Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-24T04:43:53.150Z Has data issue: false hasContentIssue false
  • English
  • Français

Employee Legal Service Plans: Conflicts Between Federal and State Regulation

Published online by Cambridge University Press:  27 December 2018

Werner Pfennigstorf  and
Spencer L. Kimball
Get access

Extract

Employee pension and welfare plans first appeared in the United States well before the turn of the century, but rapid growth began only in the 1940s, when wartime wage controls, coupled with favorable tax rules, encouraged fringe benefits as a substitute for wage increases. The plans have attained awe-inspiring dimensions since World War II: The Department of Labor estimates 750,000 pension plans and 1,050,000 welfare plans, covering about 35 million persons, with total assets of the pension plans alone growing from $2.4 billion in 1940 to more than $150 billion in 1973. In 1971 the 50,000 largest welfare plans, those with 100 or more participants, paid benefits in excess of $15 billion. But legal service plans, among the most recent of welfare plans and the subject of this study, are still experimental and small; they involve no great amount of resources.

Type
Research Article
Information
American Bar Foundation Research Journal , Volume 1 , Issue 3 , Summer 1976 , pp. 787 - 853
Copyright
Copyright © American Bar Foundation, 1976 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 Pension plans are defined in the Employee Retirement Income Security Act of 1974 (ERISA) sec. 3(2), Pub. L. No. 93406, 88 Stat. 829, welfare plans in sec. 3(1). Both are “benefit plans,” defined in ERISA sec. 3(3).Google Scholar

2 For the history of employee pension and welfare plans see David T. Livingston, Growth and Development of Jointly Trusteed Funds: A Historical Perspective (National Foundation of Health, Welfare and Pension Plans, Inc.; n.p., n.d.); Negotiated Employee Benefit Plans, Reference Manual (loose-leaf, published for the National Foundation of Health, Welfare and Pension Plans, Inc.; Mundelein, Ill.: Callaghan & Co., 1971). See also Spencer L. Kimball, Insurance and Public Policy: A Study in the Legal Implementation of Social and Economic Public Policy, Based on Wisconsin Records, 1835–1959, at 49–50, 192 (Madison: University of Wisconsin Press, 1960).Google Scholar

3 Plan Description Form EBS-1 Package (4–75) at 2. See note 9 infra.Google Scholar

4 See S. Rep. No. 127, 93d Cong., 1st Sen. (1973) (report of the Committee on Labor and Public Welfare to accompany S. 4). The much older life insurance business had about $250 billion assets at the latter date. Life Insurance Fact Book 1974, at 67 (New York: Institute of Life Insurance, 1974). The asset comparison understates the relative importance of pension funds. Unlike life insurance, where liabilities are fully funded, many uninsured pensions are not fully funded-liabilities assumed sometimes substantially exceed assets. There is no reliable information about aggregate liabilities of uninsured pension plans. The sum of insurance and pension fund assets has no meaning, for the figures for pension plans and life insurance overlap; many pension plans are insured.Google Scholar

5 Department of Labor, Labor-Management Services Administration, Welfare and Pension Plan Statistics 1971, at 12, 16 (Washington, D.C.: Government Printing Office, 1973). Most existing welfare plans are health care plans; of them most are group insurance contracts with commercial insurance companies or “the Blues.” Welfare plans account for a major portion of the health insurance benefits paid in the United States, which totaled about $18 billion in 1971. Source Book of Health Insurance Data 73–74, at 5 (New York: Health Insurance Institute).Google Scholar

6 See especially Florian Bartosic & Jules Bernstein, Group Legal Services as a Fringe Benefit: Lawyers for Forgotten Clients Through Collective Bargaining, 59 Va. L. Rev. 410 (1973); Jules Bernstein & Sandy DeMent, Recent Developments in Prepaid Legal Services, 2 Labor L.F. 2 (Feb. 1975).CrossRefGoogle Scholar

7 See note 1 supra.Google Scholar

8 ERISA sec. 514(a). See p. 800 infra for the text of the section.Google Scholar

9 The law gives the secretaries of labor and of the treasury extensive rule-making authority. The secretary of labor has already developed and mailed a reporting form (Form EBS-1) and has published a number of regulations and proposed regulations (see 29 C.F.R. ch. 25 and 39 Fed. Reg. 42234, 40 Fed. Reg. 19469, 20628, 20629, 20653, 24642, 34526 (1975)).Google Scholar

10 The difficulties of complying with the requirements of the new law have been explained in congressional hearings. See, e.g., Hearings on Pub. L. 93–406 Before the Subcomm. on Labor Standards of the House Comm. on Education and Labor, 94th Cong., 1st Sess. (1975); Joint Hearing on Pub. L. 93–406 Before the Subcomm. on Labor Standards of the House Comm. on Education and Labor and the Subcomm. on Oversight of the House Comm. on Ways and Means, 94th Cong., 1st Sess. (1976). For a summary, see Lee Dembart, New Law Snarls Pension Plans, N.Y. Times, Feb. 9, 1976, at 1, col. 2. The Congress was aware that such complex legislation would require subsequent corrections and adjustments and for that purpose, through sec. 3021 of ERISA, established the Joint Pension Task Force, consisting of the staffs of the Committee on Ways and Means and the Committee on Education and Labor of the House of Representatives, the Joint Committee on Internal Revenue Taxation, and the Committee on Finance and the Committee on Labor and Public Welfare of the Senate. Sec. 3022 of ERISA directs the task force, among other things, toGoogle Scholar

make a full study and review of–Google Scholar

….Google Scholar

(4) the effects and desirability of the Federal preemption of State and local law with respect to matters relating to pension and similar plans ….Google Scholar

There are already bills pending for the amendment of ERISA. See, e.g., H.R. 7597 (94th Cong., 1st Sess.), reported favorably by the Committee on Education and Labor on November 10, 1975. H.R. Rep. No. 646, 94th Cong., 1st Sess. (1975).Google Scholar

The literary reaction to ERISA has been fast and voluminous but is focused on the various aspects of pension plans and the details of the new fiduciary duties. Discussions of ERISA's relevance for legal service plans are less numerous. See, e.g., Mark E. Bowers, ERISA and Its Exceptions, 27 Baylor L. Rev. 475 (1975); William T. Catterton, Comment: The Effect of ERISA on Prepaid Legal Services, id. 566.Google Scholar

11 The only thorough analysis of the regulation of employee benefit plans is limited to pension plans. See Edwin W. Patterson, Legal Protection of Private Pension Expectations (Home-wood, Ill.: Richard D. Irwin, Inc., 1960). Patterson's book, though dated and limited, is still useful in considering welfare plans.Google Scholar

12 Revenue Act of 1928, Pub. L. No. 70–562, 45 Stat. 791, creating 26 U.S.C. sec. 2103(16), which exempted “voluntary employees' beneficiary associations.” The section later became 26 U.S.C. sec. 103(16) (1932), 47 Stat. 194, sec. 101(16) of the Internal Revenue Code of 1939, 53 Stat. 34, and sec. 501(c)(9) of the Internal Revenue Code of 1954, 68A Stat. 163. The present version is the result of an amendment by the Tax Reform Act of 1969, Pub. L. No. 91–72, 83 Stat. 527. The 1928 act was preceded by a narrower exemption, for “charitable, educational or recreational” activities within a single municipality. Revenue Act of 1924 sec. 231(8), Pub. L. No. 68–176, 43 Stat. 253. Regulation through tax laws and tax authorities is most substantial for pension plans. See, e.g., Patterson, supra note 11, at 85–99, and title II of ERISA.Google Scholar

