JON O. NEWMAN, Circuit Judge:
On this appeal, we once again confront the often litigated issue of the scope of federal preemption under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (1982 & Supp. IV 1986). The question presented is whether ERISA preempts the application of Connecticut's escheat law to ERISA-covered benefit checks and drafts that have been issued but have not been collected or presented for payment by the beneficiaries. The Treasurer and the State of Connecticut appeal from a judgment of the District Court for the District of Connecticut (Alan H. Nevas, Judge) summarily approving a magistrate's recommended ruling that the escheat law is preempted. Aetna Life Insurance Co. v. Parker, 692 F.Supp. 94 (D.Conn.1988). We reverse and remand.
The stipulated facts are as follows. Appellee Aetna Life Insurance Company ("Aetna") contracts with employers to provide group health and accident insurance coverage to employees. The benefit plans at issue here are covered by ERISA, the federal law regulating pension and other employee benefit programs. The premium that Aetna charges to employers is based on each employer's "experience rating" — that is, it is related to the cost of providing benefits to the employees of that company in previous years. The more benefits paid out under a plan, the higher the premium will be for the employer.
Not infrequently, after Aetna approves an employee's claim for benefits and issues a draft on an Aetna account to pay the claim, the employee fails to present the draft for payment. The draft then remains on Aetna's records as outstanding. Aetna has no specific deadline for presenting uncollected drafts, but its policy has been to honor drafts for longer than three years.
Aetna generally calculates the experience rating of employers on the basis of checks presented for payment ("presented basis" accounting) rather than on all checks that have been issued ("issued basis" accounting). A small reserve to cover unpresented drafts that may be collected in the future is also figured into the calculation of premium cost, again based on the experience of the particular plan. The amount reserved is a small percentage of the total amount of all unpresented checks.
Most other insurers in Connecticut use issued basis accounting. To the extent that issued basis accounting may lead to higher premiums, Aetna enjoys a competitive marketing advantage over its competitors.
In 1981, Connecticut revised its abandoned property laws, changing the time period for abandonment from seven years to three years. Conn.Gen.Stat. § 3-64a (1987). After property is abandoned, the holder must deliver it to the state treasurer, and the holder is then relieved of liability for claims to the property. The owner has twenty years to file a claim for the property with the State. After twenty years, the State can begin escheat proceedings. Conn.Gen.Stat. § 3-72a.
Pursuant to the new law, the State determined that Aetna had uncollected drafts for ERISA-covered benefits totaling more than $2.5 million. The State instituted proceedings in state court to recover the money from Aetna. Aetna filed suit in the District Court for the District of Connecticut seeking an injunction and a declaratory judgment that ERISA preempts the application of the escheat law to ERISA-covered benefit plans. Federal question jurisdiction
Magistrate Joan Glazer Margolis wrote a recommended ruling that the escheat law was preempted, and Judge Nevas adopted the opinion. Judge Nevas entered judgment for Aetna on its prayer for declaratory relief and denied the claim for injunctive relief without prejudice.
The Magistrate's opinion determined that the escheat law is preempted because it has too great an impact on the administration of ERISA plans. The Magistrate noted that in a similar case, the Michigan Court of Appeals ruled that the State of Michigan's escheat law was not preempted by ERISA. Attorney General v. Blue Cross & Blue Shield, 168 Mich.App. 372, 424 N.W.2d 54 (1988). But the Magistrate believed that the factual record was not as fully developed in the Michigan case and that the impact on the administration of ERISA plans was not as clear.
ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans. See Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at 90, 103 S.Ct. at 2896. The statute does not mandate that employers provide any particular benefits. But for employers that do provide certain pension and welfare benefits, ERISA imposes participation, funding, and vesting requirements, 29 U.S.C. §§ 1051-1086, and sets various uniform standards, including rules concerning reporting, disclosure, and fiduciary responsibility. 29 U.S.C. §§ 1021-1031, 1104-1114. The statute does not prescribe any particular procedure for the handling of benefits that are awarded but uncollected, nor does it specify a time limit for honoring such claims.
The statute also includes an express preemption provision. Section 514(a) of ERISA provides that the statute "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by the statute. 29 U.S.C. § 1144(a).
The purpose of Congress is the ultimate touchstone in determining whether a federal law preempts a state law. Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). We must seek to give effect to the "full purposes and objectives" of federal statutes. Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). At the same time, we must assume "that the historic police powers of the States were not to be superseded by [a] Federal Act unless that was the clear and manifest purpose of Congress." Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S.Ct. 988, 994, 55 L.Ed.2d 179 (1978) (quotation omitted).
