# Amicus Curiae Brief — Metropolitan Life Insurance v. Massachusetts > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0138%3A12 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1985 - **Citation:** 471 U.S. 724 ## Text | Nos. and 84-356 ALEXANDER L. STEVAS, IN THE | Supreme Court of the United States - OCTOBER TERM, 1984 METROPOLITAN LIFE INSURANCE COMPANY, * . Appellant COMMONWEALTH OF MASSACHUSETTS, Appellee THE TRAVELERS INSURANCE COMPANY, 7 Appellant COMMONWEALTH OF MASSACHUSETTS, Appellee On Appeal From The Supreme Judicial Court Of The Commonwealth Of Massachusetts BRIEF OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS AS AMICUS CURIAE IN SUPPORT OF APPELLANTS DAVID M. SILBERMAN 1000 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 833-9340 MARSHA BERZON 177 Post Street, Suite 700 San Francisco, CA 94108 (415) 421-7151 LAURENCE GOLD (Counsel of Record) 815 16th Street, N.W. Washington, D.C. 20006 (202) 687-5390 WILSON - ErEes PRINTING Co. INC. - 769-0096 - WASHINGTON, D.C. 20001 ® EB. 00 TABLE OF CONTENTS INTEREST OF THE AMICUS CURIAE .................... SUMMARY OF ARGUMENT ARGUMENT ———.P'ẽ—2—Qrnů L — CONCLUS SON — —6— — Page ii TABLE OF AUTHORITIES Cases Page Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 K 0 en 2, 5, 6, 26 Franchise Tax Board v. Construction Laborers Va- cation Trust, —— U.S. ——, EI L.W. 4945 Gn ee 4 Machinists v. Gonzales, 356 U.S. 617 (1958) 6 Malone v. White Motor Corp., 485 U.S. 497 KK TT.... 6 Shaw v. Delta Air Lines, Inc., — U.S. ——, 51 NL passim Teamsters Union v. Oliver, 358 U.S. 283 (1959) 6 Terminal Ass’n v. Trainmen, 318 U.S. 1 (1943) 6 Statutes Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 (a) .............. — 3, L cicissienissimsatiniinessonstasdisbdatindacimaniin L A 29 U.S.C. § 1023 (a) (C) 29 U.S.C. § 1081 (a) (2) . 29 U.S.C. § 1103 (a) (2) rr /! . — —g ͤ ˙ aan passim National Labor Relations Act, 29 U.S.C. § 151 CB GER — . 5-6 Welfare and Pension Plans Disclosure Act, 72 Stat. RENE Legislative Materials Senate Committee on Labor and Publie Welfare, Legislative History of the Employee Retirement Income Security Act of 1974 ꝶ! 0“ passim Senate Committee on Labor and Public Welfare, Subcommittee on Labor, Hearings on Pension and Welfare Plans, 90th Cong., 2d Sess. (1968) 11 iii TABLE OF AUTHORITIES—Continued Page House Committee on Education and Labor, Gen- eral Subcommittee on Labor, Hearings on Pri- vate Welfare and Pension Plan Legislation, 91st Cong., Ist and 2d Sess. (19700))))))))))))): 13-14 S. Rep. 92-1150, 92nd Cong., 2d Sess. (1972) 15 S. Rep. 93-127, 98rd Cong., Ist Sess. (1973) ......11, 16-18, 24 H.R. Rep. 93-533, 93rd Cong., Ist Sess. (1973) ..16-17, 24 H.R. Rep. 93-779, 93rd Cong., 2d Sess. (1974) 24 H.R. Rep. 93-807, 93rd Cong., 2d Sess. (1974) ...... 18 H.R. Rep. 94-1785, 94th Cong., 2d Sess. (1977) —. 20-23 Miscellaneous Hutchinson & Ifshin, Federal Preemption of State Law Under the Employment Retirement Income Security Act of 1974, 46 U. Chi. L. Rev. 2 e . 10 National Association of State Alcohol and Drug Abuse Directors, Private Health Insurance Cov- erage for Alcoholism and Drug Dependency Treatment Services: State Legislation that Mandates Benefits or the Offering of Benefits for Purchase (July, 1988) .................................... 8 Turza & Halloway, Preemption of State Law Un- der the Employee Retirement Income Security Act of 1974, 28 Cath. U. L. Rev. 163 (1979) 18 IN THE Supreme Court of the United States OCTOBER TERM, 1984 Nos. 84-325 and 84-356 METROPOLITAN LIFE INSURANCE COMPANY, Appellant V. COMMONWEALTH OF MASSACHUSETTS, Appellee THE TRAVELERS INSURANCE COMPANY, Appellant V. COMMONWEALTH OF MASSACHUSETTS, Appellee On Appeal From The Supreme Judicial Court Of The Commonwealth Of Massachusetts BRIEF OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS AS AMICUS CURIAE IN SUPPORT OF APPELLANTS The American Federation of Labor and Congress of Industrial Organization (“AFL-CIO”) submits this brief amicus curiae with the consent of the parties pursuant to the rules of this Court. 2 INTEREST OF THE AMICUS CURIAE The AFL-CIO is a federation of 95 national and inter- national labor organizations representing approximately 13,000,000 employees throughout the United States. These unions engage in collective bargaining in an effort to secure for the employees they represent the terms and conditions of employment those employees desire. It is the experience of the AFL-CIO and of its affiliates that state laws of the type at issue here make that task more, rather than less, difficult by substituting for private decision-making a state-imposed requirement that, if cer- tain benefits are agreed to (here, insurance for hospital and surgical expenses), other benefits must also be pro- vided (here, insurance for treatment of mental illness) regardless of whether the employees desire such benefits or would prefer other benefits (or higher wages) instead. The AFL-CIO submits this brief amicus curiae to demon- strate that Congress intended to protect the autonomy of private decision-making with respect to these matters. SUMMARY OF ARGUMENT Section 514 of ERISA, 29 U.S.C. § 1144, states the general ERISA preemption rule: the Act “shall super- sede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.. Stand- ing alone, that section would undoubtedly preempt the portion of the Massachusetts law at issue here for, as the Massachusetts court recognized, the state law “effectively control ls] the content of insured welfare benefit plans“ and thus “relate[s] to“ such plans. J.S. 20a. And the preemptive force of § 514 (a) is enhanced by the federal labor laws which embody an “additional federal interest in precluding state interference with labor-management negotiations.” Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525 (1981). Part A, pp. 4-6 infra. The court below relied on the ERISA “savings clause” —which provides that “nothing in this subchapter shall 3 be construed to exempt or relieve any person from any lew of any State which regulates insurance. ERISA § 514(b) (2) (A), 29 U.S.C. § 1444 (b) (2) (A) —to sustain the Massachusetts law. The court read the key words in that clause—“law . . . which regulates insurance! to save any statute which, in form, is addressed to insurers and which does not “conflict with the policies or operation of ERISA.” J.S. 5a. And the court concluded that the Massachusetts law at issue here is not in conflict with ERISA—and thus is not preempted—because it “affects only the substantive contents of plans.” Id. 22a. On its face, the decision below is an implausible con- struction of the savings clause. Nothing in the language of that clause bespeaks a congressional intent to set the courts at large to determine, on an ad hoc basis, which state laws conflict with ERISA’s policies. Furthermore, the effect of the decision below is to transform ERISA— which was enacted to “assur[e] the. . . financial sound- ness” of benefit plans, ERISA § 2(a), 29 U.S.C. § 