Bank’s “wealth accumulation plan” is ERISA “pension plan”

A bank’s “wealth accumulation plan” (WAP), which by its express terms provides participants the opportunity to defer income, is an “employee pension benefit plan” under ERISA Sec. 3(2)(A), the U.S. Court of Appeals in New Orleans (CA-5) has ruled. On remand, the district court must determine whether the WAP is a “top hat” plan exempt from ERISA’s fiduciary duty rules.

Plan terms

The WAP funneled amounts into participating employees’ accounts in three categories: (1) voluntary deferred compensation; (2) mandatory deferred compensation; and (3) company contributions. “Voluntary” deferrals of income vested immediately. Employees could choose to have vested amounts distributed during employment or upon separation from employment. If distributed after separation, in some circumstances amounts could be distributed over a 10-year period.

Several former employees filed claims for breach of fiduciary duty under ERISA Sec. 502(a)(2) and for equitable relief under ERISA Sec. 502(a)(3). They argued that the bank violated ERISA’s forfeiture rules when it declined to pay them benefits under the plan after their separation from service. The district court granted the bank’s summary judgment motion, concluding the WAP was not an ERISA pension plan. As such it did not consider the bank’s alternative argument that the plan was a “top hat” plan exempt from the fiduciary duty rules.

Definition of pension plan

The appellate court reversed the lower court, concluding the WAP did fall within the definition of “pension plan” at ERISA Sec. 3(2)(A). Under that provision, a pension plan is any plan that “(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond…..”
As the bank suggested, the WAP does not provide retirement income within the meaning of subsection (i). However, the court explained, to stop the inquiry there would render subsection (ii) superfluous. The statute’s plain language makes clear that subsection (ii) is “separate and distinct from subsection (i).”
Top hat plan?

In a victory for the bank, the appellate court left open the possibility the plan might be a “top hat” plan and thus exempt from ERISA’s fiduciary rules. On remand, the district court must make the relevant factual determinations on this issue.

Source: Tolbert v. RBC Capital Markets Corporation (CA-5)
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