13 See 26 C.F.R. sec. 1.162–10(a), which permits deduction of amounts paid to “a sickness, accident, hospitalization, medical expense, recreational, welfare, or similar benefit plan … if they are ordinary and necessary expenses of the trade or business.”Google Scholar

14 On the history of the Taft-Hartley Act see generally Department of Labor, Bureau of Labor Statistics, A Brief History of the American Labor Movement 40–44 (1970 ed., Bulletin 1000; Washington, D.C.: Government Printing Office, 1970). S. Rep. No. 139, 93d Cong., 2d Sess. (1973), says at 12: “This broad prohibition was enacted to prevent bribery, extortion, shakedowns, and other corrupt practices.”Google Scholar

15 Labor-Management Relations Act of 1947 (Taft-Hartley Act) sec. 302(c)(5), Pub. L. No. 80–120, 61 Stat. 156.Google Scholar

16 Act of Aug. 15, 1973, Pub. L. No. 93–95, 87 Stat. 997.CrossRefGoogle Scholar

17 Taft-Hartley Act sec. 302(e).Google Scholar

18 Pub. L. No. 85–836, 72 Stat. 997.Google Scholar

19 These complaints were aired and documented in many volumes of congressional hearings, summarized in S. Rep. No. 1734, 84th Cong., 2d Sess. (1956), which includes a union by union analysis of plans and reported abuses. See also S. Rep. No. 1440, 85th Cong., 2d Sess. (1958), and H.R. Rep. No. 2283, 85th Cong., 2d Sess. (1958) for the bills and explanations.Google Scholar

20 Act of March 20, 1962, Pub. L. No. 87–420, 76 Stat. 35. Again, the case for amendment was presented in extensive hearings. See S. Rep. No. 908, 87th Cong., 1st Sess. (1961). The Welfare and Pension Plans Disclosure Act of 1958 was repealed by ERISA sec. 111, effective Jan. 1, 1975, and was replaced by title I, subtitle B, pt. 1 (secs. 101–110) of ERISA.Google Scholar

21 Most of the material in the hearings and reports is devoted to pension plans and is of little concern here. The most detailed explanation of the reasons for revising the reporting and disclosure requirements and for adding the provisions concerning fiduciary responsibility can be found in S. Rep. No. 127, supra note 4, at 27–35. Also of interest are the two conference reports: S. Rep. No. 1090, 93d Cong., 2d Sess. (1974); H.R. Rep. No. 1280, 93d Cong., 2d Sess. (1974).Google Scholar

22 ERISA secs. 101–111 (reporting and disclosure), 401–414 (fiduciary responsibility). Section 402(a)(1) requires that one or more fiduciaries be named in the written instrument establishing a plan, “who … shall have authority to control and manage the operation and administration of the plan.” See sec. 3(21) for a full definition of fiduciary.Google Scholar

23 Id. secs. 501, 502.Google Scholar

24 Id. sec. 504. The statute is ambiguous. It is not clear whether the right to investigate is also qualified by the “reasonable cause” requirement. The text is left ambiguous to parallel the statute.Google Scholar

25 Ch. 8, Enacted Laws Ex. Sess. 1955, creating Wash. Rev. Code ch. 48.52. The history of employee welfare plans, like that of the labor unions themselves, dates back well into the nineteenth century and is closely associated with the mutual benefit societies that were formed in great numbers in the latter half of the nineteenth century. Those societies were almost universally exempted from regulation under state insurance codes. With the advance in the economy they either lost their significance or adopted operating principles more like insurance companies and consequently have been subjected to increasingly strict regulation that in many states is almost indistinguishable from that applicable to regular insurance companies. See Kim-ball, supra note 2, and Livingston, supra note 2.Google Scholar

26 The following information is taken from Martin S. House (for the State of New York, Insurance Dept.), Private Employee Benefit Plans–a Public Trust: A Report on Welfare and Pension Funds in New York State 252–55, submitted to Hon. Leffert Holz, Superintendent of Insurance, Jan. 31, 1956.Google Scholar

27 Ch. 580, Laws of 1940, amending N.Y. Ins. Law sec. 466(1). The insurance department, in a memorandum of April 2, 1940, to the governor, endorsed the bill but suggested a further amendment providing for proper supervision-see House, supra note 26, at 253.Google Scholar

28 House, supra note 26, at 254.Google Scholar

29 Ch. 774, Laws of 1956, creating art. II-A (secs. 60–75) of the Banking Law and art. III-A (secs. 37 to 37-q) of the Insurance Law, with virtually identical requirements. See Patterson, supra note 11, at 191–92. Governor Harriman had vetoed a bill in 1955. See House, supra note 26, at iii (Superintendent Holz's transferral letter to Governor Harriman).Google Scholar

30 Ch. 552, Laws of 1957, creating ch. 211 of the Wisconsin Statutes.Google Scholar

31 Ch. 2167, Laws of 1957, creating Cal. Ins. Code secs. 10640–10655. The California law did not survive long, expiring under its own terms June 30, 1960, and also being repealed explicitly by ch. 409, Laws of 1965.Google Scholar

32 Ch. 594, Public Acts of 1957, creating Conn. Gen. Stat. secs. 31–78 to 31–89. The law was short-lived, being repealed by ch. 262, Public Acts of 1963. Connecticut enacted a new law, limited to pension plans, by ch. 631, Public Acts of 1973, creating Conn. Gen. Stat. secs. 38–352 to 38–370, only to repeal it in 1975 by Public Act 382 sec. 3, effective June 24, 1975.Google Scholar

33 Ch. 655, Acts of 1958, creating Mass. Gen. Laws ch. 151D. Ch. 151D was repealed and re-created by ch. 1169, Acts of 1973.Google Scholar

34 Wis. Stat. sec. 211.02(1) (1959). See also State of Wisconsin, Commissioner of Insurance, 1958 Annual Report (Business of 1957) 15 (1958).Google Scholar

35 House, supra note 26, at 276–78, 283–89.Google Scholar

36 Thacher v. United Constr. Workers, 10 N.Y. 2d 439, 180 N.E. 2d 245 (1962). See also People v. Automobile Transp. Welfare Fund, 17 App. Div. 2d 448, 235 N.Y.S. 2d 702 (1962).Google Scholar

37 See, e.g., 1955 Ops. Fla. Att'y Gen. No. 055–145 and 1957 id. No. 057–360; 1958 Ops. Cal. Att'y Gen. No. 57/158. For more details and a more extended discussion of the preemption issue prior to ERISA, see Raymond Goetz, Regulation of Uninsured Employee Welfare Plans Under State Insurance Laws, 1967 Wis. L. Rev. 319.Google Scholar

38 Welfare and Pension Plans Disclosure Act of 1958 sec. 16(a), (b).Google Scholar

39 See, e.g., Mo. Ann. Stat. sec. 354.165 (Vernon Supp. 1976).Google Scholar

40 1974 (Vol. 1) NAIC Proceedings 271 (a resolution adopted in 1973).Google Scholar