The Supreme Court has examined the scope of ERISA preemption on several occasions. The Court has stated that "the express pre-emption provisions of ERISA are deliberately expansive, and designed to `establish pension plan regulation as exclusively a federal concern.'" Pilot Life Insurance Co. v. Dedeaux, supra, 107 S.Ct. at 1552 (quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 1906, 68 L.Ed.2d 402 (1981)). The words "relate to" in section 514(a) are to be interpreted broadly; ERISA does not preempt only state laws specifically designed to affect employee benefit plans or dealing with the subject matters covered by ERISA — reporting, disclosure, fiduciary responsibility, and the like. Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at 98, 103 S.Ct. at 2900.
The Supreme Court recently elaborated on the purposes of ERISA's preemption provisions:
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S.Ct. 2211, 2216-17, 96 L.Ed.2d 1 (1987).
The Court has also recognized, however, that Congress, in seeking to preempt all state laws that "relate to" employee benefit plans, could not possibly have meant to preempt all laws having any impact on such plans, no matter how small or how tangential. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law `relates to' the plan." Shaw v. Delta Air Lines, Inc., supra, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21. Shaw cited as an example American Telephone and Telegraph Co. v. Merry, 592 F.2d 118, 121 (2d Cir.1979), in which this Circuit held that ERISA did not preempt state garnishment of pension income to enforce alimony and support orders.
As we have stated before, the reason we cannot interpret ERISA as preempting state statutes whose effect on pension plans is tangential and remote is "a matter of common sense." Rebaldo v. Cuomo, 749 F.2d 133, 138 (2d Cir.1984), cert. denied, 472 U.S. 1008, 105 S.Ct. 2702, 86 L.Ed.2d 718 (1985).
Id. As we noted in Rebaldo, many state laws affect the cost and administration of pension plans: labor laws that govern working conditions and labor costs, rent control laws that determine what employee benefit plans pay or receive for rental property, and even highway and bridge tolls charged to plans' officers or employees. "[I]f ERISA is held to invalidate every State action that may increase the cost of operating employee benefit plans, those plans will be permitted a charmed existence that never was contemplated by Congress." Id. at 138-39.
Admittedly, the distinction between state laws that "relate to" employee benefit plans and those that have only a "tenuous, remote, or peripheral" impact is not always clear. One way to bring the distinction into focus is to compare the types of state laws that courts have found to be preempted with those that have survived challenge on preemption grounds.
State laws that have been ruled not preempted include: a generally applicable garnishment law under which creditors can garnish ERISA welfare benefits, Mackey v. Lanier Collections Agency & Service, Inc., supra, 108 S.Ct. at 2185-91;
Generalizing from these cases, we find that laws that have been ruled preempted are those that provide an alternative cause of action to employees to collect benefits protected by ERISA, refer specifically to ERISA plans and apply solely to them, or interfere with the calculation of benefits owed to an employee. Those that have not been preempted are laws of general application — often traditional exercises of state power or regulatory authority — whose effect on ERISA plans is incidental.
In Rebaldo, we further defined what constitutes incidental impact. We noted that indirect economic impact alone did not conflict with ERISA's aim of national uniformity in plan regulation because there is "no valid reason why employee benefit plans cannot be subject to nationally uniform supervision despite dissimilarities in their costs of doing business." 749 F.2d at 139. We said that where a state statute of general application "does not affect the structure, the administration, or the type of benefits provided by an ERISA plan, the mere fact that the statute has some economic impact on the plan does not require that the statute be invalidated." Id.
In focusing on the impact on "the structure, the administration, or the type of benefits provided by an ERISA plan," we did not mean that any impact in these areas, no matter how peripheral, was sufficient to trigger preemption. As with economic impact, many state laws of general application have some minimal, indirect impact on the administration of benefit plans, including laws that have been held not preempted.
In Rebaldo itself, for example, the state law we found not preempted precluded benefit plans from negotiating discount rates with hospitals, which would force plans to operate differently in that state than they might in other states. Similarly, the state garnishment law upheld in Mackey, allowing creditors to garnish ERISA welfare benefits, would also require local adjustments in plan administration.
