employee benefit legislation. ERISA explicitly gives the States the right to pass legislation affecting certain benefits; the act does not apply to all types of employee benefits.

ERISA contains a strong preemption clause, stating that its provisions "shall supersede any and all State laws insofar as they ... relate to any employee benefit plan . . ." However, an exception states that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance . . "I This exception opens the door to continued State influences on benefit plans because employers often provide health, death, or disability benefits through the purchase of insurance policies.

States traditionally have regulated plans "maintained solely for the purpose of complying with applicable workinen's compensation laws, unemployment compensation or disability insurance laws . . "I All States provide for unemployment and workers' compensation, and several mandate coverage for workers unable to work because of short-term disabilities. ERISA's preemption rules reflect a balancing of conflicting objectives-local initiative and national uniformity of employee benefits policy.

This report examines several types of employee benefits, focusing on how ERISA has influenced State law regarding the type of benefits employees receive and discusses, when possible, the influence of State-mandated provisions on employer-provided plans nationwide. The data are from annual Bureau of Labor Statistics Employee Benefit Surveys. Data from the 1989 survey represent plans in 109,000 medium and large establishments in the private sector, employing 32 million workers.[6]

Disability benefits

Although ERISA explicitly allows the States to require employers to provide benefits that replace income lost by employees during nonwork-related disabilities, disputes have arisen over the extent of State authority. Courts have ruled on whether a State law simply regulates disability benefits, or regulates other benefits as well. State laws that mandate income protection for disabled workers have been upheld, but provisions that mandate health care coverage for disabled workers have been overturned because of conflict with ERISA regulation of health benefits.

Five States-California, Hawaii, New Jersey, New York, and Rhode Island-have laws requiring short-term disability income protection. The right of the States to pass such laws was upheld in 1982 in Shaw v. …