Thomas v. Engfer v. General Dynamics Advanced Information Systems, Inc., Department of Employment and Economic Development

STATE OF MINNESOTA
IN SUPREME COURT
A13-0872
Court of Appeals Dietzen, J.
Dissenting, Lillehaug, J.
Thomas V. Engfer,
Respondent,
vs.
Filed: September 9, 2015
Office of Appellate Courts
General Dynamics Advanced
Information Systems, Inc.,
Respondent,
Department of Employment and
Economic Development,
Appellant.
________________________
Howard L. Bolter, Bolter Law, LLC, Edina, Minnesota, for respondent Thomas V.
Engfer.
Lee B. Nelson, Munazza Humayun, Minnesota Department of Employment and
Economic Development, Saint Paul, Minnesota, for appellant.
________________________
SYLLABUS
1. A timing provision in the Minnesota Unemployment Insurance Law, which
requires that a supplemental unemployment benefit (SUB) plan “provide supplemental
payments only for those weeks the applicant has been paid regular, extended, or
1
additional unemployment benefits” in order for the supplemental payments to be
excluded from the definition of “wages” for purposes of determining eligibility for state
unemployment benefits, Minn. Stat. § 268.035, subd. 29(a)(13) (2014), “relate[s] to” an
“employee benefit plan” under the Employee Retirement Income Security Act (ERISA),
29 U.S.C. § 1144(a) (2012).
2. A SUB plan established by the employer is not maintained solely for the
purpose of complying with applicable unemployment compensation laws, and therefore
is not exempt from ERISA coverage under 29 U.S.C. § 1003(b)(3) (2012).
3. ERISA preempts the timing provision in Minn. Stat. § 268.035, subd.
29(a)(13), which requires that a SUB plan “provide supplemental payments only for
those weeks the applicant has been paid regular, extended, or additional unemployment
benefits” in order for the supplemental payments to be excluded from the definition of
“wages.”
Affirmed.
OPINION
DIETZEN, Justice.
Respondent Thomas V. Engfer ended his employment with General Dynamics
Advanced Information Systems, Inc., in December 2011. Thereafter, Engfer applied for
and received state unemployment benefits from appellant Department of Employment
and Economic Development (DEED), and supplemental unemployment benefits through
a plan offered by General Dynamics. DEED subsequently reviewed the SUB plan
payments, determined that the payments counted as “wages” under Minn. Stat.
2
§ 268.035, subd. 29(a) (2014),1 and concluded that Engfer had been overpaid state
unemployment benefits. An unemployment-law judge (ULJ) affirmed DEED’s
overpayment determination. The court of appeals reversed, concluding that the
Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461 (2012),
preempts a timing provision in Minn. Stat. § 268.035, subd. 29(a)(13), which requires
that a SUB plan “provide supplemental payments only for those weeks the applicant has
been paid regular, extended, or additional unemployment benefits” in order for the
supplemental payments to be excluded from the definition of “wages.” The court of
appeals therefore concluded that Engfer was entitled to keep the state unemployment
benefits. We affirm the decision of the court of appeals.
Thomas Engfer was laid off by his employer General Dynamics Advanced
Information Systems as part of a workforce reduction. When Engfer’s employment
ended, he was offered the opportunity to participate in a SUB plan established by General
Dynamics. The weekly SUB plan payments were intended to supplement Engfer’s
weekly state unemployment benefits, and when combined, equaled 100 percent of his
normal weekly gross pay prior to termination. The SUB plan required Engfer to apply
and be found eligible for state unemployment benefits and to contact General Dynamics’
plan management firm on a weekly basis to confirm his continued eligibility for those
1
In the 2014 session, the Legislature amended Minn. Stat. § 268.035, subd.
29(a)(12), and renumbered the provision as subdivision 29(a)(13). Act of May 16, 2014,
ch. 251, art. 1, § 1, 2014 Minn. Laws 841, 842. The amendment does not affect the
issues presented here, other than to change the numbering of the subdivision. We
therefore use the current subdivision numbering for section 268.035.
3
benefits. According to the plan, Engfer would receive SUB plan payments, even when
ineligible for state unemployment benefits, in three separate circumstances: (1) during
the 1-week “waiting period” for state unemployment benefits, (2) if he had insufficient
earnings for state benefits, and (3) if his state benefits expired first. The SUB plan
provided 26 weeks of payments, after which Engfer would continue to receive his state
unemployment benefits.
Engfer established a benefit account with DEED on December 18, 2011. He
began receiving benefits under the SUB plan immediately and state unemployment
benefits after the 1-week waiting period. He received $597 every week in state
unemployment benefits and $2,369 every 2 weeks in SUB plan payments. The SUB plan
payments continued through July 5, 2012, and ended before Engfer’s eligibility for state
unemployment benefits expired. Engfer received a total of $31,398 in payments from the
SUB plan.
In January 2013, DEED relied upon the definition of “wages” in Minn. Stat.
§ 268.035, subd. 29(a), to conclude that Engfer was not eligible for state unemployment
benefits during the period he was receiving supplemental payments through the SUB
plan. Because the SUB plan paid benefits during weeks in which plan participants were
not eligible to receive state unemployment benefits—specifically, the 1-week waiting
period—DEED determined that the SUB plan payments do not qualify for the exclusion
from “wages” under the Minnesota unemployment statutes. See Minn. Stat. § 268.035,
subd. 29(a)(13) (stating that “wages” do not include “payments made to supplement
unemployment benefits under a plan established by an employer” if the plan meets
4
certain conditions, including the condition that the plan provides supplemental payments
only for those weeks the applicant has been paid unemployment benefits). Therefore,
DEED notified Engfer that he had been overpaid $10,746 in state unemployment
benefits. See Minn. Stat. § 268.085, subd. 3(a)(2) (2012) (providing generally that
applicants are not eligible to receive unemployment benefits for weeks they have
received payments that are considered “wages” equal to or in excess of their
unemployment benefit amount).
Engfer appealed the overpayment determination, and a ULJ affirmed. Engfer
requested reconsideration, but did not challenge the ULJ’s conclusion that, under Minn.
Stat. § 268.035, subd. 29(a)(13), the SUB plan payments qualify as “wages.” Instead,
Engfer argued that the SUB plan was not valid under ERISA, 29 U.S.C. §§ 1001-461.
The ULJ again affirmed, concluding that whether the SUB plan was valid under ERISA
was not relevant to the determination of whether the plan provisions affected Engfer’s
eligibility for state unemployment benefits.
The court of appeals reversed the ULJ’s decision in a divided decision, concluding
that ERISA preempts the timing provision in Minn. Stat. § 268.035, subd. 29(a)(13),
which provides that, in order for SUB plan payments to be excluded from the definition
of “wages,” “[t]he plan must provide supplemental payments only for those weeks the
applicant has been paid regular, extended, or additional unemployment benefits.” Engfer
v. Gen. Dynamics Adv. Info. Sys., Inc., 844 N.W.2d 236, 241 (Minn. App. 2014). The
dissent concluded that the provision is not preempted by ERISA. 844 N.W.2d at 244
(Schellhas, J., dissenting). We granted review to resolve the ERISA preemption issue.
5
I.