1001(a) into a law which places insured plans at a disadvantage as compared to self-insured plans and thereby discourages the use of insurance to fund benefit plans. Part B, pp. 6-10, infra. That is not what Congress intended. The legislative history, which we review in detail, Part C(1), pp. 10-23, infra, proves that Congress sought to protect the auton- omy of private decisions with respect to the content of benefit plans, and that to the extent regulation was de- sirable, Congress concluded that uniform regulation was required to accommodate the needs of multi-state plans. Congress also sought to encourage the use of insurance to fund benefit plans. The savings clause—which Congress viewed as a narrow exception to the broad preemption rule of § 514(a)—-was not intended effectively to nullify those policies by authorizing state regulation of the con- tents of insured plans through the form of insurance reg- lation. Rather, to make sense of the statutory language and policies, the phrase law. . . which regulates insur- ante” must be understood to mean a law that both in + form and in substance is addressed to the conduct of insurers, and not to the content of benefit plans. Accord- ingly, the Massachusetts law at issue here falls outside the savings clause and thus is preempted by § 514 (a). Part C(2)-(3), pp. 23-27, infra. ARGUMENT The Massachusetts statute at issue in this case states that “[a]ny blanket or general policy of insurance which provides hospital expense and surgical expense insurance . . or any employees’ health and welfare fund which provides hospital expense and surgical expense benefits . . shall provide benefits for expense arising from mental or nervous conditions.. Mass. Gen. Laws ch. 175, §47B. It is common ground that, under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C .§ 1001 et seq., a state may not in terms require an employee benefit plan to provide any particular benefits and that therefore insofar as the Massachusetts law applies directly to such plans, the statute is preempted by ERISA. But the Massachusetts Supreme Judicial Court held that under ERISA a state may “effec- tively control the content of insured welfare benefit plans,” J.S. 20a, so long as the state does so “indirectly through its insurance laws,” id. 6a. As we proceed to show, that holding is erroneous: ERISA—both standing alone and when read in conjunc- tion with the federal labor laws—precludes the states from controlling the nature and quantum of benefits pro- vided by an employee benefit plans regardless of the form of the state regulation. A. Section 514 of ERISA, 29 U.S.C. § 1144, is a “vir- tually unique preemption provision.” Franchise Tax Board v. Construction Laborers Vacation Trust, — U.S. ——, 51 L.W. 4945, 4952 n.26 (June 24, 1983). Subsection (a) of that section states the general ERISA preemption rule: the Act “shall supersede any and all state laws insofar as they may now or hereafter relate to 5 any employee benefit plan...” “The breadth of § 514(a)’s pre-emptive reach is apparent from that section’s lan- guage. A law ‘relates to’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan.” Shaw v. Delta Air Lines, Inc., —— 78. ——, 51 L. W. 4968, 4971 (June 24, 1983). If §514(a) stood alone, there would be no doubt that the portion of the Massachusetts law at issue here would be preempted. As the Massachusetts court observed, under the state statute “a plan that purchases insurance has no choice but to provide mental health care benefits” and thus the law “effectively control[s] the content of insured welfare benefit plans.” J.S. 20a. Based on that fact, and based upon its reading of Alessi v. Raybestos- Manhattan, Inc., 451 U.S. 504 (1981)—in which this Court held that § 514 (a) preempts a state statute pro- hibiting set-offs of workers compensation payments against pension benefits—the Massachusetts court con- cluded that the Massachusetts statute “is a law that ‘re- late[s] to’ benefit plans within ERISA’s general preemp- tion clause.” J.S. 20a. Alessi also points to “[a]nother consideration [which] bolsters [this] conclusion.” 451 U.S. at 525. As the Court there noted, under the National Labor Relations Act, as amended, there is an “additional federal interest in precluding state interference with labor-management negotiations,” id.; reading that Act in conjunction with ERISA the Alessi Court concluded that it is “federal policy” to assure that employee benefits are “a subject of either labor-management negotiations or federal legisla- tion,” id. at 526 n.22. The Massachusetts statute at issue here is squarely contrary to that policy. It is not at all clear how far the federal policy favoring free collective bargaining, standing alone, would go in preempting state regulation of benefit plans. The NLRA is silent with respect to the issue of preemption, and “the statutory implications of what 6 B. The Massachusetts court nonetheless sustained the state statute, relying on subsection (b) (2) (A) of ERISA § 514—the “savings clause,” 29 U.S.C. § 1144 (b) (2) (A). That clause provides, in pertinent part, that “nothing in this subchapter shall be construed to exempt or rebeve any person from any law of any State which regulates insurance .. The court below held—erroneously as we now show—that insofar as it applies to insured benefit plans the Massachusetts statute is a “law .. . which regulates insurance” within the meaning of that clause. As the Massachusetts court recognized, the bare words of the savings clause are “of little help” in ascertaining its sweep. J.S. at 22a. That clause could, of course, be read to save from preemption all state statutes which, in form, are addressed to an insurance company, regard- less of the substance of the statute or its impact on bene- fit plans. But such a reading would mean that, with re- has been taken from the States and what has been left to them are of a Delphic nature Machinists v. Gonzales, 356 U.S. 617, 619 (1958). This Court recognized years ago that “[s]tate laws have long regulated a great variety of conditions in . . industry,” and “it cannot be that the minimum requirements laid down by state authority are all set aside” by federal law. Terminal Ass'n v. Traixmen, 318 U.S. 1, 6-7 (1943). On the other hand, it is equally clear that the states cannot be wholly free to limit the solution that the parties’ agreement can provide to the problem of wages and working conditions.” Teamsters Union v. Oliver, 358 U.S. 283, 295-96 (1959). See also Brief of the AFL-CIO as Amicus Curiae in No. 83-1748, Allis Chalmers Corporation v. Lueck at pp. 8-6 & n.3. It is not necessary in this case for the Court to decide where the NLRA, standing alone, would require that the line be drawn be- tween what “has been taken from the States and what has been left to them.” Malone v. White Motor Corp., 485 U.S. 497, 505 (1978), teaches that, prior to ERISA, the Welfare and Pension Plans Disclosure Act (“WPPDA”), 72 Stat. 997, provided “a