What triggers ERISA preemption is not just any indirect effect on administrative procedures but rather an effect on the primary administrative functions of benefit plans, such as determining an employee's
Applying these principles to this case, we think that the impact of Connecticut's escheat law on ERISA benefit plans is too tenuous, remote, and peripheral to require preemption under section 514(a). The Connecticut law does not focus specifically on ERISA plans or benefits; it applies to lost or abandoned property generally. Indeed, escheat of abandoned property is an area of traditional state authority, see Connecticut Mutual Life Insurance Co. v. Moore, 333 U.S. 541, 547, 68 S.Ct. 682, 686, 92 L.Ed. 863 (1948), exercised by virtually every state. See Unif. Unclaimed Property Act, Prefatory Note, 8A U.L.A. 617 (1983); see generally McThenia & Epstein, Issues of Sovereignty in Escheat and the Uniform Unclaimed Property Act, 40 Wash. & Lee L.Rev. 1429, 1430-33 (1983). In deference to state prerogatives within the federal system, we must not find such a traditional exercise of state power preempted unless the conclusion is "unavoidable." Rebaldo v. Cuomo, supra, 749 F.2d at 138.
Connecticut's escheat law has both an economic and administrative impact on ERISA plans. Aetna will have to pay all unclaimed benefits to the State after three years. We accept Aetna's contention that this will force it to include this cost in the experience rating of the employers it services, thus increasing the cost of providing benefits. Presumably that cost will ultimately be reflected in higher premiums for employers, lower benefits for employees, lower profits for Aetna, or some combination of these consequences. Aetna will also have to make administrative and accounting adjustments to comply with the law, adjustments that would be different in other states where the statutory time period for escheat differs.
These indirect economic and administrative effects are not substantial enough, however, to persuade us that this is the type of law Congress intended to preempt. The escheat law has no effect on Aetna's original determination of an employee's eligibility for benefits. The indirect economic and administrative impact is of a kind similar to that of a garnishment law, which allows creditors to seize benefits before an employee ever receives them. For the employee the cash impact is far less: An escheat law at worst forecloses his opportunity for payment only after the state law claim period, here, twenty years; garnishment immediately precludes his receipt of money, though, of course, it reduces his indebtedness. Moreover, escheat poses no greater threat of inconsistency among state laws than does garnishment. Absent more specific direction from Congress, we
Magistrate Margolis correctly noted that the fact that the escheat law involved the traditional exercise of state police power was not itself sufficient to vitiate ERISA's preemptive effect. See Gilbert v. Burlington Industries, Inc., supra, 765 F.2d at 327. We disagree with her conclusion, however, that the indirect impact requires preemption.
The Magistrate noted three ways in which the escheat law would impact on Aetna's administration of ERISA plans: (1) it would have an economic impact, since Aetna would have to include claims escheated to the State in the experience rating of employers; (2) it would affect relations with principal ERISA entities, in that beneficiaries who did not claim their benefits for three years would thereafter have to seek payment from the State, rather than from Aetna; and (3) it would impose a different, more elaborate procedure on beneficiaries to collect their claim from the State, rather than presenting an uncollected draft for payment.
Accepting these factual findings, we nevertheless disagree that these effects are sufficient to trigger preemption. As discussed above, indirect economic impact alone is not sufficient. The intrusion in the relationship between Aetna and plan beneficiaries is no greater than that posed by the garnishment laws in Mackey and Merry.
Aetna further contends that Connecticut's escheat law is preempted by section 502(a) of ERISA, which provides a federal cause of action for ERISA plan participants and beneficiaries to recover benefits due under the terms of an ERISA plan. 29 U.S.C. § 1132(a). The Supreme Court has held that section 502(a) is the exclusive vehicle for such actions and may not be supplemented by suits under state law. See Pilot Life Insurance Co. v. Dedeaux, supra, 107 S.Ct. at 1558. We do not find, however, that Connecticut's escheat law provides beneficiaries with an alternative cause of action for recovering benefits. The escheat law affects only the procedures
We hold that ERISA does not preempt Connecticut's escheat law as it applies to uncollected drafts for employee benefits. We therefore reverse the judgment of the District Court and remand for proceedings consistent with this opinion.
We do not think our conclusion that ERISA does not preempt Connecticut's escheat statute is inconsistent with the Eleventh Circuit's interpretation of section 8902(m)(1). Although the term "relates to" in that provision is similar to the broad "relate to" language of section 514(a) of ERISA, section 8902(m)(1) is much more narrowly targeted. It explicitly preempts state laws only to the extent that they are inconsistent with provisions of a federal contract. Thus, there is no need for the kind of implied exception for laws with only a tenuous or remote impact that the less focused ERISA provision demands.