DEED argues that the court of appeals erred in concluding that ERISA preempts
what we refer to as “the timing provision” of Minn. Stat. § 268.035, subd. 29(a)(13),
which provides that, in determining eligibility for state unemployment benefits, SUB plan
payments are excluded from the definition of “wages” only if, among other conditions,
the plan “provide[s] supplemental payments only for those weeks the applicant has been
paid regular, extended, or additional unemployment benefits.” Specifically, DEED
argues that the timing provision does not “relate to any employee benefit plan” under 29
U.S.C. § 1144(a), and therefore the timing provision is not preempted by ERISA.
Alternatively, DEED argues that the General Dynamics plan is exempt from ERISA
coverage under 29 U.S.C. § 1003(b) because the plan is maintained solely for the purpose
of complying with applicable unemployment compensation laws. Engfer responds that
the court of appeals correctly ruled that there was no overpayment of state unemployment
benefits because ERISA preempts the timing provision.
This appeal concerns the interpretation and application of the ERISA preemption
clause, which provides:
Except as provided in subsection (b) of this section, the provisions of this
subchapter and subchapter III of this chapter shall supersede any and all
State laws insofar as they may now or hereafter relate to any employee
benefit plan described in section 1003(a) of this title and not exempt under
section 1003(b) of this title.
29 U.S.C. § 1144(a). To resolve the preemption question, we will first address whether
the timing provision in Minn. Stat. § 268.035, subd. 29(a)(13), “relate[s] to” an
“employee benefit plan” under ERISA. 29 U.S.C. § 1144(a). We then will address
6
whether the General Dynamics plan is exempt from ERISA coverage under 29 U.S.C.
§ 1003(b).
Statutory interpretation is a question of law that we review de novo. In re Welfare
of J.J.P., 831 N.W.2d 260, 264 (Minn. 2013). Our goal in interpreting a state statute is to
ascertain and effectuate the intent of the Legislature. Minn. Stat. § 645.16 (2014). When
interpreting a statute, we give words and phrases their plain and ordinary meaning. Staab
v. Diocese of St. Cloud, 813 N.W.2d 68, 72 (Minn. 2012). Further, we read the statute as
a whole and give effect to all of its provisions. Our first step is to examine the language
of the statute to determine whether it is ambiguous. Premier Bank v. Becker Dev., LLC,
785 N.W.2d 753, 759 (Minn. 2010). Statutory language is ambiguous only if, as applied
to the facts of the particular case, it is susceptible to more than one reasonable
interpretation. Am. Family Ins. Grp. v. Schroedl, 616 N.W.2d 273, 277 (Minn. 2000). If
the statutory language is unambiguous, we must enforce the plain meaning of the statute
and not explore the spirit or purpose of the law. Premier Bank, 785 N.W.2d at 759.
Our approach in interpreting a statute enacted by Congress is the same. We first
examine the language of the statute and give the words used their ordinary meaning.
Lawson v. FMR LLC, ___ U.S. ___, 134 S. Ct. 1158, 1165 (2014). When a statute’s
language is plain, the sole function of the courts is to enforce the statute according to its
terms. Sebelius v. Cloer, ___ U.S. ___, 133 S. Ct. 1886, 1896 (2013). We must presume
that “a legislature says in a statute what it means and means in a statute what is says.”
Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992). Thus, when the words of the
7
statute are unambiguous, the first step is also the last, and “judicial inquiry is complete.”
Rubin v. United States, 449 U.S. 424, 430 (1981).
A.
We begin our analysis with the state statutory provision. The Minnesota
Unemployment Insurance Law provides temporary partial wage replacement to workers
who are unemployed through no fault of their own. Minn. Stat. § 268.03, subd. 1 (2014).
An applicant is not eligible for state unemployment benefits for any week he or she
receives “wages” from his or her employer after completion of employment. See Minn.
Stat. § 268.085, subd. 3(a)(2) (2012). The term “wages” is defined in Minn. Stat.
§ 268.035, subd. 29 (2014).2 The statute excludes certain types of payments from the
definition of “wages,” including payments made under SUB plans that meet certain
statutory conditions. See Minn. Stat. § 268.035, subd. 29(a)(1)-(17).
Subdivision 29(a)(13) generally excludes SUB plan payments from the definition
of “wages.” Under Minn. Stat. § 268.035, subd. 29(a)(13), “payments made to
supplement unemployment benefits under a plan established by an employer” are not
“wages” for purposes of Minnesota unemployment law. But the statute requires that the
plan satisfy the following conditions in order for the exclusion to be available:
2
“Wages” generally means “all compensation for employment, including
commissions; bonuses, awards, and prizes; severance payments; standby pay; vacation
and holiday pay; back pay as of the date of payment; tips and gratuities paid to an
employee by a customer of an employer and accounted for by the employee to the
employer; sickness and accident disability payments, except as otherwise provided in this
subdivision; and the cash value of housing, utilities, meals, exchanges of services, and
any other goods and services provided to compensate an employee.” Minn. Stat.
§ 268.035, subd. 29(a).
8
The plan must provide supplemental payments solely for the supplementing
of weekly state or federal unemployment benefits. The plan must provide
supplemental payments only for those weeks the applicant has been paid
regular, extended, or additional unemployment benefits. The supplemental
payments, when combined with the applicant’s weekly unemployment
benefits paid, may not exceed the applicant’s regular weekly pay. The plan
must not allow the assignment of supplemental payments or provide for any
type of additional payment. The plan must not require any consideration
from the applicant, other than a release of claims, and must not be designed
for the purpose of avoiding the payment of Social Security obligations, or
unemployment taxes on money disbursed from the plan.
Id. In this case, the General Dynamics SUB plan did not comply with the timing
provision, which provides that “[t]he plan must provide supplemental payments only for
those weeks the applicant has been paid regular, extended, or additional unemployment
benefits.” Id. Therefore, the supplemental payments that Engfer received under the
General Dynamics SUB plan are counted as “wages” for purposes of determining his
eligibility for unemployment benefits. Minn. Stat. § 268.035, subd. 29.
B.
There is no dispute that the General Dynamics SUB plan did not comply with the
timing provision in Minn. Stat. § 268.035, subd. 29(a)(13). The dispute here centers on
whether ERISA preempts the timing provision. ERISA is a comprehensive federal law
“designed to promote the interests of employees and their beneficiaries in employee
benefit plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983). ERISA imposes
participation, funding, and vesting requirements on employee benefit plans. Ingersoll-
Rand Co. v. McClendon, 498 U.S. 133, 137 (1990). ERISA also sets various uniform
standards, including rules concerning reporting, disclosure, and fiduciary responsibility,
for covered plans. Shaw, 463 U.S. at 91.
9
The determination of whether a state law is preempted by federal law is a question
of congressional intent. Ingersoll-Rand, 498 U.S. at 137-38. Congressional purpose is
“the ultimate touchstone” of the preemption inquiry. Id. at 138. According to the
Supreme Court, Congress intended to make the regulation of employee benefit plans
“exclusively a federal concern,” Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523
(1981), and to “avoid a multiplicity of regulation in order to permit the nationally
uniform administration of employee benefit plans,” N.Y. State Conference of Blue Cross
& Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 657 (1995). To discern the
intent of Congress, we examine the statutory language and the structure of the statute. Id.
at 655; Shaw, 463 U.S. at 95.
Our analysis begins with the language of the ERISA preemption clause, which
provides that the provisions of ERISA “shall supersede any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan described in section
1003(a) of this title and not exempt under section 1003(b) of this title.” 29 U.S.C.