far more reliable indicium of congressional intent with respect to state authority to regulate pension plans” than did the NLRA. And the same is now true with respect to ERISA, the successor to the WPPDA. See also Alessi, supra, 451 U.S. at 526 n.23. At most, then, as in Alessi, the NLRA here “bolsters” the conclusion de- rived from ERISA § 514(a). T spect to insured plans, the states would be free to regu- late the very subjects regulated by ERISA, and to do so in a manner inconsistent with ERISA. For example, un- der that reading of the savings clause a state could, through ostensible insurance regulation, mandate that pensions in insured plans fully vest after an employee completes only five yeas of service, even though Con- gress, in enacting ERISA, opted for a ten-year vesting requirement. See ERISA § 203(a). Such a broad read- ing of the savings clause thus would “permit the State, through its insurance laws, to reach far into areas gov- erned by ERISA, and thereby negate the unmistakable intent of Congress to work a broad preemption,” as the Massachusetts court conceded. J.S. at 21a. The court below therefore eschewed such a reading of the savings clause, concluding, instead, that to be saved by that clause a state law must not only satisfy certain formal requirements (i.e. be addressed, in terms, to in- surers) but also must “not conflict with the policies or oneration of ERISA.” J.S. at 5a; see also id. at 22a. hat court determined that there is no conflict between the Massachusetts law at issue here and ERISA because the state law “affects only the substantive content of plans,” a subject which, according to the state court, is “completely untouched by ERISA’s regulatory provisions.” Id. at 22a (emphasis added); see also id. at 5a n.4. In reaching this conclusion the Massachusetts court rejected the proposition that by mandating insured- plan benefits the Massachusetts laws interfered with a congressional decision “to designate an area of private self-determination with respect to choice of benefits,” as that court found no “persuasive evidence in the legisla- tive history of an affirmative policy to curtail State police power in favor of private decision-making.” Id. at 23a. And the court below likewise rejected the contention that state mandated-benefits conflict with a policy of allowing “interstate employers to maintain uniform plans,” id. 8 at 5a-6a, concluding that to attribute such an intent to Congress would be “inconsistent . . . with the broad lan- guage of the insurance exemption,” id. at 6a, which ex- emption, in that court’s view, proved that Congress “could not have intended to mandate complete uniformity for the convenience of multi-state employers,” id. at 24a. As we proceed to show, the Massachusetts court has misunderstood Congress’ intent. The legislative history of ERISA demonstrates that Congress emphatically pro- tected private decision-making with respect to the content of benefit plans and that to the extent regulation was desirable, Congress concluded that uniform federal regu- lation was required to accommodate the needs of multi- state plans. Given that intent, the phrase “law . . . which regulates insurance” as used in the savings clause cannot be understood to mean a law which only in form is ad- dressed to insurers. Rather, to satisfy this definition, a statute also must, in substance, concern the decisions of insurers, and not decisions of benefit-plan administrators or sponsors on such fundamental matters as what bene- fits to provide. In other words, a law. . . which regu- lates insurance” is one as to which the burden of com- pliance falls directly on insurers rather than on benefit plans. A law mandating that particular benefits be pro- vided by insured plans thus is not a “law . . . which regulates insurance” under the savings clause.” 2In contrast, and by way of illustration, a law that required insurers to offer certain options in health insurance—for example, a mental health option—is a law regulating insurance (as are the more familiar forms of insurance regulation such as reserve requirements, reporting requirements for insurers, and the like). Such laws do not attempt to regulate the contents of benefit plans. A number of states have enacted laws mandating insurance op- tions, at least with respect to treatment for alcoholism and drug de- pendency. See National Association of State Alcohol and Drug Abuse Directors, Private Health Insurance Coverage for Alco- holism and Drug Dependency Treatment Services: State Legisla- tion that Mandates Benefits or the Offering of Benefits for Pur- chase at 5-6 (July, 1983). 9 Before turning to the legislative history we pause briefly to make two observations about the decision below —observations which highlight the implausibility of that decision. First, it is important to note that the Massachusetts court failed to propose any definition of the critical stat- utory phrase law. . . which regulates insurance” in the savings clause. Instead that court adopted what it termed a “conflict-based analysis” under which the deter- mination of whether a particular law is within or out- side the savings clause depends on a judicial decision, on a case-by-case basis, as to whether the law „conflict [s] with the policies or operation of ERISA.” J.S. 5a. But nothing Congress said bespeaks an intent to set the courts at large to undertake such an ad hoc “conflict- based analysis.” “ Second, under the decision below, states may man- date benefits for insured plans, but not for self-insured plans.* Consequently, insured plans will be put at a dis- advantage as compared to self-insured plans; in Massa- chusetts, for example, an employer and union could agree to a health program that did not include mental health It is also noteworthy that in Shaw, supra, the Court squarely rejected the proposition that ERISA preempts only state laws that are inconsistent with it. See 51 L.W. at 4971, 4973 & n.25. The Massachusetts court questioned that aspect of Shaw’s holding. See J. S. 6a. With respect to self-insured plans, the deemer clause,“ ERISA § 514 (b) (2) (B), 29 U.S.C. § 1144 (b) (2) (B), precludes any pos- sible attempt by a state to usc its insurance law to circumvent § 514(a)’s preemptive force. The deemer clause provides in per- tinent part: Neither an employee benefit plan . . nor any trust estab- lished under such a plan, shall be deemed to be an insurance company or other insurer . . . or to be engaged in the busi- ness of insurance for purposes of any law of any State purport- ing to regulate insurance companies, insurance contracts. . . 