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ERISA Post-Employment Welfare Plan Definition

There is no specific definition for ERISA-covered welfare plans that cover individuals who are not employed by the employer sponsoring such a welfare plan. Though not the traditional thought when it comes to ERISA welfare plan participants, there are plans that cover individuals in a post-employment situation.

  1. What Is ERISA?

    • The Employee Retirement Income Security Act of 1974 (ERISA), as amended, is a federal law that sets standards for employers who voluntarily maintain health plans or pension plans. ERISA is divided into four titles, with the first title devoted to basic rules relating to pension and welfare plans, such as participation, disclosures and civil enforcement. Title II covers tax qualification standards for pension plans. Title III coordinates the federal enforcement of ERISA, and Title IV relates to the Pension Benefit Guaranty Corporation's program of insuring defined benefit plans.

    ERISA Definition of Welfare Plan

    • Section 3(1) of ERISA defines an employee welfare benefit plan as "any plan, fund or program ... established or maintained by an employer ... for the purpose of providing for its participants or their beneficiaries through the purchase of insurance or otherwise." Regulations and case law have developed the types of benefits that are considered welfare benefits under ERISA. Those benefits range from medical, surgical or hospital benefits to unemployment, vacation benefits or even scholarship funds or prepaid legal services.

    Post-Employment ERISA Issues

    • Typically, ERISA plans cover employees of the employer that is sponsoring the benefit plan. For example, a famous case, Nationwide Mutual Insurance Company v. Darden, established that an independent contractor is not an employee and a test was developed to determine this. Employers were not required to cover independent contractors in their ERISA plans since they are not employees. Post-employment welfare benefit coverage presents interesting issues since individuals are no longer employees and benefit plans are to be operated exclusively for the benefit of employees and their beneficiaries.

    Retiree Coverage and COBRA

    • In general, once you have terminated employment with an employer, you no longer receive welfare benefits from that employer. There are two exceptions to this: retiree welfare benefits and COBRA continuation coverage. Despite the exclusive benefit rule, ERISA permits retiree-only health-care plans. COBRA coverage is a federal amendment to ERISA that requires employers to offer continuing health-care coverage if certain events occur and would cause that employee to lose or face a reduction in health-care benefits.

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