§ 1144(a). The Supreme Court has observed that the language of the ERISA preemption
clause is deliberately broad. Ingersoll-Rand, 498 U.S. at 138. Specifically, ERISA
preempts any state law that “relate[s] to any employee benefit plan” described in section
1003(a) and that is not exempt under section 1003(b). 29 U.S.C. § 1144(a). In Alessi, the
Supreme Court explained the ERISA preemption analysis under 29 U.S.C. § 1144(a). On
the one hand, the Court concluded the only state laws that survive, or fall outside, the
broad reach of the ERISA preemption clause are those that do not “relate to” employee
benefits plans under section 1003(a) of ERISA. 451 U.S. at 523 n.20. On the other hand,
10
a state law that “relate[s] to” employee benefit plans under section 1003(a) of ERISA,
may nonetheless “survive ERISA preemption” if all of the employee benefit plans
covered by the state law fall within the exception to ERISA coverage under section
1003(b). Id.
DEED concedes that the General Dynamics SUB plan is an “employee benefit
plan” under ERISA. An “employee benefit plan” includes an “employee welfare benefit
plan” established or maintained by an employer for the purpose of providing its
participants or their beneficiaries with certain benefits set forth in ERISA, including
unemployment benefits. 29 U.S.C. §§ 1002(1), 1003(a). In this case, General Dynamics
established the SUB plan for the purpose of providing plan participants with
supplemental unemployment benefits in addition to state or federal unemployment
benefits. Therefore, the General Dynamics SUB plan, which is covered by Minn. Stat.
§ 268.035, subd. 29(a)(13), satisfies the definition of an “employee benefit plan”
described in section 1003(a) of ERISA.3
C.
Having established that the General Dynamics SUB plan is an “employee benefit
plan” under ERISA, we must next determine whether the timing provision in Minn. Stat.
§ 268.035, subd. 29(a)(13), “relate[s] to” the plan for purposes of the ERISA preemption
clause, 29 U.S.C. § 1144(a). DEED argues that the timing provision in subdivision
3
The dissent argues that because the General Dynamics SUB plan is not part of the
record, the court is unable to decide whether the plan is covered by ERISA. Because
DEED concedes that the General Dynamics plan satisfies the definition of an “employee
benefit plan” under ERISA, this argument fails.
11
29(a)(13), which requires the SUB plan to pay benefits only for weeks that the plan
participant was paid unemployment benefits, does not “relate to” the plan and therefore is
not preempted under 29 U.S.C. § 1144(a). According to DEED, the conditions in
subdivision 29(a)(13) merely identify the supplemental payments that are excluded from
the calculation of an individual’s “wages” for purposes of determining eligibility for state
unemployment benefits, and therefore the provision does not interfere with ongoing SUB
plan payments or bind plan administrators in a particular way. Engfer responds that there
is “no doubt” that the timing provision “relate[s] to” the General Dynamics plan because
the provision places restrictions on the timing of supplemental payments by limiting
payments only to weeks the applicant has been paid unemployment benefits.
The Supreme Court has held that the phrase “relate to any employee benefit plan”
in the ERISA preemption clause, 29 U.S.C. § 1144(a), means a state law that “has a
connection with or reference to such a plan.” N.Y. State Conference of Blue Cross &
Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995) (quoting Shaw v. Delta
Air Lines, Inc., 463 U.S. 85, 96-97 (1983)). The Court has observed that the phrase
“relate[s] to” is deliberately broad and expansive, and establishes that regulation of
employee benefit plans is exclusively a federal concern. Ingersoll-Rand Co. v.
McClendon, 498 U.S. 133, 138 (1990). Notably, Congress used equally broad language
to define “State law” as “all laws, decisions, rules, regulations, or other State action
having the effect of law.” 29 U.S.C. § 1144(c)(1). According to the Court, a state law is
preempted “even if the law is not specifically designed to affect [ERISA] plans, or the
effect is only indirect.” Ingersoll-Rand, 498 U.S. at 139. Thus, the Court’s ERISA
12
preemption jurisprudence examines whether the state law has a connection with or makes
reference to an ERISA employee benefit plan to determine whether the state law
“relate[s] to” the plan. Travelers, 514 U.S. at 656.
We begin our analysis by examining whether the timing provision in Minn. Stat.
§ 268.035, subd. 29(a)(13), has “a connection with” the General Dynamics SUB plan.
Travelers, 514 U.S. at 656. To determine whether a state law has the forbidden
“connection with” an employee benefit plan, we examine the objectives of ERISA as a
guide to the scope of the state law that would survive preemption, and the nature of the
effect of the state law on the plan. Cal. Div. of Labor Standards Enf’t v. Dillingham
Constr., N.A., Inc., 519 U.S. 316, 325 (1997); see also Travelers, 514 U.S. at 661.
In Egelhoff v. Egelhoff, the Supreme Court considered whether a Washington state
law, which provided for the automatic revocation upon divorce of the spousal beneficiary
designation for nonprobate assets consisting of life insurance proceeds and pension plan
benefits, had a connection with ERISA-covered plans and therefore was preempted by
ERISA. 532 U.S. 141, 143 (2001). Applying the framework from Travelers and
Dillingham, the Court concluded that the state statute had an impermissible connection
with an ERISA plan because it bound plan administrators to a particular choice of rules
for determining beneficiary status. Id. at 147. Specifically, plan administrators were
required to pay benefits to the beneficiaries chosen by the state law, rather than to those
identified in the plan documents. Id. The state statute therefore implicated the payment
of benefits, an area of core ERISA concern. Id. Moreover, the state statute interfered
with nationally uniform plan administration. Id. at 148. Specifically, plan administrators
13
could not make payments simply by identifying the beneficiary specified in the plan
documents; instead, the administrators were forced to familiarize themselves with state
statutes in order to determine whether the named beneficiary’s status had been “revoked”
by operation of the state law. Id. at 148-49.
We conclude that the timing provision in Minn. Stat. § 268.035, subd. 29(a)(13),
which requires a SUB plan to pay benefits only for weeks that the plan participant was
paid unemployment benefits, has a “connection with” the General Dynamics plan.4 Two
reasons support this conclusion. First, the timing provision in subdivision 29(a)(13)
restricts the ability of a SUB plan to supplement state unemployment benefits during
certain time periods, such as during the 1-week waiting period for state unemployment
benefits. As a result, supplemental benefits paid to an unemployed individual during
restricted time periods constitute “wages” and affect the individual’s eligibility for state
unemployment compensation benefits. See Minn. Stat. § 268.085, subd. 3(a)(2).
Moreover, if the individual is not eligible for state unemployment benefits because the
SUB plan payments constitute “wages,” then the individual is not eligible for SUB plan
payments either because the SUB plan requires plan participants to prove and maintain
eligibility for state unemployment benefits.
4
The dissent correctly points out that there is a presumption against preemption in
areas of traditional state regulation. The Court, however, explained in Egelhoff that this
presumption may be overcome when Congress has “made clear its desire for
preemption.” 532 U.S. at 151. The Court indicated that it has not “hesitated to find state
. . . law pre-empted when it conflicts with ERISA or relates to ERISA plans” when there
is a connection between the state law and an ERISA plan. Id. We rely on that connection
here too.