10 coverage only by creating a self-insured plan. And were other states to mandate other benefits that those states deem desirable, that “would make administration of a uniform nationwide plan more difficult,” Shaw v. Delta Air Lines, supra, 51 L.W. at 4973 n.25, presenting multi- state plans with the “Hobson’s choice” of “either aban- don ing] the funding of benefit plans through insurance policies or . . accepting] all-encompassing uniform na- tional contracts” that provide every benefit required by any state. It is most unlikely, to say the least, that a statute which was enacted for the very purpose of “assuring the equitable character .. and... financial soundness” of benefit plans, ERISA § 2(a), 29 U.S.C. § 1001 (a)—based upon Congress’ finding that “the soundness and stability of plans . . may be endangered,” id—was meant to discourage the use of insurance as a method of funding benefit plans and to encourage self-insurance instead. See also pp. 24-25, infra. Yet that is the necessary con- sequence of the decision below. Not surprisingly, the leg- islative history demonstrates that Congress intended no such anomaly. C. 1. The legislative history of ERISA begins in the Ninetieth Congress. During that Congress the Johnson administration submitted two bills (S. 1024 and S. 3421), which together would have established comprehensive fed- eral regulation of employee benefit plans; those bills were introduced by Senator Yarborough as chairman of the Senate Committee on Labor and Public Welfare. During the same Congress, Senator Javits, the ranking minority Hutchinson & Ifshin, Federal Preemption of State Law Under the Employment Retirement Income Security Act of 1974, 46 U. Chi. L. Rev. 23, 68 (1978). 11 member of that committee, submitted his own bill (S. 1103) to regulate employee benefit plans.“ For present purposes what is most significant about the Yarborough and Javits bills is that both expressly disclaimed any preemptive effect. Section 18(a) of S. 1024, one of the Yarborough bills, provided: The provisions of this Act . . . shall not be held to except or relieve any person from compliance with any Federal or State law imposing affirmative obli- gations, duties, responsibilities or other standards of conduct with respect to the operation or administra- tion of employee welfare or pension benefit plans.’ And § 508 of the Javits bill provided: Nothing in this Act shall be deemed to nullify any provision of any State or Federal law not in direct conflict with a provision of this Act. The Senate committee held hearings in 1968 on the various pension bills that had been introduced, see Sen- ate Committee on Labor and Public Welfare, Subcom- mittee on Labor, Hearings on Pension and Welfare Plans, 90th Cong., 2d Sess. (1968), but no legislation was re- ported by the committee. * As Senator Javits observed, both “the administration bill as well as my own are heavily based upon the Cabinet Committee’s report on private pension plans.” Senate Committee on Labor and Public Welfare, Subcommittee on Labor, Hearings on Pension and Welfare Plans, 90th Cong. 2d Sess. 165 (1968). The Cabinet Com- mittee, which had been appointed by President Kennedy in 1962, submitted a report in 1965 calling for remedial legislation in a num- ber of areas. See S. Rep. 93-127, 98rd Cong., Ist Sess. 7 (1973) (discussing report). 7 8.1024, the bill of which the quoted section was a part, ad- dressed only reporting, disclosure and fiduciary requirements; the Johnson administration proposed a separate bill, S.3421, to estab- lish minimum vesting and funding requirements and to create federal pension insurance. That latter bill had no preemption pro- vision at all. 12 Work on federal pension legislation continued in the Ninety-First Congress. The various bills from the prior session were all reintroduced. See 8.2167 (Javits bill); 8.4326, 4327 (Johnson administration bills). In addition, the new Secretary of Labor, George Shultz, prepared a new piece of legislation, 8.3859, supported by the Nixon administration, which was introduced for the administra- tion by Senator Javits, see 116 Cong. Rec. 7278. That bill was more limited in scope than the original Javits’ bill in that the Nixon administration bill did not have any mini- mum vesting or funding provisions but rather established only reporting and disclosure requirements and fiduciary standards. But for present purposes, the Nixon adminis- tration bill is significant because, unlike its predecessors, that bill would have had the effect of preempting state law with respect to the subjects the bill regulated. Spe- cifically, § 18 of that bill provided: It is hereby declared to be the express intent of Con- gress that . . the provisions of this Act shall super- sede any and all laws of the States and of political subdivisions thereto insofar as they may now or here- after relate to the fiduciary, reporting and disclosure responsibilities of persons acting on behalf of em- ployee benefit plans. Furthermore, the Nixon administration bill contained a “savings clause” which was identical to the one even- tually enacted in ERISA: “nothing herein shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking or se- curities.” S.3589, § 18, 91st Cong., 2d Sess. In introducing the Nixon administration bill, Senator Javits placed into the Congressional Record an explana- tory statement and section-by-section analysis which said in pertinent part: The Act provides for a uniform source of law for evaluating the fiduciary conduct of persons acting on behalf of employee benefit plans and a singular re- \ 13 porting and disclosure system in lieu of the burden- some multiple reports. . 5 * Section 18 designates the Act as the exclusive form of regulation for employee benefit plans within the areas covered, but provides that State laws which otherwise regulate insurance, banking and securities shall remain operative. [116 Cong. Rec. 7286, 7288] Thus, at its creation, the combined force of an express preemption provision and the savings clause was stated to be to provide “exclusive [federal] regulation for em- ployee benefit plans within the areas covered” by federal law and to preserve state laws that “otherwise regulate insurance.” No hearings were held in the Senate during the Ninety- First Congress with respect to the various pension bills, but hearings were held by Representative Dent’s General Subcommittee on Labor of the House Labor and Educa- tion Committee. See House Committee on Education and Labor, General Subcommittee on Labor, Hearings on Pri- vate Welfare and Pension Plan Legislation, 91st Cong., Ist and 2d Sess. (1970). At those hearings, Secretary of Labor Shultz testified in support of the Nixon administra- tion bill (which had been introduced in the House, with- out any explanation, by Rep. Ayres, as H.R. 16462, see 116 Cong. Rec. 7453). In his testimony Secretary Shultz laid down certain principles for developing federal regu- lation of benefit plans—principles that continued to be followed over the years during which ERISA was formu- lated, and are of relevance in understanding the preemp- tion provision of ERISA: A balance of concerns exist that must be weighed in judging the private pension system. I am con- cerned about the worker whose expectations of receiv- ing a pension after long years of service are disap- pointed