41 Stanley C. DuRose, Jr., insurance commissioner of Wisconsin, was the principal spokes-man of the states and the NAIC. He did not object to federal regulation of multistate plans but urged state jurisdiction over intrastate plans. See Hearings on H.R. 1045, H.R. 1046, and H.R. 16462 Before the General Subcomm. on Labor of the House Comm. on Education and Labor, 91st Cong., 1st & 2d Sess., 715–70 (1970); Hearings on H.R. 2 and H.R. 462 Before the General Subcomm. on Labor of the House Comm. on Education and Labor, 93d Cong., 1st Sess., pt. 2, at 186–96 (1973); Hearings on Private Pension Plan Reform Before the Subcomm. on Private Pension Plans of the Senate Comm. on Finance, 93d Cong., 1st Sess., pt. 1, at 525 (1973). See also 1973 (Vol. 1) NAIC Proceedings 31, (Vol. 2) id. at 92, 1974 (Vol. 1) id. at 87.Google Scholar

42 NAIC Model Employee Pension and Welfare Fund Act, adopted by the NAIC June 4, 1973, 1973 (Vol. 2) NAIC Proceedings 420.Google Scholar

43 In the spring of 1976, legislation providing for regulation of employee welfare and pension plans existed only in Massachusetts (note 33 supra), New York (note 29 supra), Washington (note 25 supra), and Wisconsin (note 30 supra). Connecticut's law was repealed (note 32 supra); California also repealed an earlier law and had only scattered provisions not amounting to systematic regulation (note 31 supra). Idaho and Missouri enacted special laws for health care plans only. Idaho Code secs. 41–4001 to 41–4022 (Cum. Supp. 1975), created by ch. 248, Sess. Law 1974; Mo. Ann. Stat. sec. 354.165 (Vernon Supp. 1976), created by Act 134, Laws 1973. In several states, all or some classes of plans were expressly exempted from the insurance laws; in other states the situation was unclear. See also Note, Self-insured Employee Welfare Plans and the 501(c)(9) Trust: The Specter of State Regulation, 43 U. Cin. L. Rev. 325 (1974).Google Scholar

44 See the statements of Representatives Landgrebe and Dent in Hearings on H.R. 1045, H.R. 1046, and H.R. 16462, supra note 41, at 768. Robert D. Eilers, Minimum Premium Health Plans: Insured Non-Insurance, 36 J. Risk & Ins. 63, 67 (1969), notes the following remark by an insurance company executive: “When you try to regulate non-regulated plans, four strange bed-fellows join hands in opposition: labor, banks, large industrial firms, and the city zoo.” The narrow objective of the new laws in Idaho and Missouri is indicated by the fact that they are both limited to health care plans. Both laws have since been superseded by ERISA. For Idaho, see Official Opinion No. 75–73 of the Idaho Attorney General (Nov. 4, 1974) in Recent Opinions of Attorneys General, 1975 Ins. L.J. 158–60 (1975).Google Scholar

45 A policy clearly stated in the McCarran Act, Pub. L. No. 78–15, 59 Stat. 34.Google Scholar

46 For detailed discussions, see Eilers, supra note 44, at 63; Richard W. Duesenberg, The Legality of Noninsured Employee Benefit Programs, 5 B.C. Ind. & Corn. L. Rev. 231 (1963/64); Goetz, supra note 37; Note, State Regulation of Noninsured Employee Welfare Benefit Plans, 62 Geo. L.J. 339 (1973).Google Scholar

47 As early as 1964 the NAIC developed model legislation designed to remove inequitable differences in the taxation of uninsured health plans as compared to insurance companies. 1964 (Vol. 1) NAIC Proceedings 59. Five different models were proposed, but only one state (New Jersey) responded–by reducing the premium tax rate for insurance companies. For details, see Goetz, supra note 37, at 347–48.Google Scholar

48 See State ex rel. Farmer v. Monsanto Co., 517 S.W. 2d 129 (Mo. 1974). Other courts have held similarly. See, e.g., Mutual Life Ins. Co. v. New York State Tax Comm., 32 N.Y. 2d 348, 298 N.E. 2d 632 (1973); West & Co. of La. v. Sykes, 257 Ark. 245, 515 S.W. 2d 635 (1974). The issue has been rendered moot by the enactment of ERISA sec. 514. See Opinion of the Attorney General of New York (Jan. 31, 1975) in Recent Opinions of Attorneys General, 1975 Ins. L.J. 158, 161 (1975) and Opinion of the Pennsylvania Attorney General (June 30, 1975) in id. at 480–85.Google Scholar

49 It has been reported on the basis of the (unpublished) lower court opinion in the Monsanto case that Monsanto paid out about $114 million in benefits between 1967 and 1971 and that the state lost about $2.3 million in premium tax revenue. Note, State Regulation, supra note 46, at 332.Google Scholar

50 See Bartosic & Bernstein, supra note 6.Google Scholar

51 See note 16 supra.Google Scholar

52 Under present law, either contributions by employers to a legal service plan or else benefits received from a plan would be taxable income to the employees. H.R. 3025, introduced in February 1975, and similar bills (H.R. 8579, H.R. 9760, S. 2051) would exempt such contributions and benefits from federal income tax on the same basis as health care expenses.Google Scholar

53 Sec. 4 applies title I of ERISA to employee benefit plans, and sec. 3(1) defines “employee welfare benefit plan” and “welfare plan” to include plans providing “prepaid legal services.”Google Scholar

54 See, e.g., Mass. Gen. Laws ch. 151D, sec. 1 (Supp. 1974). Wash. Rev. Code sec. 48.52.010(2) (1961) refers to various types of health services, death and retirement benefits, and “any insurance benefits.” The laws of Idaho and Missouri, however, are limited to health care plans (note 43 supra).Google Scholar

55 Wis. Stat. sec. 211.02(2) (1973) defines “employee benefits” as “benefits or services for employees or their families … including, but not limited to, medical … benefits,” thus permitting the inclusion of legal benefits although they are not expressly mentioned in the definition. New York has a similar definition. N.Y. Ins. Law sec. 37-a(2) (McKinney 1966).Google Scholar

56 See, e.g., Wisconsin ch. 260, Laws of 1971, sec. Urn, creating Wis. Stat. sec. 201.04(20). Minnesota ch. 634, Laws 1973, amending Minn. Stat. secs. 60A.06-.08. California ch. 1161, Stats. 1974, creating secs. 100(19.6) and 12120–12124 of the Ins. Code (West Cum. Supp. 1976), is more detailed. Among other things, it establishes requirements for minimum capital and surplus, marketing, and policy forms. The Wisconsin and Minnesota laws have the same effect, for listing legal benefits as a permissible line of insurance brings the coverage within the whole panoply of provisions for insurance regulation.Google Scholar

57 See, e.g., Cal. Corp. Code sec. 9201. 2 (West Supp. 1976) (added by ch. 894, Stats. 1972); Ore. Rev. Stat. secs. 750.300-.340 (1973) (added by ch. 97, Laws of 1973); Tex. Ins. Code arts. 23.01-. 26 (Vernon Supp. 1975/76) (added by ch. 60, Acts of 1975).Google Scholar

58 Ore. Rev. Stat. sec. 750.300-.340 (1973); Texas Prepaid Legal Services Act, Tex. Rev. Civ. Stat. art. 3206 (Vernon Supp. 1975/76) (added by ch. 582, Acts of 1973) (limited to five experimental programs).Google Scholar