14
Consequently, Minn. Stat. § 268.035, subd. 29(a)(13), operates to undermine the
purpose of a SUB plan to supplement state unemployment benefits. The payment of
ERISA plan benefits is an area of core ERISA concern. Egelhoff, 532 U.S. at 147
(concluding that the state law was preempted because it governed the payment of
benefits). To avoid this result, plan administrators would need to modify SUB plans for
Minnesota participants in order to comply with Minnesota law. Therefore, the state
statute requires plan administrators to make certain choices in providing supplemental
unemployment benefits to unemployed individuals in Minnesota.5
Second, the state law interferes with the ERISA objective of nationally uniform
administration of employee benefit plans. See Egelhoff, 532 U.S. at 148; Travelers, 514
U.S. at 656-57. Such uniformity is impossible if SUB plans are subject to different
conditions in different states. Here, plan administrators would need to familiarize
5
The dissent maintains that the conditions set forth in Minn. Stat. § 268.035,
subd. 29(a)(13), do not impose any requirements on SUB plans because plan
administrators may choose to provide SUB benefits in compliance with state law or
choose to ignore state law and provide benefits in any manner they wish. The dissent’s
argument that plan administrators have a choice is not a choice at all. The dissent
acknowledges that “the premise” of the General Dynamics SUB plan is that discharged
employees will receive both state unemployment benefits and SUB plan payments. The
dissent further acknowledges that federal law requires SUB plan payments to be linked to
the receipt of state unemployment compensation. But when a SUB plan does not comply
with state law, as here, plan participants delay or lose their eligibility for state
unemployment benefits. Consequently, the supplemental payments are not in fact
supplemental. Moreover, since payments under a SUB plan “depend[] on state benefits,”
as the dissent recognizes, any benefits provided under a nonconforming SUB plan are
purely illusory. In short, the failure of the SUB plan to comply with state law eviscerates
the very premise of the plan, as well as the benefits contemplated to be paid under the
plan. Therefore, the effect of the Minnesota law on the General Dynamics SUB plan
cannot reasonably be characterized as merely “incidental.”
15
themselves with Minnesota law so that they can determine when SUB plan payments
may be made without negatively affecting the participant’s eligibility for state
unemployment benefits. See Egelhoff, 532 U.S. 148-49. Requiring SUB plan
administrators to master the relevant laws of the various states would undermine the goal
of Congress to “minimize the administrative and financial burden” on plan
administrators. Ingersoll-Rand, 498 U.S. at 142. “The ‘tailoring of plans and employer
conduct to the peculiarities of the law of each jurisdiction’ is exactly the burden ERISA
seeks to eliminate.” Egelhoff, 532 U.S. at 151 (quoting Ingersoll-Rand, 498 U.S. at 142).
DEED and the dissent argue that the conditions set forth in subdivision 29(a)(13)
do not come into effect until after the participant has received SUB plan payments, and
therefore, the conditions do not affect SUB plans. It may be factually correct that the
calculation of “wages” under the unemployment statutes and the determination of
eligibility for state unemployment benefits are not resolved until after the SUB plan
payments have been made. But the proper inquiry is whether the state law “relate[s] to”
an ERISA-governed employee benefit plan. 29 U.S.C. § 1144(a). That inquiry does not
depend on the temporal aspect of when the benefits are received. Instead, the inquiry
focuses on whether plan administrators may need to restructure employee benefit plans to
comply with the conditions of subdivision 29(a)(13). See Egelhoff, 532 U.S. at 147.
Here, if the state law is not preempted, plan administrators would need to change their
SUB plans to achieve the objective of supplementing state unemployment benefits. Thus,
the state law directly affects the substantive coverage and administration of SUB plans.
16
In sum, we hold that the timing provision in Minn. Stat. § 268.035,
subd. 29(a)(13), which requires SUB plans to provide supplemental payments only for
weeks that the plan participant was paid unemployment benefits in order for the
supplemental payments to be excluded from the definition of “wages,” relates to the
General Dynamics SUB plan, an employee benefit plan under ERISA. Specifically, the
statutory condition has a connection with the substantive coverage and administration of
the plan. Moreover, the condition effectively binds plan administrators to certain choices
and interferes with the ERISA objectives of avoiding a multiplicity of regulation and
permitting the nationally uniform administration of employee benefit plans. 6
II.
Having concluded that the timing provision in Minn. Stat. § 268.035, subd.
29(a)(13), is connected with and thus “relate[s] to” the General Dynamics plan, an
employee benefit plan described in 29 U.S.C. § 1003(a), the timing provision is
preempted by ERISA unless the General Dynamics plan is exempt from ERISA coverage
under 29 U.S.C. § 1003(b). 29 U.S.C. § 1144(a). DEED argues that the General
Dynamics plan is exempt from ERISA coverage under 29 U.S.C. § 1003(b)(3) because
the plan is maintained solely for the purpose of complying with applicable unemployment
compensation laws. Engfer counters that DEED failed to raise the exemption issue
6
Because we conclude that the timing provision in Minn. Stat. § 268.035,
subd. 29(a)(13), has a “connection with” an employee benefit plan, we need not consider
whether the timing provision also makes “reference to” such a plan. N.Y. State
Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656
(1995) (holding that a state law that has a “connection with or reference to” an ERISA
employee benefit plan is preempted by ERISA (emphasis added)).
17
below, and therefore the issue is not properly before us. Engfer also argues that DEED’s
argument lacks merit.
We first address whether to consider the exemption issue, because DEED did not
raise this issue in the court of appeals. Although generally we will not consider an issue
raised for the first time on appeal, State v. Sontoya, 788 N.W.2d 868, 874 (Minn. 2010),
we may review any “matter as the interest of justice may require,” Minn. R. Civ. App. P.
103.04. Further, we may base our decision upon a theory not previously presented or
considered where the issue is “plainly decisive of the entire controversy on its merits”
and where “there is no possible advantage or disadvantage to either party in not having
had a prior ruling by the trial court on the question.” Watson v. United Servs. Auto.
Ass’n, 566 N.W.2d 683, 687 (Minn. 1997) (quoting Holen v. Minneapolis-St. Paul Metro.
Airports Comm’n, 250 Minn. 130, 135, 84 N.W.2d 282, 286 (1957)).
Because resolving whether the General Dynamics plan is exempt from ERISA
coverage under 29 U.S.C. § 1003(b) is clearly essential to our ERISA preemption
analysis, we will resolve the issue. See 29 U.S.C. § 1144(a) (stating that a state law is
preempted if it relates to “any employee benefit plan described in section 1003(a) of this
title and not exempt under section 1003(b) of this title” (emphasis added)); Alessi v.
Raybestos-Manhattan, Inc., 451 U.S. 504, 523 n.20 (1981) (“The only relevant state laws,
or portions thereof, that survive [ERISA] preemption . . . are those relating to plans that
are themselves exempted from ERISA’s scope.”). Moreover, the parties have briefed the
issue, and all of the relevant facts are before us.
18
The ERISA exemption provision sets forth certain types of employee benefit plans
that are not covered by ERISA. 29 U.S.C. § 1003(b). It provides in relevant part:
The provisions of this subchapter shall not apply to any employee benefit
plan if . . . (3) such plan is maintained solely for the purpose of complying
with applicable workmen’s compensation laws or unemployment
compensation or disability insurance laws.