because of the absence of a suitable vesting provision; about the workers who lose their accrued 14 pension rights for lack of sufficient funds in a plan when it is prematurely terminated; about the ade- quacy of the level of benefits for our retired workers, and about the restrictions on individual choice of benefit level built into our present system. I am also concerned lest the Government intrude itself unduly into free collective bargaining about pensions; and I am concerned that private pension plans not lose their flexibility and their adaptability to meet needs in widely different circumstances, and about impairing the competitive position of the em- ployers who provide pension coverage for their em- ployees as against those who do not. The need for uniform standards to guarantee bene- fit security also must be balanced against the possible loss of some freedom and flexibility in plan design and operation, which are valuable characteristics of the private system. [Hearings on Private Welfare and Pension Plan Legislation, supra, at 473-74 (em- phasis added) Secretary Shultz went on to discuss the Nixon adminis- tration bill, explaining the rationale for its preemption provision as follows: Administrators of plans covering employees in several or more States will not have the burden of complying with several sets of State laws, rules, and regula- tions. They will be able to formulate procedures and conduct themselves with reference to one uniform law. Participants and beneficiaries will be able to judge fiduciary conduct according to a uniform standard. IId. at 481] Although the Nixon administration bill (along with all other pension bills) died in committee in the Ninety- First Congress—and although eventually a law was en- acted far broader than that proposal—the bill nonethe- 15 less marked a turning point insofar as the preemption issue was concerned. From that time forward, every major bill that was introduced into Congress contained a preemption provision at least as broad as the one pro- posed by the Nixon administration, and each contained that administration’s savings clause. This is true both of the bills introduced in the Ninety-Second Congress,“ and also of the bills introduced in the Ninety-Third Con- gress, the one that enacted ERISA. In the Ninety-Third Congress two bills became the focal points for the legislative effort to regulate benefit plans: §.4, introduced by Senators Williams and Javits, see Senate Committee on Labor and Public Welfare, Legislative History of ERISA at 93-190 (Leg. Hist.“), and H.R. 2, introduced by Representative Dent, see 1 id. at 3-67.° Each contained a preemption provision that For example, at the start of the Ninety-Second Congress, Senator Javits introduced a modified version of the comprehensive pension bill he had offered in the prior Congress; his new bill, however, in- cluded a provision which, subject to the savings clause, would have preempted all state laws with respect to “the subject matters regu- lated by this Act.” S.2, § 507, 92nd Cong. 1st Sess. (In introducing the bill, Javits noted this as one of the “more important differences” from his prior bill. 117 Cong. Rec. 283.) Similarly, Rep. Dent— who in the prior legislative session had introduced the Johnson administration bills with their non-preemptive provision, see H.R. 1045, 1046, 91st Cong. Ist Sess. (1971)—introduced in the 92nd Congress a bill that was pre-emptive with respect to state regula- tion of reporting, disclosure and fiduciary requirements. H.R. 1269 § 115, 92nd Cong. Ist Sess. (1971). The Dent bill was not reported out of committee; the Javits bill was superseded by 8.3598, 92nd Cong., 2d Sess., a bill which Sena- tors Williams and Javits jointly introduced as a substitute for S.4. The Williams-Javits bills was reported out of the Senate Labor Committee, see S. Rep. 92-1150, 92nd Cong., 2d Sess. (1972) but was not acted upon by the Senate. As introduced, S.4 was identical to 8.3598 as the latter had been reported out of the Senate Labor Committee in the prior Congress. See n.8 supra. In addition to the bills mentioned in text, the Senate Finance Committee and House Ways and Means Committee developed their \ — 16 was identical to its immediate predecessor: in 8.4 a pro- vision (8 609) preempting state laws pertaining to “the subject matters regulated by this Act,” 1 Leg. Hist. at 186-87; and in H.R. 2 a provision (§ 114) preempting state regulation of reporting, disclosure, and fiduciary requirements, 1 Leg. Hist. at 50-51. Each bill also con- tained a savings clause identical to the one eventually enacted. The Senate bill was reported from committee with its preemption provision intact, 1 id. at 582-85; in the House committee the preemption provision was broadened 80 as to apply to state regulation of vesting and funding as well as to state regulation of reporting, disclosure and fiduciary standards, and the bill was then reported to the House, 1 id. at 2345-57.“ The reports of the two committees reveal a common animating philosophy. Both reports declare the same general approach to federal regulation of employee bene- fit plans: The Bill . . . represents an effort to strike an appro- priate balance between the interests of employers and labor organizations in maintaining flexibility in the design and operation of their pension programs, and the need of the workers for a level of protection which will adequately protect their rights and just expectations. . This legislation strikes an appro- own bills to amend the tax laws as they pertained to benefit plans. See 1 Leg. Hist. at 230-73 (S.1179 as introduced by Sen. Bentsen) ; 1 id. 780-1063 (S.1179 as reported); 2 id. 2393-2584 (H.R. 12481 as submitted and reported). The tax bills did not present any preemption issues. Eventually the tax bills and regulatory bills were incorporated into a single piece of legislation. See also n.12 infra. 10 In the House bill, as reported, the savings clause applied only to state regulation of reporting, disclosure and fiduciary standards; there was no savings clause with respect to the provision of the bill preempting state regulation of vesting and funding. See 2 Leg. Hist. at 2345-47. 17 priate and equitable balance between . . those who advocate complete and stringent control of private pensions and those who oppose any form of super- visory or regulatory control. [S. Rep. 93-127, 93rd Cong. 1st Sess. 13-14 (1973) ; H.R. Rep. 93-533, 93rd Cong. ist Sess. 9 (1973) ] And each endorses the same approach towards preemp- tion: Because of the interstate character of employee bene- fit plans, the Committee believes it essential to pro- vide for a uniform source of law in the areas of vest- ing, funding, insurance and portability standards, fer evaluating fiduciary and disclosure system in lieu of burdensome multiple reports. As indicated pre- viously . . . the Act ... provides that state laws regulating banking, insurance or securities remain unimpaired. [S. Rep. 93-127, supra, at 35; H.R. Rep. 93-533, supra, at 17.]