59 Prepaid Legal Expense Insurance Model Act, adopted December 4, 1974, 1975 (Vol. 1) NAIC Proceedings 902. The model act was drafted by an advisory committee of the Subcommittee on Prepaid Legal Expenses. Two members of the advisory committee filed dissenting reports urging the insertion of a provision acknowledging the preemption by ERISA. See id. at 916, 917.Google Scholar

60 Ga. Code Ann. sec. 56–3503(a), (b) (Supp. 1975) (created by ch. 684, Acts 1975, 1268, 1271).Google Scholar

61 Most follow closely the Code of Professional Responsibility of the American Bar Association, although each state has its own procedure for adopting, amending, interpreting, and enforcing ethical rules.Google Scholar

62 See especially ABA Code of Professional Responsibility, DR 2–101 and 2–103, which were amended in February 1974 and then again, after heated controversy about discrimination against so-called closed panel plans, in February 1975. In its present version, DR 2–103(D)(4) requires, among other things, that the organization providing legal services not be operated for profit, that it not be organized primarily for the benefit of participating lawyers or for pro-curing legal work for them, that it provide appropriate remedies if for certain reasons the plan's own lawyers cannot provide services, and that certain documents and reports be filed with the agency regulating the legal profession. The rule is discussed in more detail at pp. 836–42 infra.Google Scholar

63 See, e.g., Kenneth L. Hirsch, Toward a New View of Federal Preemption, 1972 U. Ill. L.F. 515; David E. Engdahl, Preemptive Capability of Federal Power, 45 U. Colo. L. Rev. 51 (1973/74); Harrop A. Freeman, Dynamic Federalism and the Concept of Preemption, 21 DePaul L. Rev. 630 (1972); Note, The Preemption Doctrine: Shifting Perspectives on Federalism and the Burger Court, 75 Colum. L. Rev. 623 (1975); Note, Parker v. Brown: A Preemption Analysis, 84 Yale L.J. 1164 (1975).Google Scholar

64 See, e.g., Hines v. Davidowitz, 312 U.S. 52 (1941); Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947); Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132 (1963); Head v. New Mexico Board of Examiners, 374 U.S. 424 (1963). Interpretation of the laws to determine congressional intent and compatibility of provisions allows some room to express a philosophical preference for federal or for state control. See Note, Preemption Doctrine, supra note 63.Google Scholar

65 See especially German Alliance Ins. Co. v. Kansas, 233 U.S. 389 (1914); Thacher v. United Constr. Workers, 10 N.Y. 2d 439, 180 N.E. 2d 245 (1961); NAACP v. Button, 371 U.S. 415 (1963).Google Scholar

66 For a recent account of its history and application, see Note, State Regulation Under the McCarran Act, 47 Tul. L. Rev. 1069 (1973).Google Scholar

67 See pp. 830–32 infra, for analysis of the possible qualification resulting from para. (c).Google Scholar

68 S. Rep. No. 127, supra note 4, at 35.Google Scholar

69 See H.R. 2, 93d Gong., 2d Sess. sec. 699(a) (1974) (as amended by the Senate):Google Scholar

(a) Pre-emption of State Laws-It is hereby declared to be the express intent of Congress that, except for actions authorized by section 694 of this title, the provisions of this Act or the Welfare and Pension Plans Disclosure Act shall supersede any and all laws of the States and of political subdivisions thereof insofar as they may now or hereafter relate to the subject matters regulated by this Act or the Welfare and Pension Plans Disclosure Act, except that nothing herein shall be construed–Google Scholar

(1) to exempt or relieve any employee benefit plan not subject to this Act or the Welfare and Pension Plans Disclosure Act from any law of any State;Google Scholar

(2) to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities or to prohibit a State from requiring that there be filed with a State agency copies of reports required by this Act to be filed with the Secretary; orGoogle Scholar

(3) to alter, amend, modify, invalidate, impair, or supersede any law of the United States other than the Welfare and Pension Plans Disclosure Act or any rule or regulation issued under any law except as specifically provided in this Act. [Emphasis added.]Google Scholar

70 See H.R. 12906, 93d Cong., 2d Sess. sec. 514 (1974):Google Scholar

(a) It is hereby declared to be the express intent of Congress that, except for actions authorized by section 503(e)(1)(B) of this Act and except as provided in subsection (b) of this section the provisions of part 1 of this subtitle shall supersede any and all laws of the States and of political subdivisions thereof insofar as they may now or hereafter relate to the reporting and disclosure responsibilities, and fiduciary responsibilities, of persons acting on behalf of any employee benefit plan to which part I applies.Google Scholar

(b) Nothing in part 1 of this subtitle shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities or to prohibit a State from requiring that there be filed with a State agency copies of reports required by this title to be filed with the Secretary. No employee benefit plan subject to the provisions of this title (other than a plan established primarily for the purpose of providing death benefits), nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.Google Scholar

(c) It is hereby declared to be the express intent of Congress that the provisions of parts 2, 3, and 4 of this subtitle shall supersede any and all laws of the States and of political subdivisions thereof insofar as they may now or hereafter relate to the nonforfeitability of participant's benefits in employee benefit plans described in section 201(a) or 301(a), the funding requirements for such plans, the adequacy of financing of such plans, portability requirements for such plans, or the insurance of pension benefits under such plans.Google Scholar

(d) Nothing in this section shall be construed to prohibit a delegation of authority by the Secretary to an appropriate State agency as permitted under section 506 of this Act.Google Scholar

(e) Nothing in this title shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States (except as provided in 115(a)) or any rule or regulation issued under any such law. [Emphasis added.]Google Scholar

71 See S. Rep. No. 1090, supra note 21, and H.R. Rep. No. 1280, supra note 21. A highly qualified observer of the legislative process, general counsel of the Laborers' International Union of North America, AFL-CIO, has reported that two votes taken in the conference committee on the specific issue whether state law should also be preempted insofar as it related to legal service plans were both in favor of preemption. See Robert J. Connerton, Remarks, in Transcripts, Second National Consumer Conference on Legal Services, Washington, D.C., Nov. 18–19, 1974, at 11–13.Google Scholar

72 Congressman Dent took note “of what is to many the crowning achievement of this legislation, the reservation to Federal authority the sole power to regulate the field of employee benefit plans. With the preemption of the field, we round out the protection afforded participants by eliminating the threat of conflicting and inconsistent State and local regulation.” 120 Cong. Rec. 1–18701 (daily ed. Aug. 20, 1974). A staff report for the National Association of Insurance Commissioners erroneously limits the preemptive effect to the matters mentioned in S. Rep. No. 127, supra note 4. David J. Brummond, Section 514 of ERISA and the Problem of Preemption of State Insurance Regulation 44–45 (mimeographed; Oct. 31, 1975). The NAIC interpretation is inconsistent with the intent expressed in the exchange on the floor of the Senate, quoted in note 73 infra.Google Scholar

73 See the following remarks by Senator Williams, 120 Cong. Rec. S15742 (daily ed. Aug. 22, 1974).Google Scholar

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 regulation, 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. Consistent with this principle, State professional associations acting under the guise of State-enforced professional regulation, should not be able to prevent unions and employers from maintaining the types of employee benefit programs which Congress has authorized-for example, prepaid legal services programs-whether closed or open panel-authorized by Public Law 93–95.Google Scholar