29 U.S.C. § 1003(b)(3).7
We conclude that the text of the ERISA exemption clause in section 1003(b)(3) is
clear and unambiguous. Specifically, an employee benefit plan that is maintained solely
for the purpose of complying with state unemployment compensation laws is not covered
by ERISA.
In Shaw v. Delta Air Lines, Inc., the Supreme Court explained the meaning of the
exemption in section 1003(b)(3). 463 U.S. 85, 107 (1983). The Shaw Court considered
whether a New York disability benefits law, which required that employers pay sick-
leave benefits to employees who were unable to work because of pregnancy, was
preempted by ERISA. Id. As part of its analysis, the Court considered whether the
employee benefit plans affected by the law were exempt from ERISA coverage under 29
U.S.C. § 1003(b)(3). Id. The Court concluded that to satisfy the exemption provision in
section 1003(b)(3), the plan, as an administrative unit, must provide “only those benefits
required by the applicable state law.” Id. The Court reasoned that the use of the word
7
ERISA also exempts from its coverage government plans, church plans, and plans
maintained outside the United States primarily for the benefit of nonresident aliens, or
unfunded excess benefit plans. 29 U.S.C. § 1003(b)(1)-(2), (4)-(5). These exemptions
are not applicable to the SUB plan at issue here.
19
“solely” in section 1003(b)(3) demonstrates that to be exempt from ERISA, the purpose
of the entire plan must be to comply with the applicable state disability insurance law. Id.
The Court concluded that the employer’s multi-benefit plan was not exempt from ERISA
coverage because the plan was not a separately administered plan maintained solely to
comply with New York disability law. Id. at 108.
The Shaw Court observed, however, that a state “may require an employer to
maintain a disability plan complying with state law as a separate administrative unit.” Id.
According to the Court, if a state “is not satisfied that the ERISA plan comports with the
requirements of its disability insurance law, it may compel the employer to maintain a
separate plan that does comply.” Id. But the state may not require employers to alter
ERISA plans. Id. Moreover, employee benefit plans that not only provide benefits
required by state disability insurance laws but also “more broadly serve employee needs
as a result of collective bargaining” are not exempt under section 1003(b)(3). Id. at 107
(quoting Alessi, 451 U.S. at 523 n.20).
We conclude that the General Dynamics SUB plan, which is covered by Minn.
Stat. § 268.035, subd. 29(a)(13), is not exempt from ERISA coverage under 29 U.S.C.
§ 1003(b)(3). The scope of the exemption clause under section 1003(b)(3) is limited to
plans maintained solely to comply with applicable state workers’ compensation,
unemployment compensation, or disability insurance laws. The phrase “maintained
solely to comply with” applicable state laws means a plan that “provides only those
benefits required” by the state laws. Shaw, 463 U.S. at 107. Minnesota law, however,
does not require employers to pay supplemental unemployment benefits. The General
20
Dynamics SUB plan is designed and maintained to provide supplemental unemployment
compensation benefits in excess of the benefits provided under state law. Therefore, the
plan is not maintained solely for the purpose of complying with applicable
unemployment compensation laws.8
DEED urges us to consider the context in which the ERISA exemption provision
was enacted. Specifically, DEED notes that, unlike state disability insurance and
workers’ compensation laws, no state requires employers to maintain private
unemployment compensation benefit plans. Because SUB plans were regulated by the
states at the time ERISA was enacted, DEED contends that Congress intended to carve
out an exemption for SUB plans in section 1003(b)(3), as this is the only type of plan that
an employer would maintain to comply with a state’s unemployment compensation laws.
We conclude that the language of section 1003(b)(3) is unambiguous, and
therefore we need not go beyond the text of the statute. When the words of a statute are
unambiguous, judicial inquiry is complete. Bank One Chi., N.A. v. Midwest Bank &
Trust Co., 516 U.S. 264, 279 (1996) (Scalia, J., concurring in part and concurring in
judgment) (“[A] law means what its text most appropriately conveys, whatever the
Congress that enacted it might have ‘intended.’ The law is what the law says, and we
should content ourselves with reading it rather than psychoanalyzing those who enacted
it.”); Ratzlaf v. United States, 510 U.S. 135, 147-48 (1994) (“[W]e do not resort to
legislative history to cloud a statutory text that is clear.”); Rubin v. United States, 449
8
The dissent rightly concedes that the SUB plan at issue in this case is not exempt
from ERISA coverage under 29 U.S.C. § 1003(b)(3).
21
U.S. 424, 430 (1981). Regardless of the status of SUB plans at the time of ERISA’s
enactment, ERISA is clear that such a plan must be maintained solely to comply with
state unemployment compensation laws to be exempt under section 1003(b).
DEED next argues that SUB plans must comply with state unemployment
compensation laws because an employee’s receipt of supplemental unemployment
benefits is conditioned on the receipt of state unemployment benefits. DEED’s argument
is unavailing. The inquiry under section 1003(b)(3) is not whether the SUB plan
complies with state unemployment laws; instead, the inquiry is whether the supplemental
plan is “maintained solely for the purpose of complying with” state unemployment laws.
29 U.S.C. § 1003(b)(3) (emphasis added). SUB plans like the General Dynamics plan are
not maintained solely for the purpose of complying with applicable state unemployment
laws. Therefore, the General Dynamics plan is not exempt from ERISA coverage under
section 1003(b)(3), and in turn, based upon our analysis above, the conditions placed
upon SUB plans by the state law do not survive ERISA preemption. See Alessi, 451 U.S.
at 523 n.20.
In sum, we conclude that ERISA preempts the timing provision in Minn. Stat.
§ 268.035, subd. 29(a)(13), relating to supplemental payments under a SUB plan because
the provision “relate[s] to” an employee benefit plan under 29 U.S.C. § 1003(a), and the
General Dynamics SUB plan is not maintained solely for the purpose of complying with
applicable unemployment compensation laws under 29 U.S.C. § 1003(b)(3).
Accordingly, the SUB plan payments Engfer received are not “wages” for purposes of his
22
eligibility for state unemployment benefits, and he was not overpaid state unemployment
benefits.
Affirmed.
23
DISSENT
LILLEHAUG, Justice (dissenting).
The chief question presented in this case is whether the definition of “wages” in
the Minnesota unemployment insurance statute is preempted by ERISA. I disagree with
the majority that the Minnesota definition has a “connection with” ERISA plans and is
thereby preempted.
The majority finds such a connection based on its concern that the definition of
“wages” under Minnesota law will “bind” or “require” plan administrators to make
certain choices for their Minnesota employees. The definition does no such thing, and
the majority’s reasoning fundamentally misstates the nature of the preemption inquiry.
The goal of ERISA preemption, as it is relevant to this case, is to allow plan
administrators to provide a uniform benefit without regard to differences in state law, if
they wish to do so. But the entire point of a supplemental unemployment benefit (SUB)
plan is to provide a benefit that varies based on differences in state law. If plan
administrators wish to provide a severance benefit that is uniform across state lines, they
can easily do so. But if they wish to provide a benefit—like the benefit provided by a
SUB plan—that adapts to the unemployment insurance law of Minnesota and the
differing laws of other states, they must take state law as they find it. The alternative,
embraced by the majority here, allows the existence of a corporation’s SUB plan to
dictate the conditions under which our state government must pay unemployment
benefits to terminated employees. Because nothing in ERISA requires such a result, I
respectfully dissent.
