February 15, 2017

Short-term Disability Plan Meets ERISA’s Payroll Practice Exemption (article)

A recent District Court of Appeals case (Foster v. Sedgwick Claims Management Services, Inc., D.C. Cir., No. 15-7150, Nov. 29, 2016) provides a good reminder of understanding which plans are subject to ERISA and which are not. 


At issue in this case was an employer’s short-term disability (STD) program.  This program, like many STD programs, was designed as a continuation of an individual’s compensation during a time-off period due to a medical condition.  ERISA provides a specific exemption for this type of payroll practice wherein payment of the employee's normal compensation, out of the employer's general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment).  By being exempt from ERISA, the STD payroll practice program is not subject to ERISA requirements such as plan documentation, Form 5500 filings and the like, but could be subject to state and/or local jurisdiction requirements.  It is important for employers to understand which of their programs are subject to ERISA and which ones are not, to ensure that all federal, state or local requirements are satisfied.


The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.   

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