™ The Senate report is significant for one additional reason. Both the Senate and House bills, as reported, contained a provision—eventually enacted as ERISA § 506, 29 U.S.C. § 1136—authorizing the Secretary of Labor to make “agreements for cooperation or mutual assistance” with, or to “utilize .. the facilities or serv- ices of any department, agency, or establishment of. any State or political subdivision of a State The House report did not comment on this provision but the Senate report did, stating: The states of Wisconsin and New York, for example, exercise supervision over certain pension and welfare funds in their respective jurisdictions, and the ex- perience and technical know-how of these state agen- cies would be of valuable assistance to the Secretary. It is not intended, however, that the state agencies 11 See also S. Rep. 93-127, supra, at 29 (stating need for uni- formity with respect to fiduciary standards because “the operations of employee benefit plans are increasingly interstate”); H.R. Rep. 93-533, supra, at 12 (same). 18 utilized would formulate or apply substantive stand- ards to plans subject to this Act which differ from the substantive standards in this Act. [S. Rep. 93-127, supra, at 17-18 (emphasis added) The Senate and House passed their respective bills without altering the preemption provisions reported by the responsible committees. See 2 Leg. Hist. 2103-05; 3 id. 4457-592 In conference, however, the preemption provision was broadened still further, as this Court has had occasion to note, Shaw v. Delta Air Lines, supra, 51 L.W. at 4971 & n.18: rather than preempting only “state laws relating to the specific subjects covered by ERISA” and thereby precluding only those laws that ac- tually conflict with ERISA, § 514 (a) was amended so as to preempt state law that “relate to any employee benefit plan,” i.e., all state laws on this subject. Significantly, the legislative history indicates—and contemporaneous observers confirm - that the preemp- 12 The Senate bill was passed, as a non-germane amendment to H.R. 4200, a minor tax bill which had been approved by the House; this was done because the bill approved by the Senate made “major changes in our tax laws” and if the Senate were “to proceed to pass S.4 under that number the House would refuse to consider the bill on the constitutional grounds that revenue bills must originate in the House of Representatives.” 2 Leg. Hist. at 1879. In the House, after H.R. 2 was reported, the Labor Committee worked with the Ways and Means Committee to develop, as H.R. 12906, a revised version of H.R. 2 and, as H.R. 12855, a tax-code analogue for the regulatory provisions. See H.R. Rep. 93-807, 93rd Cong. 2d Sess. 1 (1974) (Ways and Means Report). Those two bills were adopted as amendments to H.R. 2, and, with those amendments, H.R. 2 was approved by the House. The Senate then adopted its bill as an amendment to H.R. 2. 2 Leg. Hist. 3597-99. 13 See Turza & Halloway, Preemption of State Law Under the Em- ployee Retirement Income Security Act of 1974, 28 Cath. U. L. Rev. 163, 167 (1979) (preemption provision broadened “ijn response to organized labor’s concern over state regulation of pre- paid legal service plans and both business’ and organized labor’s 19 tion provision was broadened in conference in order to protect the autonomy of benefit plans, and in particular, to guard against threatened siate regulation of the sub- stance of prepaid legal service plans. Representative Dent alluded to this concern in his remarks to the House concerning the conference preemption provision, see 120 Cong. Rec. 29197 (preemption provision would apply to “any rule, regulation, practice or decision of any . . . pro- fessional society or association operating under code of law“), and Senator Williams stated the point explicitly in his post-conference statement to the Senate: Consistent with this principle, State professional asso- ciations acting under the guise of State-enforced pro- fessional regulation, should not be able to prevent unions and employers from maintaining the types of employee benefit programs which Congress has au- thorized—for example, prepaid legal services pro- grams—whether closed or open panel. . . IId. at 29933] Furthermore, during the Senate debate on the conference bill, Senator Taft engaged Senators William and Javits in a colloquy concerning legal service plans during which Senator Javits stated that “the State, directly or indirectly through the bar, is preempted from regulating the form and content of a legal service plan,” 3 Leg. Hist. at 4789, and Senator Williams added: This is an area that will not give to bar associations the authority to undo what we, in Congress, have permitted to be done, that is, giving employers and unions the freedom to develop and operate legal serv- ice plans of their choice. [3 Id. at 47900] The debate on the conference bill is significant for a further reason: it reveals that Congress intended the ERISA preemption rule to be sweeping and the excep- tions narrow. For example, Representative Dent stated: concern about the increasing state regulation of interstate plans“). The principal author of this article was a legislative aide to Senator Javits when ERISA was enacted. 20 I wish to make note of what is to many the crowning achievement of this legislation, the reservation to Federal authority of the sole power to regulate the field of employee benefit plans. With the preemption of the field, we round out the protection afforded par- ticipants by eliminating the threat of conflicting and inconsistent state regulation. The conferees, with the narrow exceptions specifi- cally enumerated, applied this princinle in its broad- est sense to foreclose any non-Federal regulation of employee benefit plans. [120 Cong. Rec. 29197] Similarly, Senator Williams stated: It should be stressed that with the narrow exceptions specified in the bill, the substantive and enforcement provisions of the conference substitute are intended to preempt the field for Federal regulations, thus eliminating the threat of conflicting or inconsistent State and local regulation of employee benefit plans. This principle is intended to apply in its broadest sense to all actions of State or local governments, or any instrumentality thereof, which have the force or effect of law. [Id. at 29933] And Senator Javits added: Although the desirability of further regulation—at either the State or Federal level—undoubtedly war- rants further attention, on balance, the emergence of a comprehensive and pervasive Federal interest and the interests of uniformity with respect to interstate plans required—but for certain exceptions—the dis- placement of State action in the field of private em- ployee benefit programs. . . . If it is determined that the preemption policy devised has the effect of pre- cluding essential legislation at either the State or Federal level, appropriate modification can be made. Id. at 29942] A fair summary of the congressional understanding of § 514 was provided in a report issued by the House Sub- committee on Labor Standards, chaired by Rep. Dent, 21 pursuant to a mandate contained in ERISA § 3022(a), during the congressional session immediately after ERISA was enacted.