D-1
I.
Minnesota Statutes Chapter 268, Minnesota’s unemployment insurance statute,
contains a detailed definition of “wages.” See Minn. Stat. § 268.035, subd. 29 (2014).1
“Wages” means “all compensation for employment.” Id., subd. 29(a). Relevant here is
that “compensation” includes “severance payments.” Id. Commonly understood,
severance pay is “[m]oney (apart from back wages or salary) that an employer pays to a
dismissed employee. The payment may be made in exchange for a release of any claims
that the employee might have against the employer.” Severance Pay, Black’s Law
Dictionary (10th ed. 2014).
In Minnesota’s program, a worker is not eligible to receive unemployment benefits
for any week in which the worker receives “severance pay, bonus pay, or any other
payments paid by an employer because of, upon, or after separation from employment.”
Minn. Stat. § 268.085, subd. 3(a)(2) (2012). But under an exception to this rule, a worker
may receive unemployment benefits if the severance payment is not considered “wages”
under section 268.035, subd. 29. Minn. Stat. § 268.085, subd. 3(a)(2). There are 17
exceptions to the definition of “wages” in subdivision 29(a). One such exception, which
was added by the Legislature in 2007, deals with SUB plan payments. That exception, as
amended in 2011, 2012, and 2014, and now numbered (13), excludes from the definition
1
The definition of wages is used for at least two purposes. First, the definition is
used to determine whether the unemployed person is eligible for state benefits and, if so,
how the benefits are calculated. See Minn. Stat. § 268.07 (2014). Second, the definition
is used to trigger and calculate the employer’s obligation to pay state unemployment
insurance tax. See Minn. Stat. § 268.051 (2014).
D-2
of “wages” the following: “payments made to supplement unemployment benefits under
a plan established by an employer.”
The exception for SUB plan payments contains six limitations. First, the
payments must be “solely for the supplementing of weekly state or federal unemployment
benefits.” Minn. Stat. § 268.035, subd. 29(a)(13). Second, the payments must be only
for weeks when the employee has been paid unemployment benefits. Third, the
payments, together with benefits from the state, must not exceed the employee’s regular
weekly pay. Fourth, the payments may not be assigned or increased. Fifth, the payments
cannot be for consideration other than a release of claims. Sixth, the plan must not be
designed to avoid Social Security or unemployment taxes. Id.
To sum up the statutory scheme: payments, however denominated, from an
employer to a terminated employee are “severance payments” and thus “wages” for
purposes of state unemployment insurance tax assessment and benefits, unless the
payments fit within the exception, with limitations, in subdivision 29(a)(13). While I
have not located any illuminating legislative history on subdivision 29(a)(13), it makes
sense that Minnesota has chosen to include “severance payments” within its broad
definition of “wages,” carving out only a limited exception for payments from certain
SUB plans that are truly supplemental.
Therefore, Minnesota’s unemployment insurance program, like that of many other
states, provides a series of choices for both the employer and the terminated employee.
The employer has the choice to terminate the employee. The employer has the choice to
offer severance benefits to the employee. The employer has the choice to offer severance
D-3
benefits that fit, or do not fit, with the state’s unemployment insurance program. The
employee has the choice to apply for and receive state unemployment benefits. And the
employee has the choice to accept the employer’s offer of severance benefits (in
exchange for a release), understanding that acceptance of the severance benefits may
affect the employee’s eligibility for state benefits.
II.
With this background, I turn now to the problem posed by this case, which is
created by the General Dynamics Employee Transition Benefit Plan (the Plan). The Plan
was offered by an employer, General Dynamics, which did not appear at the
unemployment law judge (ULJ) and court of appeals hearings, and did not file a brief or
appear before us. The parties that did appear, the employee and the State, did not put the
Plan into the record.2
We have in the record only a “Frequently Asked Questions” brochure that purports
to describe some of the Plan’s terms. The brochure emphasizes that the first step for the
employee is to “sign a copy of the [severance] agreement and release that you received
from the [sic] General Dynamics and return it to your Human Resources Representative.”
This makes clear that the SUB payments are consideration given in exchange for the
release.
2
For this reason alone, if for no other, the majority errs in holding that the state law
defining “wages” is “connected to” the Plan and thereby preempted by ERISA. Given
that the ULJ, the court of appeals, and this court have never even seen the Plan, how can
we determine exactly if and how the state law and the Plan are “connected”?
D-4
The next step, advises the brochure, is to “apply for unemployment
compensation.” According to the brochure, the premise of the Plan is that the employee
will receive state unemployment benefits and then receive SUB payments, which will
consist of the employee’s weekly wage minus the state benefits received.
Despite the obvious fact that the SUB payments under the Plan are severance
payments (and thus wages) under Minnesota law, the brochure instructs the employee:
“Do not declare these amounts as severance benefits when applying for state
unemployment benefits. These payments are supplemental unemployment compensation
benefits awarded through the General Dynamics Corporation Employment Transition
Benefit Plan qualified under the provisions of the Employee Retirement Income Security
Act of 1974 as amended. Reporting these amounts as severance payments could
jeopardize your claim for ETB [Plan] payments.”
The employee seems to have done as instructed by General Dynamics. He applied
for and was deemed eligible for state benefits. But the Plan made a SUB payment during
the first week when the employee was not yet eligible to receive state benefits. When the
State learned that the employee was receiving payments that would constitute severance
payments and thus “wages” under Minnesota law, the State sought and received an order
from the ULJ recouping a portion of the state benefits. The record is silent on whether
the Plan has reimbursed the employee for the amount recouped by the State or whether
the Plan has recouped from the employee the SUB payments he received from the Plan.
D-5
III.
The employee (with the employer and the Plan perhaps just off stage) now makes
a novel legal argument: that ERISA somehow preempts the definition of “wages” in the
state unemployment insurance program, thus allowing the employee to keep all state
benefits and all Plan benefits.
Whether ERISA preempts a state law is a question of congressional intent.
Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137-38 (1990). A state law is
preempted if it “relate[s] to any employee benefit plan” described and not exempt. 29
U.S.C. § 1144(a) (2012). As the majority indicates, the chief question here is whether the
state law “has a connection with . . . such a plan.” N.Y. State Conference of Blue Cross &
Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995).3
In deciding whether state law is preempted, we start with the presumption that
Congress did not intend to supplant state law. Travelers, 514 U.S. at 654. Particularly
when it concerns a field of traditional state regulation, we assume that Congress did not
intend to supersede a state’s historic police powers unless Congress’ purpose is “clear
and manifest.” Calif. Div. of Labor Standards Enforcement v. Dillingham, 519 U.S. 316,
3
A state law may also be preempted if it “has a . . . reference to” an ERISA plan.
Travelers, 514 U.S. at 656. The Supreme Court has reasoned that “where a [S]tate’s law
acts immediately and exclusively upon ERISA plans . . . or where the existence of ERISA
plans is essential to the law’s operation . . . that ‘reference’ will result in pre-emption.”
Cal. Div. of Labor Standards Enf’t v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325
(1997). Here, the definition of “wages” in Minn. Stat. § 268.035, subd. 29(a) does not act
immediately and exclusively on ERISA plans. Put another way, the existence of an
ERISA plan is not essential to the law’s operation. Ingersoll-Rand, 498 U.S. at 140.