On the same day, the following exchange took place between Senators Taft, Javits, and Williams.Google Scholar

Mr. TAFT. Mr. President … I would like to ask the distinguished managers of the bill, the distinguished Senator from New York, who is such a leader in this legislation, while there is preemption under section 514 of the substance of the pension legislation including the matter of provisions relating to attorneys services under employee benefit plans does this section 514 of the act seek to preempt State bar associations from adopting ethical rules or guidelines generally and/or from disciplining its members?Google Scholar

Some question arises in regard to that because of the remarks made indicating that the preemption doctrine extended to rules of professional organizations.Google Scholar

Mr. JAVITS … My answer to that is no. Section 514 of the act does not preempt State bar associations from adopting and enforcing ethical rules or guidelines generally and/or from disciplining its members or acting to discipline members of the bar, which bar associations often do.Google Scholar

Section 514 does preempt State law with respect to any employee benefit plan described in section 4(a) and not exempted in section 4(b).Google Scholar

Since the plans subject to Federal supervision would include plans providing prepaid legal services, it is intended that State regulation–but not bar association ethical rules, guidelines or disciplinary actions–in regard to such plans be preempted. But the State, directly or indirectly through the bar, is preempted from regulating the form and content of a legal service plan, for example, open versus closed panels, in the guise of disciplinary or ethical rules or proceedings.Google Scholar

….Google Scholar

Mr. JAVITS. I would just like the Senator from New Jersey (Mr. Williams) to confirm my interpretation.Google Scholar

Does the Senator from New Jersey confirm his agreement with my view?Google Scholar

Mr. WILLIAMS. Basically, I do. It, perhaps, could have more amplification as such rules might affect the substance or operation of prepaid legal service plans. Certainly the substance or operation of such plans is preempted and will not be disturbed by what this colloquy is raising: am I right on that?Google Scholar

Mr. JAVITS. That is right.Google Scholar

Mr. WILLIAMS. Right now.Google Scholar

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 service plans of their choice.Google Scholar

Mr. JAVITS. But that they have their normal disciplinary functions.Google Scholar

Mr. WILLIAMS. Otherwise.Google Scholar

Mr. JAVITS. That is correct.Google Scholar

Id. at 515757-S15758.Google Scholar

74 American Bar Association, Summary of Action and Reports to the House of Delegates, Midyear Meeting, 1974, at 6.Google Scholar

75 NAACP v. Button, 371 U.S. 415 (1963); Brotherhood of R.R. Trainmen v. Virginia ex rel. Virginia State Bar, 377 U.S. 1 (1964); UMW v. Illinois State Bar Ass'n, 389 U.S. 217 (1967); United Transp. Union v. State Bar of Mich., 401 U.S. 576 (1971).Google Scholar

76 However, the secretary of labor has promulgated a rule exempting insured and unfunded plans covering fewer than 100 employees from most of the reporting and disclosure requirements. 29 C.F.R. sec. 2520.104–20 (1975). Sec. 104(a)(2)(A) of ERISA authorizes the secretary to prescribe “simplified annual reports” for any pension plan that covers fewer than 100 participants, but sec. 2(b) of H.R. 7597 (94th Cong., 1st Sess.) proposes to change this provision to read that the secretary shall make such a regulatiqn. The proposed change is in response to complaints that small plans are unduly burdened by the requirements of the law. See Hearings on Pub. L. 93–406, supra note 10, at 533–39 (statement of John W. Baker); Joint Hearing on Pub. L. 93–406, supra note 10, at 2–10 (statement of Edward K. Leaton); H.R. Rep. No. 646, supra note 10, at 3.Google Scholar

77 See note 29 supra for the New York definition. The Wisconsin definition parallels the federal one, however. Wis. Stat. sec. 211.02(1) (1973).CrossRefGoogle Scholar

78 Sec. 302(c), in its clause (8), which was added by the 1973 amendment (supra note 16), does not use the term “prepaid” in authorizing the establishment of legal service plans: “[AI trust fund established … for the purpose of defraying the costs of legal services … for counsel or plan of their choice ….” Since sec. 302(c) deals only with plans involving employer contributions, however, it is not likely to be relevant to plans not involving prepayment by the employer. The reference to sec. 302(c) was inserted primarily to extend the reporting, disclosure, and fiduciary duties to vacation funds, apprenticeship programs, and the like. See S. Rep. No. 127, supra note 4, at 45 (commenting on sec. 502 of S. 4). At that time, the aim was to amend the 1958 disclosure law; after a new and broader basic definition was adopted in sec. 3(1), the reference to the Taft-Hartley Act no longer seems necessary.Google Scholar

79 The publications of the special committee offer two differing versions, both ambiguous: “[Al system in which the cost of possible legal services needed in the future is prepaid in advance by, or on behalf of, the client who receives such services ….” Special Report to National Conference on Prepaid Legal Services, Apr. 27–29, 1972, Washington, D.C. at 1 (emphasis added); and “A plan … in which the individual client pays in advance for legal services which he may need or use in the future,” American Bar Association, Special Committee on Prepaid Legal Services, A Primer of Prepaid Legal Services 3 (1974) (emphasis added). The deficiencies of the definitions are attributable to the committee's desire to avoid any term redolent of insurance, which overwhelmed any wish to be clear. See the Report of July 1971, 96 Annual Report of the ABA 723 (1972).Google Scholar

80 See 29 C.F.R. sec. 2510.3–1(e), (j) (1975).Google Scholar

81 See, e.g., NLRB v. Reliance Fuel Oil Corp., 371 U.S. 224 (1963), interpreting the almost identical definition of sec. 2(6) and (7) of the Taft-Hartley Act.Google Scholar

82 These definitions follow almost to the letter those used in the Taft-Hartley Act sec. 2(6), (7) and the Welfare and Pension Plans Disclosure Act of 1958 sec. 3(10), (11). They are consistent with the general policy of Congress in labor legislation and are supported by the statements of the persons involved in the legislative process (see, e.g., note 72 supra).Google Scholar

83 See, e.g., Polish Alliance v. NLRB, 322 U.S. 643 (1944).Google Scholar

84 See, e.g., NLRB v. Reliance Fuel Oil Corp., 371 U.S. 224 (1963), relying on Polish Alliance v. NLRB, 322 U.S. 643 (1944). The court has refused to look at individual activities but has taken the position that judgment must be based on the fact that the immediate situation may be representative of many others throughout the country, the total incidence of which may be far-reaching in its harm to commerce.Google Scholar

85 Note 41 supra.Google Scholar

86 ERISA sec. 3022(a)(4).Google Scholar

87 See, e.g., Taft-Hartley Act sec. 2(2), which defines “employer” to exclude government units at the federal and state or local levels.Google Scholar

88 Welfare and Pension Plans Disclosure Act of 1958 sec. 4(b)(1).Google Scholar

89 See, e.g., statement of Michael N. Thome (Chief Executive Officer, California State Teachers' Retirement System) in Hearings on H.R. 2 and H.R. 462, supra note 41, at 711. But the statement of Frederick Bitzer (Deputy Commissioner of Insurance from Connecticut) in id. at 379, suggests that another factor was concern that many existing government plans would have difficulty meeting the act's funding standards. The recent financial difficulties of New York City cast serious doubt on the wisdom of the exemption, at least as applied to pension plans and the more costly welfare plans. The findings of a special task force of the House Labor Standards Subcommittee (not to be confused with the Joint Pension Task Force under sec. 3021 of ERISA, supra note 10) are also highly critical:Google Scholar

