Take a look at how a recent court case illustrates the effect of ERISA on a legal dispute.

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Think You Have an ERISA Plan
Don’t Be So Sure

2. Take a look at how a recent court
case illustrates the effect of ERISA on
a legal dispute.
In Cantrell v. Briggs & Veselka
Co., the U.S. Court of Appeals for the
5th Circuit had to decide whether or
not a pair of employment contracts
amounted to a benefit plan covered
by ERISA. The plan defined the
formula for a deferred profit-based
payout scheme.
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The two employees involved had merged their professional practice
with a larger public accounting firm known as Briggs & Veselka Co.,
seven years prior to the dispute. (Cantrell v. Briggs & Veselka Co., 2013
WL 4523497).

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The first employee -- Patrick Cantrell -- resigned after becoming vested
in the deferred payout plan (which called for a payout over a 10-year
period), opened a new practice, and began receiving payments under
the Briggs & Veselka (B&V) plan. Nearly four years later, Carol Cantrell
(who had been a partner in the original firm sold to B&V) announced
her plan to leave the firm and join Patrick, and sought her benefits
under the deferred compensation plan.
Facts of the Case

4. B&V's response was to terminate her for cause -- alleged violation of a
non-compete agreement. She was also denied any benefits under the
deferred comp plan. In addition, B&V's ongoing payments to Patrick
were halted then for the same reason.
The two Cantrells, in separate cases, sued B&V in the Texas state court
system, seeking restoration of their entitlement to the payouts. But
B&V "removed" the case to the local federal district court, with the
(initially) successful argument that this dispute involved an ERISA plan.
When the Cantrells appealed the federal trial court's decision to take
the case, they were ultimately successful in persuading the federal
appeals court that their comp plan was not an ERISA plan. The appeals
court sent the case back to the state court, citing a three-part test it
had issued in an earlier case to reach its decision.
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Specifically, does a plan:
Three-Part Test
1. Exist
2. Fall within the safe-harbor provisions established by the
Department of Labor, or
3. Satisfy "the primary elements of an ERISA 'employee benefit plan,'
established or maintained by an employer intending to benefit
employees" (quotes from the earlier case, Meredith v. Time
Insurance Company).
The appeals court ruled the new case flunked the first test, so the
remaining questions were moot: "… we hold the deferred compensation
arrangements in the Cantrells' employment agreements do not make
out the existence of a plan." The Court pointed out that whether an
ERISA plan exists is fact-specific, and proceeded to describe the
arrangement in detail.

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Specifically, does a plan:
Three-Part Test
1. Exist
2. Fall within the safe-harbor provisions established by the
Department of Labor, or
3. Satisfy "the primary elements of an ERISA 'employee benefit plan,'
established or maintained by an employer intending to benefit
employees" (quotes from the earlier case, Meredith v. Time
Insurance Company).
The appeals court ruled the new case flunked the first test, so the
remaining questions were moot: "… we hold the deferred compensation
arrangements in the Cantrells' employment agreements do not make
out the existence of a plan." The Court pointed out that whether an
ERISA plan exists is fact-specific, and proceeded to describe the
arrangement in detail.

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The appeals court also referenced a U.S. Supreme Court ruling (Fort
Halifax Packing Company, Inc. v. Coyne, 482 U.S. 1 (1987)), which
involved a severance plan, as a basis for its ruling. Fort Halifax Packing
Co. had shut down operations at a plant in Maine. That state's law
requires that certain companies which close operations must make a
severance payment to laid-off employees equivalent to one week's pay
for every year they worked for the company, if they had been employed
by the company for at least three years.
In that ruling, the Supreme Court emphasized the distinction between a
"benefit" (i.e. what the employee receives) and a "plan" (i.e. the
dynamic administrative infrastructure and processes required to keep
the plan in operation). "…ERISA uses the words 'benefit' and 'plan'
separately throughout the statute, and nowhere treats them as
equivalent," the court stated.
U.S. Supreme Court's Stance

8. A basic purpose of ERISA, held the Supreme Court, is "to allow plans to
adopt a uniform scheme for coordinating complex administrative
activity, unaffected by regulatory requirements in differing states." But
the Maine law which the Court was assessing "neither establishes, nor
requires an employer to maintain a plan that would embody a set of
administrative practices vulnerable to the burden imposed by a
patchwork, multi-state regulatory scheme. In fact, the theoretical
possibility of a one-time, lump-sum severance payment triggered by a
single event requires no administrative scheme whatsoever to meet
the employer's statutory obligation.“
The Court also said where a state law "creates no danger of conflict
with a federal statute, there is no reason to disable it from attempting
to address uniquely local social and economic problems."
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A further elaboration on the Supreme Court's distinction between an
ERISA plan and one not covered by ERISA offers the clearest view of the
distinction -- serving as a guideline on how any benefit plan you offer
might need to be structured if you want it to be governed by ERISA. The
opinion states:
Focus on Administrative Requirements

10. An ERISA plan exists when an employer which "makes a commitment
systematically to pay certain benefits undertakes a host of obligations,
such as determining eligibility of claimants, calculating benefit levels,
making disbursements, monitoring the availability of funds for benefit
payments, and keeping appropriate records in order to comply with
applicable reporting requirements.“
In the recently decided case involving the two accounting firms, the
Cantrells' employment contracts explicitly stated that the 10-year pay-
out arrangement was an ERISA plan, presumably in hopes of
preempting any future litigation in Texas courts. But, as things stand
now, simply calling a deferred compensation arrangement does not
make it so. So if you have any relatively simple arrangements which do
not involve a lot of discretion or administrative maintenance, be
prepared to battle it out in state court if a dispute arises.
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