Thus I would hold that the definition of wages in Minn. Stat. § 268.035, subd. 29(a) is not
preempted because of a forbidden “reference to” ERISA plans.
D-6
325 (1997). Although the Supreme Court has stated that a state law may “relate to”
ERISA plans “even if the law is not specifically designed to affect such plans, or the
effect is only indirect,” Ingersoll-Rand, 498 U.S. at 139, the Court has also cautioned
against an “uncritical literalism” that would make preemption turn on “infinite
connections.” Travelers, 514 U.S. at 656. Specifically, the Court has made clear that
state laws that have only “[a]n indirect economic influence” on ERISA-governed plans
and which “do[] not bind plan administrators to any particular choice and thus function as
a regulation of an ERISA plan itself,” nor “preclude uniform administrative practice or
the provision of a uniform interstate benefit package if a plan wishes to provide one,” are
not preempted. Travelers, 514 U.S. at 659-60. In particular, state laws that “alter[] the
incentives, but do[] not dictate the choices, facing ERISA plans,” are not preempted.
Dillingham, 519 U.S. at 334.
In my view, it is clear that the definition of “wages” in Minn. Stat. § 268.035,
subd. 29(a) falls comfortably within the category of state laws that are not subject to
preemption. Indeed, the employee, the court of appeals majority, and the majority here
have not pointed to any congressional desire to preempt state unemployment insurance
provisions. There is nothing in ERISA, legislative history, case law, or the record to
show that Congress intended to have ERISA preempt a definition that affects how the
State assesses taxes for, and pays benefits from, its own unemployment insurance
program. There is not even a hint in ERISA that a state cannot define “wages” however
it sees fit for purposes of its unemployment insurance program. The definition of
“wages” is a critical part of the state’s taxing, spending, police, and welfare powers, so
D-7
there must be a “clear and manifest” intent to preempt it. See Dillingham, 519 U.S. at
325. There is none. “This is not a case in which [Minnesota] has forbidden a method of
calculating . . . benefits that federal law permits, or required employers to provide certain
benefits. Nor is it a case in which the existence of a [benefit] plan is a critical element of
a state-law cause of action, or one in which the state statute contains provisions that
expressly refer to ERISA or ERISA plans.” De Buono v. NYSA-ILA Med. & Clinical
Servs. Fund, 520 U.S. 806, 814-15 (1997) (footnotes omitted).
Nevertheless, the majority finds a congressional intent to preempt Minnesota’s
definition of “wages” based on the definition’s indirect effects on benefits paid out under
SUB plans. By the majority’s account, the practical effect of Minnesota’s definition of
“wages” is make plan administrators “modify SUB plans for Minnesota participants,”
thereby “requir[ing] plan administrators to make certain choices.” Similarly, the court of
appeals majority asserted that, without preemption, plan administrators would be
“coerced” to modify their plans.
The majority’s conclusion is incorrect as a factual matter. The definition of
“wages” in the Minnesota unemployment insurance program does not bind any
administrator. When General Dynamics and other corporations choose to terminate
employees, they can choose to offer, or not offer, a severance package that includes SUB
pay. They can offer a uniform severance benefit package not tailored to state
unemployment benefits eligibility, or they can offer a package that is truly
“supplemental” to state benefits which, of necessity, vary from state to state. Indeed, the
entire purpose of “supplemental” benefits is that they take those variations among states
D-8
into account in some way. Although Minnesota law (or the law of other states) might
prompt plan administrators to make certain choices in order to accomplish their desired
goal (allowing a terminated employee to continue receiving a weekly severance payment
equal to her normal salary), nothing about Minnesota’s definition of wages “binds” or
“requires” plan administrators to do anything whatsoever. Indeed Minnesota’s definition
does not impose any requirements, obligations, or limitations on severance plans or on
their administrators. And at oral argument, both parties agreed that there is not a bit of
evidence in the record that, since the Minnesota definition was enacted into statute in
2007, plan administrators have been required by Minnesota to modify their SUB plans.4
In other words, Minnesota’s definition “alters the incentives, but does not dictate the
choices” for plan administrators. See Dillingham, 519 U.S. at 334.
Thus, the situation in this case is entirely unlike that in Egelhoff v. Egelhoff, 532
U.S. 141 (2001), from which the majority draws support. In Egelhoff, the Supreme Court
of the United States considered a Washington statute providing for automatic revocation,
upon divorce, of any designation of a spouse as beneficiary of a nonprobate asset. The
court held that the statute was preempted by ERISA, because it “binds ERISA plan
administrators to a particular choice of rules for determining beneficiary status,” in that it
4
SUB plan administrators know that their plans “generally must comply with state
law requirements (which may differ from the IRS’s requirements) and some states are
required to approve” such plans. Vicki M. Nielsen, The Advantages of Offering
Supplemental Employment Benefits Instead of Severance, Part I: FICA Taxes and More,
Ogletree Deakins (Aug. 26, 2013), http://www.ogletreedeakins.com (last visited Aug. 27,
2015). Georgia and Iowa, for example, require that SUB benefits are wages unless the
SUB plan is approved in advance. See Ga. Comp. R. & Regs. 300-2-4.05 (2015); Iowa
Admin. Code. r.871-23.3(2)(e) (2015).
D-9
requires administrators to “pay benefits to the beneficiaries chosen by state law, rather
than to those identified in the plan documents,” an “area of core ERISA concern.” Id. at
147. Noting that ERISA requires that ERISA plans make payments as set out in their
plan documents, the Court in Egelhoff specifically distinguished between the situation it
faced and “generally applicable laws regulating ‘areas where ERISA has nothing to say,’
which we have upheld notwithstanding their incidental effect on ERISA plans.” Id. at
147-48 (citation omitted). In this case, the majority picks up on the language that
payment of benefits to a specific beneficiary is an “area of core ERISA concern.” But the
Minnesota statute at issue in this case does not require the Plan to make payments to any
particular beneficiary; indeed, it does not directly affect SUB plans, their administrators,
or the payments they make in any way. Instead, the Minnesota statute is a generally
applicable law with only an “incidental effect” on ERISA plans, which Egelhoff noted is
typically not preempted.
But, the majority argues, the effect of the definition of wages under Minnesota law
is to “undermine the purpose of a SUB plan to supplement state unemployment benefits.”
This puts the cart before the horse. By its very name, SUB pay is “supplemental”; in
other words, it is designed to provide a benefit that supplements and depends on state
benefits. ERISA preemption protects the right of a plan to provide “a uniform interstate
benefit package if a plan wishes to provide one,” Travelers, 514 U.S. at 660 (emphasis
added), but it does not address the situation when a plan intentionally chooses to pay
benefits that vary according to state law. Generally, SUB pay “must be linked to the
receipt of state unemployment compensation,” Rev. Rul. 90-72, 1990-2 C.B. 211.
D-10
Unemployment compensation may be generous in some states and meager in others; SUB
plans attempt to take this into account so that the total of the state and SUB benefits
replace the employee’s pre-termination salary. It is easy to imagine why they might wish
to do so: by structuring their plans so that employees can receive plan benefits while still
remaining eligible for state-provided unemployment benefits, SUB plans potentially
improve the terminated employees’ bottom lines, making the benefit more valuable to the
employees and therefore to the employer. This is a perfectly rational business decision,
but it has nothing to do with providing a “uniform interstate benefit package.”
