DOL Advisory Opinion: State Wage Deduction Statute Preempted by ERISA

The Department of Labor has issued an interesting advisory opinion holding that a Kentucky wage deduction withholding statute is preempted by ERISA to the extent it limits placement of employees into default health care plans.  In this situation, employees who fail to choose a plan are placed into one by default and the employee’s share of coverage is collected through payroll deductions.  Like many states, a Kentucky statute allows a deduction when it is “expressly authorized in writing by the employee to cover insurance premiums.”  Apparently the employer sought the opinion of the Department of Labor out of concern that its practice of placing employees in a default plan and beginning payroll deductions may run afoul of this state law.  The Department of Labor decided that ERISA preempts the Kentucky law because “the Kentucky state law at issue here has a prohibited connection with ERISA plans because it prohibits automatic enrollment arrangements in such plans and regulates Sprint Nextel’s decisions on how it provides medical coverage and plan funding.”