The absence of any substantive Federal regulation of public plans because of (1) the absence to date of any significant Internal Revenue Service or other Federal oversights, and (2) the unclear legal status of various elements of public plans under State law, has produced a number of seriously deficient practices in the administration of governmental pension plans.Google Scholar

Our efforts to date indicate that some of the most serious deficiencies exist in the reporting and fiduciary responsibility areas. Accounting methods in public plans frequently fall far short of the rigorous standards required of plans in the private sector and of important enterprises generally. Actuarial evaluations often fail to meet the high level of professionalism and competence that private retirement systems demand. Both of these important shortcomings are reflections of a larger problem which underlies much of the public employee retirement systems; namely, a high level of employer control of the plan and its assets, with an attendant potential for abuse unknown in the private sector.Google Scholar

House Comm. on Education and Labor, 94th Cong., 2d Sess., Interim Report of Activities of the Pension Task Force of the Subcomm. on Labor Standards vi-vii (Comm. Print, 1976).Google Scholar

90 Sandra DeMent, Executive Director of the National Consumer Center for Legal Services and a member of our advisory committee, advises us that some recently established municipal employee legal service plans claim exemption from ERISA as governmental plans although their administration is under exclusive union control. We disagree with the position of the plans and believe they are subject to ERISA.Google Scholar

91 In a curious extension of a technical notion of immunity of charitable corporations as a device to protect their assets for charitable use, uncharitable practices have appeared by which churches and other charities have been exempted from requirements of elementary morality applied to other employers to protect employees. See, e.g., Wis. Stat. sec. 108.02(5)(g)7a (1973), which exempts them from the unemployment compensation law.Google Scholar

92 ERISA sec. 3(33)(B)(i).Google Scholar

93 See S. Rep. No. 127, supra note 4, at 28–30.Google Scholar

94 For an elaboration of the argument that a number of the stronger links, not the weakest link, represent the appropriate measure of the adequacy of state regulation, see Spencer L. Kimball, The Case for State Regulation of Insurance, in Spencer L. Kimball & Herbert S. Denenberg, eds., Insurance, Government and Social Policy: Studies in Insurance Regulation 411, 419–20 (Homewood, Ill.: Richard D. Irwin, Inc., 1969).Google Scholar

95 See H.R. Rep. No. 1280, supra note 21, at 297:Google Scholar

These rules are to apply with respect to insurance policies issued by an insurance company, or by an insurance service or insurance organization. The conferees understand that some companies that provide, e.g., health insurance, are not technically considered as “insurance companies.” It is intended that these companies are to be included within the terms “insurance service or insurance organization.”Google Scholar

96 See Werner Pfennigstorf & Spencer L. Kimball, Legal Service Plans: A Typology, 1976 A.B.F. Res. J. 411, at 497–99.CrossRefGoogle Scholar

97 See Benefit Trust Put Out of Action for Self-Insuring Pooled Group Plans, Bus. Ins. Nov. 3, 1975, at 1.Google Scholar

98 See Arkansas Gets Interim Order Halting Sale of Prepaid Legal Ins. Plan, Nat'l Under-writer Nov. 14, 1975, at 23.Google Scholar

99 See also ERISA secs. 401(b)(2)(A), 403(B)(1), (2), discussed p. 816 supra, which distinguish between licensed and unlicensed insurers.Google Scholar

100 See note 56 supra.Google Scholar

101 New York insurance companies are expressly authorized to form subsidiaries to act as administrators of employee welfare benefit and pension plans but are not permitted to perform the services directly. N.Y. Ins. Law secs. 46-a(1)(g), (9) (life insurance companies) and 85-a(1)(f), (7) (other than life insurance companies) (McKinney 1974/75). Some other states permit the arrangements either through subsidiaries or directly. The list of ancillary noninsurance activities in which Wisconsin insurance companies may engage does not specifically include acting as administrator of an employee benefit plan, but a reasonable interpretation of the statute would permit it, whether through a subsidiary or directly. Wis. Stat. secs. 611. 26(3), 610. 21(1), (3) (1973).Google Scholar

102 See pp. 795–96 supra.Google Scholar

103 See Eilers, supra note 44, at 67–68.Google Scholar

104 See also id. at 74–77.Google Scholar

105 ERISA secs. 3(16)(A)(i), 402(a).Google Scholar

106 Sec. 3(21)(B) contains an exemption for investment companies of no concern here.Google Scholar

107 Insurance companies may usually render investment advice either directly or through subsidiaries. See, e.g., N.Y. Ins. Law secs. 46-a(1)(e), (9), 86-a(1)(d), 85-a(7) (McKinney 1974/75); Wis. Stat. secs. 611. 26(3)(b)4, 610. 21(3)(b) (1973).Google Scholar

108 For instance, the contract between Monsanto Company and Metropolitan Life Insurance Company (p. 796 supra) contained a clause providing that Metropolitan '“shall have the right to make final determination of the amount of benefits, if any, to which an Employee shall be entitled in any claim for benefits accrusing under the Plan during the period in which the Insurance Company is not obligated to pay benefits pursuant to this agreement, and the Employer [Monsanto] agrees to cause the other Medium [Monsanto] to follow such determination in paying such benefits pursuant to the Plan.'” State ex rel. Farmer v. Monsanto Co., 517 S.W. 2d 129, 131 (Mo. 1974). A clause like this, by which the plan sponsor and administrator delegates all responsibility and discretion to determine plan benefits to a third party, indeed places the third party in the position of a fiduciary–in that area. But the responsibility for enforcing the contract and for renegotiating it remains with the administrator as does the primary responsibility for providing the benefits.Google Scholar

109 For detailed discussions of the different criteria used to define “insurance,”see Herbert S. Denenberg, The Legal Definition of Insurance: Insurance Principles in Practice, 30 J. Ins. 319 (1963); Jan Hellner, The Scope of Insurance Regulation: What Is Insurance for Purposes of Regulation? 12 Am. J. Comp. L. 494 (1963). See also Spencer L. Kimball, The Purpose of Insurance Regulation: A Preliminary Inquiry in the Theory of Insurance Law, 45 Minn. L. Rev. 471 (1961). In general, insurance is an organized scheme for (1) transferring risks for a consideration and (2) distributing the cost among numbers of persons subject to those risks. Many employee benefit plans are as clearly insurance as are the funds created by interinsurance exchanges (reciprocal insurers) or some mutual insurance associations or corporations.Google Scholar

110 William B. Pugh, Jr., in Transcripts, Second National Consumer Conference, supra note 71, at 55–56; he suggests that this argument deprives the preemption provision of much of its effect.Google Scholar

111 See note 48 supra and accompanying text.Google Scholar

112 The Supreme Court of Arkansas has treated a union health benefit fund as an “insurance company” for the limited purpose of serving process under the state's unauthorized insurers process act. Bost v. Masters, 235 Ark. 393, 361 S.W. 2d 272 (Ark. 1962).Google Scholar

113 The attorney general of New York had no doubt about that interpretation (note 48 supra). Our conclusion that “deemed” is not used in a narrow technical sense is also supported by the Report of the Conference Committee (H.R. Rep. 1280, supra note 21, at 383), which comments: “[T]he substitute generally provides that an employee benefit plan is not to be considered as an insurance company, bank, trust company, or investment company (and is not to be considered as engaged in the business of insurance or banking) for purposes of any State law that regulates insurance companies ….” (emphasis added).Google Scholar