Having elected to pay a benefit that depends on state unemployment benefits, SUB
plans must then take those state benefits as they find them. An employer can choose to
structure its SUB plan to fit with each of many different state programs, or the SUB plan
can be structured so that, depending on the employee’s state, benefits may be limited. In
this case, General Dynamics chose to structure the Plan in a way that risked the
employee’s right to Minnesota benefits, while advising the employee to apply for and
receive Minnesota benefits without characterizing the SUB payments as severance.
Viewed in this light, the majority’s conclusion that Minnesota’s statutory
definition of “wages” has a “connection with” an ERISA plan sufficient to support
preemption is not well taken. By the majority’s reasoning, severance plans could dictate
when, and even by what formula, the state must pay benefits when the employee receives
severance payments. The Plan specifies that it will not pay out a greater benefit than the
employee’s pre-termination weekly salary reduced by the unemployment compensation
payment, but under the majority’s reasoning, a SUB plan could be more generous,
D-11
allowing a terminated employee to receive a multiple of his weekly pay, and ERISA
would still preempt any state definition of wages that “undermines the purpose of a SUB
plan to supplement state unemployment benefits” to the higher amount desired by the
plan administrator. Indeed, if a plan had the “purpose” of allowing a terminated
employee to receive a one-time lump-sum severance payment equal to one year of pay at
the pre-termination rate, without affecting the employee’s eligibility for unemployment
benefits, the majority’s reasoning would still apply and would bar a state from defining
such a payment as severance pay. This cannot be what Congress intended.
The majority also finds preemption to be appropriate based on ERISA’s purpose
of permitting “nationally uniform administration of employee benefit plans.” The
Supreme Court has advised that “[u]niformity is impossible . . . if plans are subject to
different legal obligations in different States.” Egelhoff, 532 U.S. at 148. But
Minnesota’s definition of “wages” does not “obligate” severance plans to do anything at
all. The definition of wages does not affect the benefits payable under severance plans,
when those benefits are payable, to whom they are payable, what consideration must be
given to entitle an employee to receive them, or any other details of the payments; all
such matters are determined by the relevant plan documents and the plan administrator. 5
5
To be sure, in this case it appears that in order to determine whether it is proper to
make a payment under the Plan, the plan administrator must determine whether the
employee is eligible for state unemployment benefits, and therefore to a certain extent the
plan administrator must be familiar with Minnesota’s definition of “wages.” But this
requirement is not imposed by the Minnesota definition, but by the Plan itself, which (the
majority tells us, although we do not have the Plan before us) “required Engfer to . . . be
found eligible for state unemployment benefits.”
D-12
Instead, the definition of wages affects only the amount of taxes collected, and benefits
paid out, by the State of Minnesota.
Moreover, the entire premise of a SUB plan is that the administrators may (but are
not required to) familiarize themselves with the law of each state if they want their plans
to pay benefits “supplemental” to state benefits. A SUB plan administrator has no need
“to master the relevant laws of the various states,” as the majority complains, unless it
wishes to take those laws into account to maximize the ex-employees’ (state
unemployment compensation) benefits. Essentially, the majority holds that ERISA
requires states to pay uniform unemployment compensation benefits so that it is
convenient for SUB plan administrators to design plans to supplement them. Again,
Congress cannot have intended this, especially in light of the presumption that Congress
did not intend to supplant state law.
There are several additional reasons to believe that Congress had no such intent.
First, the entire structure of unemployment insurance is a federal-state partnership that
grew out of the Social Security Act. Within this framework, the federal government
establishes minimum standards for unemployment compensation programs while the
states create and administer their own tax and benefit structures. That framework, which
well pre-dates ERISA, would be upset by the majority’s analysis.6
6
There was no right at common law to state unemployment benefits. See Minn.
Stat. § 268.069, subd. 3 (2014). Instead, starting with the Social Security Act of 1935,
unemployment insurance developed as a “federal-state partnership based upon federal
law, but administered by state employees under state law.” U.S. Department of Labor,
Unemployment Compensation: Federal-State Partnership 1 (2014) (Federal-State
(Footnote continued on next page.)
D-13
Second, the exemption from ERISA for SUB plans maintained solely for the
purpose of complying with applicable unemployment compensation laws, see 29 U.S.C.
§ 1003(b) (2012), while not controlling here, at least suggests that Congress did not
intend to limit a state’s ability to decide the scope of, and formula for, state benefits.
Third, as the employee’s Earning Statements from the Plan, which are in the
record, show, SUB payments such as these are “income” subject to federal and state tax.
How can they not be “wages” here?
Finally, although we have not previously decided the precise issue here, a
conclusion that ERISA does not preempt the definition of “wages” fits better with our
closest precedent, Gilhousen v. Ill. Farmers Ins. Co., 582 N.W.2d 571 (Minn. 1998). In
that case, we addressed ERISA preemption in the context of Minnesota’s collateral-
source statute, Minn. Stat. § 548.36 (1996), which provided that benefits paid under an
ERISA-governed benefit plan constituted a collateral source. Id. at 573 n.1. We held
that ERISA did not preempt the state law because the statute did not impose any
(Footnote continued from previous page.)
Partnership). “Each state designs its own UC [unemployment compensation] program
within the framework of the federal requirements. The state statute sets forth the benefit
structure (e.g., eligibility/disqualification provisions, benefit amount) and the state tax
structure (e.g., state taxable wage base and tax rates).” Id.
While the Secretary of Labor approves state unemployment insurance laws to
assure that they comply with federal law, see 26 U.S.C. §§ 3303-3304 (2012), such laws
vary widely from state to state. There are “many variables in states[’] taxable wage bases
and rates, benefit formulas, and economic conditions . . . .” Federal-State Partnership, at
10. “There are no federal standards for benefits in terms of qualifying requirements,
benefit amounts, or duration of regular benefits. Hence, there is no common pattern of
benefit provisions comparable to that in coverage and financing. The states have
developed diverse and complex formulas for determining workers’ benefit rights.” Id. at
11.
D-14
administrative or operational requirements upon ERISA plans, but merely affected plan
benefits. Id. at 575. The same is true here. The Minnesota unemployment insurance
program does not “mandate that certain features be incorporated into ERISA plans,” id.,
which is forbidden, but affects whether and when state benefits are paid to the employee.
If the Minnesota program has any effect on SUB plans, such as the Plan, which has not
been shown, the effect is indirect and attenuated.7
IV.
I find it difficult to believe that Congress, in adopting ERISA, meant to mandate
states to pay particular amounts of unemployment benefits. And I cannot agree with a
judicial decision that forces the State of Minnesota’s legislative and executive branches to
disregard certain severance payments as the State pays benefits from, and collects taxes
for, its unemployment insurance program. For all of these reasons, I respectfully dissent.
7
Along the same lines, see Hewlett-Packard Co. v. Diringer, 42 F. Supp. 2d 1038
(D. Colo. 1999) (ERISA does not preempt state law that requires employers to include
the value of ERISA-plan benefits in calculating wages for worker’s compensation
purposes); Lawrence Paper Co. v. Gomez, 897 P.2d 134 (Kan. 1995) (same); Farrell v.
Am. Heavy Lift Shipping Co., 805 So. 2d 336 (La. App. 2001) (ERISA does not preempt
state law defining wages for unemployment compensation to include lump-sum vacation
pay).
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