Can the States Ban Discretionary Clauses in ERISA LTD Plans?

Thanks to Scott Riemer of the Long Term Disability Law Blog, we can report that the New York State Insurance Department has issued a proposed regulation prohibiting insurance carriers from inserting discretionary clauses in insurance policies, including LTD policies. If lawful, such clauses would prevent plan administrators from anything other than applying the actual text of the plan—somewhat akin to Justice Scalia’s “originalism.” One must wonder whether such laws are preempted, although insurance does get special treatment under ERISA. I assume that it is the insurance provisions of ERISA that give the New York regulatory authorities a leg-up on winning the fight over the legality of this proposed regulation, and I further assume that a state law banning discretion in a severance pay plan governed by ERISA, would be preempted. See Zipperer v. Raytheon Co., 493 F.3d 50, 53 (1st Cir. 2007) (“While ERISA’s preemption is not boundless, it is far reaching.”); see also Sargent v. Verizon Servs. Corp., 2010 U.S. Dist. LEXIS 15408, at *20 (D.N.H. Feb. 22, 2010). Finally, see my blog of today’s date regarding a recent New Hampshire federal district court decision as to whether a severance plan is subject to ERISA.