“ That report states: _ ERISA, among its many provisions, provides for a significant adjustment in the regulatory roles of state and federal authority with respect to the various elements of the employee benefit plan field. The pro- visions of section 514 expressly reserve to Federal authority the regulation of employee benefit plans subject to the jurisdiction of the Act. In electing deliberately to preclude state authsrity over these plans, Congress acted to insure uniformity of regula- tion with respect to their activities. There was a rec- ognition of the necessity for the preservation of some state activity in this field and certain limited excep- tions were made to the broad preemption scheme. In general these exemptions are designed to save state law as it is applid to entities which are not employee benefit plans as defined in section 4(a) and not ex- empt under section 4(b), to the extent that such regulation does not relate to employee benefit plans. From the early 1970’s the legislative activiti which eventually produced ERISA. involved — framings of preemption schemes. The Committee’s hearing record prior to 1974 contains numerous dis- cussions of the propriety of one approach or another. * ERISA § 3022 (a) required a “full study and review,” during the Congress following enactment of the law, of several subjects including “(4) the effects and desirability of the Federal preemp- tion of State and local law with respect to matters relating to pen- sion and similar plans.” The study was to have been conducted by the “Joint Pension Task Force” which was to be composed of the staffs of the various committees that had been responsible for the enactment of ERISA. See ERISA §§ 3021, 3022. The Joint Task Force was never constituted, however, and Rep. Dent’s committee acting pursuant to Rule X of the Rules of the House of Representa- tives for the Ninety-Fourth Congress, created its own Task Force on Welfare and Pension Plans. That Task Force conducted lengthy oversight hearings (some in conjunction with the House Ways and Means Committee) and issued the report quoted in text. See H.R Rep. 94-1785, 94th Cong., 2d Sess. 38 (1977). os 22 Once it had become clear that our policy would be the creation of uniform national standards, the problem was to extract these plans from the regulatory schemes in the several states without creating un- toward side effects. A number of states had undertaken to regulate em- ployee benefit plans as such; others had already made, or appeared ready to declare, these plans subject to state control as insurers, trust companies, or invest- ment companies. From a drafting standpoint the difficulty arose in attempting to extricate these plans from the framework of state insurance, trust and securities regulation even though their activities might very well bring them within the sphere of conduct historically subject to such regulation. On the one hand it was clear that the plans subject to ERISA needed to be freed of the possibility of state regulation; on the other hand, it was important to limit the effects of preemption, in order to avoid disrupting state efforts to regulate the conduct of other financial entities not subject to the federal Act. * — — Based on our examination of the effects of section 514, it is our judgment that the legislative scheme of ERISA is sufficiently broad to leave no room for effective state regulation within the field preempted. Similarly it is our belief that the Federal interest and the need for national uniformity are so great that enforcement of state regulation should be precluded. 7. * We remain convinced of the propriety and neces- sity for the very broad preemption policy contained in section 514. To the extent that the scheme of regulation is found to be deficient with respect to some or all of the plans covered by the Act, we are prepared to consider amendments expanding or modi- fying the federal standards. We will be most reluc- tant to consider any remedy involving a limitation on the preemptive scheme as it applies to the plans 23 described in section 3(3) of Title I. [H.R. Re 94-1785, 94th Cong. 2d Sess. 46-47, 48 (1977) ) 2. The legislative history just reviewed is instructive in four regards. First, that history shows that contrary to the Massa- chusetts court’s conclusion, see p. 7 supra, Congress clearly was intent on protecting “private decision-making” in the structuring of employee benefit plans. The Senate and House committee reports on the bills that became ERISA both state, as a formative principle underlying the Act, an intent to accommodate “the interests of em- ployers and labor organizations in maintaining flexibility in the design and operation of their pension programs.” . 16 supra; see also p. 14 supra (Secretary Schultz’s testimony). Moreover, a principal reason the scope of § 514 (a) was broadened by the conference committee was precisely to preclude state regulation of “the form and content of a legal service plan,” p. 19 supra (Sen. Javits) and thus to assure “employers and unions the freedom to develop and operate legal service i i plans of their choice,” p. 19 supra (Sen. Williams). — Second, the legislative history likewise beli sachusetts court’s attempt to — — 7 — to allow “interstate employers to maintain uniform plans.” See p. 7 supra. Beginning with the very first preemption proposal in 1970, the advocates of preemption consistently stated this as their principal rationale, e.g., p. 15 supra (Secretary Schultz); the 1973 Senate and House commit- tee reports therefore state that, “[b]ecause of the inter- state character of employee benefit plans, the Committee os is — to provide a uniform source of law . . . P. 17, supra; and the 1977 House rt i that “the Federal interest and the — — un so great that enforcement of state i Ar regulation should be Third, the legislative history —especi , pecially the lana- tory statements following the conference Beco yo, — 24 lish that “Congress applied the principle of pre-emp- tion ‘in its broadest sense to foreclose any non-Federal regulation of employee benefit plans,“ and not just non- Federal regulation that conflicts with ERISA’s rules. Shaw v. Delta Air Lines, supra, 51 L.W. at 4972. Those statements show with equal clarity that Congress viewed the savings clause as “creating only very limited excep- tions to pre-emption.” Id. See also p. 20 supra (Rep. Dent, Sen. Williams). Fourth and finally, the legislative history contains not one iota of evidence to suggest that Congress intended to create a regime which would discourage or effectively pre- clude the use of insurance to fund employee benefits. To