On March 11, 2026, in Lucchesi v. Guaranty Fund Mgmt. Servs. Health and Welfare Plan, a Massachusetts district court dismissed the plaintiff ’s ERISA claims after finding that the defendant employer’s short-term disability benefit was an ERISA-exempt “payroll practice.”
Background
Plaintiff James Lucchesi, a former employee of Guaranty Fund Management Services (GFMS), claimed GFMS improperly denied him short-term disability plan (STDP) benefits after he took leave for anxiety and related conditions. He brought ERISA claims (and related state-law claims), while GFMS argued the STDP is not an ERISA plan.
The Court’s Ruling
The case turned on the DOL’s “payroll practice” rule, which generally excludes a short-term disability/wage-continuation program from ERISA if the program:
- Pays compensation when an employee is physically or mentally unable to perform their duties or is otherwise absent from work for medical reasons.
- Provide payment as normal employee compensation.
- Pays benefits solely from the employer’s general assets (not through insurance, a trust, or any separate or dedicated fund).
Lucchesi argued that GFMS’s plan materials state the plan is “intended to be an ‘employee welfare benefit plan’ within the meaning of ERISA Section 3(1).” GFMS maintained it operated the plan as an ERISA-exempt payroll practice.
The court noted GFMS’s STDP met the first element because it covers extended absences due to serious illness, injury, or disability. The court found the second element satisfied because the program paid a significant percentage of regular wages — 100% for up to ten weeks, then 60% for up to fifteen more. Finally, rejecting Lucchesi’s argument that the plan language and ERISA reference created ambiguity, the court relied in part on an HR/compliance executive’s declaration and concluded that the benefits were paid from GFMS’s general assets. The court therefore held the STDP was an ERISA-exempt payroll practice, dismissed the ERISA claims, and dismissed the state-law claims without prejudice.
Employer Takeaway
Employers wanting their short-term disability or wage-continuation programs to stay outside ERISA under the payroll-practice exception should design and administer their programs to meet the exception requirements. Moreover, employers should be careful not to mistakenly describe an exempt program as ERISA-covered in their plan documents, communications, and other materials. Rather, employers should be clear and consistent regarding which benefits are subject to ERISA, to prevent unnecessary ERISA litigation and to avoid compliance issues, since fiduciary duties, and specific plan document, disclosure, and reporting obligations would apply to ERISA benefits.
For more information on ERISA compliance, please ask your broker or consultant for a copy of the NFP publication ERISA Compliance Considerations for Health and Welfare Benefit Plans.
Read the court’s decision, Lucchesi v. Guaranty Fund Mgmt. Servs. Health and Welfare Plan Memorandum and Order on Defendants’ Motion to Dismiss.