Have you ever wondered what would happen if a state law conflicted with your short-term disability (STD) plan regulated by the Employee Retirement Income Security Act (ERISA)? That was the issue in a recent case where the Sixth Circuit Court of Appeals held that ERISA prohibits state law from requiring a plan sponsor to change its STD plan. Sherfel v. Newson (6th Cir. 2014).
The employer in the case was Nationwide Mutual Insurance Company. Nationwide does business in 49 states, including Wisconsin, and provides eligible employees with paid-time off benefits, including STD benefits, pursuant to an ERISA plan. Specific STD rules govern a woman’s leave after birth of a child. A woman on leave receives pay through a “Your Time Off” plan similar to a traditional PTO plan for the first five days. After those five days, the woman is eligible for STD benefits for six weeks or eight weeks depending on the type of delivery.
Wisconsin has its own family and medical leave act (WFMLA) in addition to the federal Family and Medical Leave Act. The WFMLA requires employers with 50 or more employees to provide six weeks of unpaid maternity leave after the birth of an employee’s natural child. However, specific language in the law requires employers to allow an employee to substitute paid or unpaid leave of any other type provided by the employer for the unpaid leave. The state agency enforcing the WFMLA interpreted it to require Nationwide to pay a woman on maternity leave even if the time off exceeds the STD plan payout maximum or if the time off does not meet the plan’s definition of disability.
Nationwide sued claiming that ERISA prevented the WFMLA from changing its STD plan. The Sixth Circuit agreed. ERISA supersedes (with exceptions) “any and all state laws insofar as they may now of hereafter relate to any employee benefit plan.” Therefore, because ERISA preempts state law, the WFMLA could not force Nationwide to change its STD plan. The court further explained that ERISA also allows plan sponsors to be able to provide the same group plan to its employees regardless of the state in which they were employed. In other words, Nationwide could have had to provide 49 different STD plans if each of the 49 states it operates in had a state law on
group STD benefits plans.
This ruling that ERISA preempts state laws relating to employee benefits plan has been consistently applied since Congress passed ERISA in 1974. This should make employers comfortable in today’s world where many employment laws not related to employee benefits, such as living wage or ban-the box, are started at local or state levels.