One of the most fundamental, but often overlooked, defenses in ERISA litigation is that the plaintiff did not allege a violation of an actual ERISA plan. An at-issue document/provision cannot be an ERISA pension plan unless it provides retirement income or “deferral of income beyond covered employment.” Designated employee retirement plans and 401(k) plans will easily meet this definition. However, as the recent decision in Scanlan v. American Airlines Group, Inc., 18-4040 (6/18/2019) demonstrates, employers’ bonus and incentive plans do not automatically fall within this definition merely by allowing participating employees to apply the provided compensation toward their retirement.

The plaintiff in Scanlan brought the case as a putative class action under the Uniformed Services Employment and Reemployment Rights Act (USERRA), alleging American Airlines Group (AAG) did not treat military leave as favorably as other types of leave for pay and benefit purposes. AAG moved to dismiss. The court denied AAG’s motion to dismiss in part, but granted it as to the plaintiff’s claim that AAG’s calculation of awards under its Profit-Sharing Plan (the Plan) violated § 4318(b)(1). Claims under § 4318(b)(1) require the existence of an ERISA pension plan. The plaintiff alleged that the Plan met ERISA’s definition of an employee pension plan because it permitted employees to designate part or all of their award under the Plan toward their retirement account.

The court disagreed. If found that the phrase “provides retirement income” refers only to plans created for the purpose of paying retirement income. Clearly, the Plan was not designed for such a purpose, even though it allowed contributions to go toward retirement. The court also found that the Plan was not an ERISA-covered deferred compensation plan and pointed to the Plan’s express intent to fall within ERISA’s coverage exemption for bonus plans (29 C.F.R. § 2510.302(c)). The court noted that while this expressed intent was not dispositive, it was relevant. Moreover, there was no allegation in the Complaint that the Plan systematically deferred payments to the termination of employment or to provide retirement income, which would have taken it within ERISA’s definition of a pension plan. Therefore, the court dismissed this count of the complaint.

The Bottom Line

The mere fact that employees may allocate some or all of their bonus or profit sharing awards toward their retirement does not necessarily mean that ERISA covers the plan.