the contrary, the legislative history shows that the “most important purpose” of the Act is “to assure American workers that they may look forward with anticipation to a retirement with financial security and dignity,” and that to do so the Act specifically seeks to assure “ade- quate funding” of pensions lest “a promise of pension” prove “illusory and empty.” S. Rep. 93-127, supra, at 11, 10; H.R. Rep. 93-533, supra, at 8, 7. Congress recog- nized that one means of funding employee benefits is through the “purchase of insurance,” ERISA § 3(1), 29 U.S.C. 8 6 1002 (1) (defining “employee welfare benefit plan”), and insured plans were viewed as safer than self- insured plans; the resulting preference for insurance is manifest in the very structure of the Act.” Thus, by at- 16 For example, ERISA § 302, 29 U.S.C. § 1082, establishes a complex set of minimum funding standards for pension plans, but under § 301(a) (2), 29 U.S.C. § 1081(a) (2), this set of stand- ards is generally inapplicable to plans funded exclusively by insur- ance. Congress created this exemption because of the fact that insured plans “have behind them the funding of the insurance com- panies,” H.R. Rep. 93-779, 98rd Cong. 2d Sess. 24 (1974) (House Ways and Means Committee) ; 2 Leg. Hist. 3316 (House Committee on Education and Labor explanatory material), and thus Congress concluded that such plans “will be properly funded,” 2 id. 3342. For other examples of favored treatment of insured plans, see, e. ., ERISA § 108(a) (C), 29 U.S.C. § 1023 (a) (C), 29 U.S.C. § 1023 25 tributing to Congress an intent to discourage the creation or maintenance of insured plans, the decision below flies in the face of Congress’ intent. 3. Given all this, there can be no doubt that, as the Massachusetts court itself recognized, see pp. 6-7 supra, the phrase 2 law . . . which regulates insurance” cannot, in the context of the savings clause, refer to all laws which, in form, are addressed to insurers. As previously noted, such an interpretation would leave the states free to impose rules on insured benefit plans even with re- spect to those matters that Congress itself regulated, such as vesting requirements. See p. 7 supra. The leg- islative history establishes that, as early as 1970, the decision was made to establish uniform federal rules at least with respect to those subjects being regulated by ERISA; as the 1973 Senate committee report stated: “[i]t is not intended... that the state agencies would formulate or apply substantive standards to plans subject to this Act which differ from the standards in this Act.” Pp. 17-18 supra. Thus, the phrase “law. . . which regulates insurance’—which phrase appeared in every major pre-ERISA bill from 1970 forward—must refer to a class smaller than that consisting of all laws addressed to insurers. Equally clearly—and contrary to the decision below— the savings clause cannot be read to permit all indirect state regulation of insured benefit plans that does not con- (a)(C) (exempting insured plans from certain auditing require- ments); § 406 (b) (1), 29 U.S.C. §1108(a) (insurance contracts, unlike all other assets of a benefit plan, need not be held in trust). It is noteworthy in this regard that ERISA distinguishes be- tween true insurance and plans in which an insurance company maintains a “separate account” for the premiums paid by the em- ployer which account provides the sole source of money to fund benefits for the employer’s employees. See ERISA §3(17), 29 U.S.C. 5 1002 (17). Generally speaking, separate account plans— which are, in substance, a species of self-insurance—do not qualify for the favored treatment afforded to insured plans. 26 flict with an express provision of ERISA. That interpre- tation is inconsistent with the congressional policies favor- ing private autonomy in establishing benefit plans, na- itonal uniformity in regulating such plans, and the pref- erence for insurance to fund such plans. Congress cannot be understood, in enacting what it saw as a “very limited” exception to the broad I]“ preemption rule of § 514 (a), p. 24 supra, to have effectively nullified those critical policies with respect to insured plans by authorizing state regulation of the fundamental elements of such plans so long as the state law is in the form of insurance regula- tion.“ The conclusion is thus inescapable that a “law... which regulates insurance” within the meaning of the savings clause is a law that both in form and in sub- stance is addressed to the decisions or actions of insur- ers. That is the meaning stated in the section-by-section analysis of the Nixon administration bill in which a pre- emption provision and the saving clauses were first devel- oped and cojoined: Section 18 designates the Act as the exclusive form of regulation for employee benefit plans within the areas covered, but provides that State laws which otherwise regulate insurance . . . remain operative. [P. 13 supra] 10 In this regard, Alessi v. Raybestos-Manhattan, Inc., supra, is instructive. At issue in that case was a state workers compensation statute under which workers compensation benefits could not be used to offset pension benefits. In holding that law preempted by § 514(a) the Court stated: It is of no moment that New Jersey intrudes indirectly, through a workers compensation law, rather than directly, through a statute called “pension regulation.” ERISA makes clear that even indirect state action bearing on private pension plans may encroach upon the area of exclusive federal concern. . . . ERISA’s authors clearly meant to preclude the States from avoiding through form the substance of the preemption provision. [451 U.S. at 525; emphasis added] 27 That is likewise the meaning stated by the House re- port issued in the Congress after ERISA was enacted which says that the purpose of the “limited exceptions” was “to avoid disrupting state efforts to regulate the conduct of other financial entities not subject to the fed- eral Act.” P. 22 supra. And that is the only interpre tation, we submit, that makes sense of the statutory lan- guage and that accords with Congress’ intent. Accord- ingly, because the Massachusetts law at issue here con- cerns the types of benefits to be provided by benefit plans —a fundamental decision for private parties to make in creating such plans—the statute is not a “law .. . which regulates insurance” within the meaning of the savings clause and hence is preempted by ERISA § 514 (a). CONCLUSION For the foregoing reasons, the judgment of the Massa- chusetts Supreme Court Judicial should be reversed. Respectfully submitted, DAVID M. SILBERMAN 1000 Connecticut Avenue, N.W. Washington, D.C. 20036 (202) 833-9340 MARSHA BERZON 177 Post Street, Suite 700 San Francisco, CA 94108 (415) 421-7151 LAURENCE GOLD (Counsel of Record) 815 16th Street, N.W. Washington, D.C. 20006 (202) 637-5390 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0138%3A12. Public record. Not legal advice.