114 Pugh, supra note 110. Pugh offered both arguments for consideration only and not with the force and confidence for which he is generally known.Google Scholar

115 But see the discussion on pp. 813–19 supra.Google Scholar

116 See the opinions of the attorneys general of Idaho, supra note 44, and of New York and Pennsylvania, supra note 48.Google Scholar

117 See, e.g., Connerton, supra note 71, at 9–11. Apart from restrictive rules of the codes of professional responsibility, the principal difficulties have stemmed from the IRS and Department of Justice, not the states.Google Scholar

118 See the American Bar Association's Code of Professional Responsibility, DR 2–103(D)(5) (version adopted 1969 and effective until Feb. 1974), which permitted a lawyer to cooperate, in a dignified manner and without yielding to outside interference with his professional judgment, withGoogle Scholar

[a]ny other non-profit organization that recommends, furnishes, or pays for legal services to its members or beneficiaries, but only in those instances and to the extent that controlling constitutional interpretation at the time of the rendition of the services requires the allowance of such legal service activities, and only if the following conditions, unless prohibited by such interpretation, are met: …Google Scholar

An amendment adopted in February 1974 required closed panel plans to reimburse their members for fees paid to independently selected attorneys in the amount of the cost that the plan would have incurred for providing the corresponding services through its own attorneys. DR 2–103(D)(5)(a)(v) (1974 version). The present version is discussed on p. 841 infra.Google Scholar

See generally for objections to closed panel plans: Junius L. Allison, Problems of Professional Responsibility Arising from the Development of Pre-Paid Legal Services, 4 U. Toledo L. Rev. 413 (1972/73); Frederick G. Fisher, Jr., Prepaid Legal Services-Open v. Closed Panels: Future Options of the Private Bar in the Field of Prepaid Legal Services, 58 Mass. L.Q. 243 (1973); Thomas A. Rutledge, Comment, Group Legal Services: The Ethical Evolution, 27 Baylor L. Rev. 527 (1975).Google Scholar

119 Pub. L. No. 93–222, 87 Stat. 914. See Connerton, supra note 71.Google Scholar

120 Public Health Service Act sec. 1311, as created by the HMO Act of 1973:Google Scholar

Sec. 1311. (a) In the case of any entity–Google Scholar

(1) which cannot do business as a health maintenance organization in a State in which it proposes to furnish basic and supplemental health services because that State by law, regulation, or otherwise–Google Scholar

(A) requires as a condition to doing business in that State that a medical society approve the furnishing of services by the entity,Google Scholar

(B) requires that physicians constitute all or a percentage of its governing body,Google Scholar

(C) requires that all physicians or a percentage of physicians in the locale participate or be permitted to participate in the provision of services for the entity, orGoogle Scholar

(D) requires that the entity meet requirements for insurers of health care services doing business in that State respecting initial capitalization and establishment of financial reserves against insolvency, andGoogle Scholar

(2) for which a grant, contract, loan, or loan guarantee was made under this title or which is a qualified health maintenance organization for purposes of section 1310 (relating to employees' health benefits plans), such requirements shall not apply to that entity so as to prevent it from operating as a health maintenance organization in accordance with section 1301.Google Scholar

(b) No State may establish or enforce any law which prevents a health maintenance organization for which a grant, contract, loan, or loan guarantee was made under this title or which is a qualified health maintenance organization for purposes of section 1310 (relating to employees' health benefits plans), from soliciting members through advertising its services, charges, or other nonprofessional aspects of its operation. This subsection does not authorize any advertising which identifies, refers to, or makes any qualitative judgment concerning, any health professional who provides services for a health maintenance organization.Google Scholar

121 See notes 72 and 73 supra.Google Scholar

122 ERISA sec. 514(b)(4).Google Scholar

123 See, e.g., S. Rep. No. 127, supra note 4, at 28–34; and the exchange between Senator Taft and Manuel F. Cohen (former chairman of the SEC) in Hearings on S. 3598 Before the Subcomm. on Labor of the Senate Comm. on Labor and Public Welfare, 92d Cong., 2d Sess., pt. 1, at 242–43 (1972).Google Scholar

124 Most of the rules and conditions concerning cooperation with legal service plans are contained in DR 2–103(D).Google Scholar

125 See note 118 supra.Google Scholar

126 See note 75 supra.Google Scholar

127 Amendments adopted by the ABA House of Delegates in February 1974 still imposed substantial restrictions on plans operating with only one or a limited number of attorneys (“closed panels”). Several consumer groups instituted a lawsuit to have the new rules declared unconstitutional. See 2 Group Legal Rev. No. 2 (1975).Google Scholar

In February 1975, the Code of Professional Responsibility was amended again, creating new rules that are much more liberal with respect to “closed panel” plans. See the synopsis attached to the Report of the Ad Hoc Study Group to Make Recommendations Regarding the 1974 Amendments to the Code of Professional Responsibility, ABA Reports to the House of Delegates, 1975 Midyear Meeting, No. 110 (1975). Consumer representatives have declared the new rules satisfactory. 2 Group Legal Rev. No. 3 (1975); 2 Trends in Legal Services No. 3 (1975). Further relaxation was suggested by the ABA Standing Committee on Ethics and Professional Responsibility in a “Discussion Draft” issued in December 1975, but the suggestions were not formally submitted to the House of Delegates.Google Scholar

128 See notes 72 and 73 supra.Google Scholar

129 See Dice v. Akron, Canton & Y.R.R., 342 U.S. 359 (1952); Brown v. Western Ry., 338 U.S. 294 (1949); Bailey v. Central Vt. Ry., 319 U.S. 350 (1943). These cases involved claims for accident compensation based on federal law, which were tried in state courts. The U.S. Supreme Court held that the rights created by federal law could not be affected by differing rules of practice made by the state courts. See also Sperry v. Florida, 373 U.S. 379 (1963); Silverman v. State Bar of Texas, 405 F. 2d 410 (5th Cir. 1968), involving the self-contained federal system of regulation for patent lawyers.Google Scholar

130 The Antitrust Division of the U.S. Department of Justice declined on two successive occasions to assure the California Lawyers' Service that it would not challenge the California plan under the antitrust laws. See Business Review Letters dated August 5, 1974, and January 17, 1975, from Thomas E. Kauper, Assistant Attorney General, Antitrust Division, Department of Justice, to California Lawyers' Service. The division's objections are in part based on the anticompetitive effects of the Rules of Professional Conduct of the State Bar of California, which are similar to those of the ABA. The division made suggestions for modifications of the ABA's disciplinary rules prohibiting advertising and solicitation: (1) in lieu of an absolute ban on all advertising and solicitation except as specifically permitted, the rules could be worded so as to be permissive except where specifically prohibited (such as that which is false, misleading, undignified, or champertous); (2) the rules on publicity and referral could be worded to prohibit such conduct only where it has specified undesirable purposes or effects. The suggested modifications involve DR 2–101(B), DR 2–103(C), and DR 2–103(D). For specific suggested language, see remarks of Lewis Bernstein to the National Conference of Bar Presidents on Antitrust Aspects of Bar Association Disciplinary Rules Governing Advertising, Solicitation and Recommendation of Legal Services, Feb. 1, 1974. See also statement of Joe Sims before the Committee on Professional Ethics of the New York State Bar Association, Rochester, N.Y., Aug. 21, 1974, on The Antitrust Aspects of Recent Developments in Prepaid Legal Systems: address by Joe Sims on Competition at the Bar-Antitrust and the Legal Profession published in Transcript of Proceedings, 5th National Conference on Prepaid Legal Services (Chicago: American Bar Association, 1975); and remarks by Bruce B. Wilson to the Combined Meeting of the Idaho State Bar and the Alaska Bar Association, June 27, 1975. We do not discuss further the antitrust aspects of employee legal service plans. See James E. Meeks, Antitrust Aspects of Pre-paid Legal Services Plans, 1976 A.B.F. Res. J. 855.Google Scholar

