Most companies have sent their proxy statements to the printer, and we expect the SEC to publish the next round of Dodd-Frank rules on Wednesday, so I thought I would talk about another topic today. Everyone knows that stock options, restricted stock and other forms of equity compensation are not subject to the many and various provisions of the Employee Retirement Income Security Act of 1974 (ERISA*), right? Wrong. Some creative plaintiffs' lawyers seem to have convinced a federal judge that equity compensation plans may become subject to ERISA under certain circumstances.
The holding in England v. Marriott International Inc., 50 EBC 2013 (D. Md. 2011), actually is not as revolutionary as my lead in may have implied. However, it does help illustrate the potential dangers of letting an equity compensation plan stray into ERISA territory. Former employees of Marriott International and its predecessor companies, who worked for Marriott for various periods from 1966 to 1991, brought a lawsuit alleging that they were given Retirement Deferred Stock Bonus Awards during their employment but defendants failed to pay benefits under these awards, when the plaintiffs reached retirement age. Specifically, the plaintiffs claimed entitlement to the Awards because the Awards were subject to ERISA's minimum vesting requirements. The Retirement Awards provided that the awarded shares would vest pro-rata during the recipient's employment until company approved early retirement, retirement at age 65, disability or death.
Here is the problem. During their employment, plaintiffs received Retirement Deferred Stock Bonus Awards that promised to issue stock to them when they turned 65, took early retirement, became permanently disabled or died. The program was not a traditional equity compensation plan such as most of us are used to seeing. It was a promise to issue stock at a date far into the future. It could have easily been a promise to give cash or other deferred compensation in the future. Plaintiffs' lawyers have discovered the benefits and wonders of ERISA lawsuits over the last five to ten years, about which I have blogged previously.
ERISA defines "pension benefit plan" as one that provides retirement income to employees or results in a deferral of income by employees for a period extending to the termination of employment or beyond. If a plan is subject to ERISA and cannot qualify for exemption as a top hat or excess benefit plan, then the plan generally is subject to ERISA's vesting schedule.
The 2011 district court decision did not resolve the issues in favor of the plaintiff; it merely certified the plaintiffs' claims as a class action. The war is not over between the parties.
(And how the plaintiffs get around the statute of limitations problem for awards they received between 17 to 47 years before lawsuit was filed? Here the courts had to reach a bit, saying that it made "no sense" to conclude that claims that the Awards program violated ERISA had accrued during a time when the defendants were denying that ERISA applied to the Awards program.)
*You don't have to admit that you thought ERISA was an acronym for "Every Ridiculous Idea Since Adam."