How Does The Employee Retirement Income Security Act Work?

ERISA normally applies only to employee benefit plans. An employee benefit plan in the ERISA sense only exists when at least one employee is covered by the plan. Employee status does not apply to a person who is the sole owner or partner of a business. 

However, it applies to a shareholder of a corporation when there is more than one shareholder. Therefore, a professional who is the sole owner, partner, or sole shareholder of his or her practice will not be considered an employee, but a professional who is one of several shareholders of a practice will be.

ERISA is activated when an employer establishes an employee benefit plan. This can be accomplished simply by purchasing a group insurance policy. You can also get additional details on the erisa wrap plan document and what all is required for this document.

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For example, if a professional's office purchases group disability insurance for physicians and other staff, the practice has established an employee benefit plan and any claims made under the disability insurance policy will be subject to ERISA. Even if a professional has only one employee, purchasing insurance for that employee will establish a group plan for ERISA.

However, the courts have broadly expanded ERISA's parameters to include even individual policies if the company pays the insurance premiums. 

Although the courts have not been completely consistent, there are rulings that hold that disability claims brought by business partners or even sole shareholder organizations that purchase individual insurance coverage for the business owner are covered by ERISA.