131 A first step towards liberalization was made in February 1976 by extending the range of information that can be provided in law lists and directories. See ABA Code of Professional Responsibility, DR 2–102(A)(5), (6) as amended February 17, 1976. For a general discussion of these issues, see Spencer L. Kimball, Bringing Legal Services to Market, William Elliott Lecture, Pennsylvania State University, Jan. 30, 1975 (in press).Google Scholar

132 A lawyer shall not publicize himself, or his partner, or associate, or any other lawyer affiliated with him or his firm, as a lawyer through newspaper or magazine advertisements, radio or television announcements, display advertisements in city or telephone directories, or other means of commercial publicity, nor shall he authorize or permit others to do so in his behalf. However, a lawyer recommended by, paid by or whose legal services are furnished by, a qualified legal assistance organization may authorize or permit or assist such organization to use means of dignified commercial publicity, which does not identify any lawyer by name, to describe the availability or nature of its legal services or legal service benefits. This rule does not prohibit limited and dignified identification of a lawyer as a lawyer as well as by name:Google Scholar

….Google Scholar

(6) In communications by a qualified legal assistance organization, along with the biographical information permitted under DR 2–102(A)(6), directed to a member or beneficiary of such organization.Google Scholar

133 See note 130 supra and Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975).Google Scholar

134 The arguments proposed to justify restriction of lay intermediaries have been thoroughly discussed and evaluated by Barlow F. Christensen, Lawyers for People of Moderate Means: Some Problems of Availability of Legal Services 253–91 (Chicago: American Bar Foundation, 1970).Google Scholar

135 Note 75 supra.Google Scholar

136 See pp. 818–19 supra.Google Scholar

137 See pp. 812–19 supra.Google Scholar

138 Pp. 818–19 supra Google Scholar

139 See pp. 806–8 supra.Google Scholar

140 Employee Welfare Funds Division, Office of the Commissioner of Insurance, State of Wisconsin, Analysis of Problems and Discrepancies Discovered Through Examinations or Other Division Activities, 1972 (Vol. 2) NAIC Proceedings 396. See also Commissioner DuRose's statement in Hearings on H.R. 2 and H.R. 462, supra note 41, at 188.Google Scholar

141 See the statement cited in note 140 supra.Google Scholar

142 As reported in Report Poor Compliance with Laws Now in Force on Benefit Disclosure, Bus. Ins., May 27, 1974, a spot-check by the Labor Department of a midwestern area revealed that about 80 percent of the plans then in operation were not filing the required forms.Google Scholar

143 See 29 C.F.R. sec. 2520.104–20 (1975) and note 76 supra.Google Scholar

144 See note 38 supra.Google Scholar

145 For some preliminary reports, see, e.g., Werner Pfennigstorf, Legal Expense Insurance: The European Experience in Financing Legal Services (Chicago: American Bar Foundation, 1975); Pfennigstorf & Kimball, supra note 96.Google Scholar

146 See, e.g., ERISA sec. 403(a), (b), concerning the requirements of a written agreement and the establishment of a trust.Google Scholar

147 See, e.g., Werner Pfennigstorf, The Enforcement of Insurance Laws, 1969 Wis. L. Rev. 1026.Google Scholar

148 ERISA secs. 504, 502, 506.Google Scholar

149 See statement by Commissioner DuRose in Hearings on H.R. 2 and 462, supra note 41, at 188.Google Scholar

150 See, e.g., Wis. Stat. sec. 611.13(3)(b) (1973).Google Scholar

151 ERISA sec. 102(b). Sec. 411 prohibits persons who were convicted of certain crimes from serving as administrator or in a similar role, and sec. 409(a) authorizes the court to remove fiduciaries who do not perform their duties. Our point is that the law does not establish a procedure for checking qualifications before these persons assume their duties.Google Scholar

152 One insurance broker has informed us that in most cases the ERISA fiduciary bond is simply added as an additional coverage, without extra charge, to an existing blanket commercial bond. So far, there seems to be no difficulty obtaining coverage, either on a blanket or individual form. Telephone conversation with Evan Myers of Myers-Beatty in Chicago.Google Scholar

153 ERISA sec. 102(a), (b).Google Scholar

154 Id. sec. 104(a)(4)(A).Google Scholar

155 Id. sec. 504.Google Scholar

156 Id. sec. 104(a) (1).Google Scholar

157 Id. sec. 402(b)(3) at least requires each plan to specify the persons who have the authority to amend the plan, and the procedure for amendments.Google Scholar

158 Id. sec. 404(a)(1). For a new approach to standards for trust investments, see John H. Langbein & Richard A. Posner, Market Funds and Trust-Investment Law, 1976 A.B.F. Res. J. 1.CrossRefGoogle Scholar

159 See especially the discussion in S. Rep. No. 127, supra note 4, at 28–29.Google Scholar

160 For an analysis of the complaint-handling role of insurance departments, see William C. Whitford & Spencer L. Kimball, Why Process Consumer Complaints? A Case Study of the Office of the Commissioner of Insurance of Wisconsin, 1974 Wis. L. Rev. 639.Google Scholar

161 See sec. 14 of the model act, supra note 59.Google Scholar

162 See note 10 supra. Another indication of the problems caused by the law is seen in the fact that 5,035 pension plans were terminated in 1975-four times the number estimated at the time ERISA was enacted. See Pension Terminations Ahead of Estimates, Nat'l Underwriter, Jan. 16, 1976, at 37. Most of the terminations, however, were explained by adverse economic conditions or by changes to other plans. See Most Plans Funded by Ins., Nat'l Underwriter, Jan. 23, 1976, at 14. Also, the commissioner of Internal Revenue Service has pointed out that while 8,108 corporate plans of all types were terminated in 1975, 32,062 new corporate pension and profit-sharing plans were adopted during the same period. Tell of Cutting ERISA Red Tape, Nat'l Underwriter, Feb. 13, 1976, at 28.Google Scholar

163 29 C.F.R. sec. 2520.104–20 (1975).Google Scholar

164 Welfare and Pension Plan Disclosure Act of 1958 sec. 4(b)(4) (law not applicable to any plan covering not more than 25 participants) and sec. 7(a) (annual reports required only of plans covering 100 or more participants).Google Scholar

165 See, e.g., S. Rep. No. 127, supra note 4, at 18–19.Google Scholar

166 This question was decided by Congress temporarily, subject to reconsideration based on the recommendations of the Joint Pension Task Force under ERISA sec. 3022(a)(4).Google Scholar

167 Supra note 140, at 191.Google Scholar