The 5th U.S. Circuit Court of Appeals noted that a “pension plan” as defined by ERISA is “any plan, fund, or program . . . maintained by an employer . . . to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program (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, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan…” The appellate court disagreed with RBC’s argument that the two conditions must be taken together and said they are two separate conditions for determining whether a plan is a “pension plan” under ERISA.

The court agreed that the express purpose of the plan was not to provide retirement income, but found in the beginning of the WAP document, the statement of purpose refers to the WAP as a “deferred compensation plan” and explains that, by design, employees have the option “to defer receipt of a portion of their compensation to be earned with respect to the upcoming Plan Year.” In addition, later sections of the WAP contain provisions for both Voluntary Deferred Compensation and Mandatory Deferred Compensation. “A deferral of income therefore ‘ensues from’ (or, ‘arises as an effect of’) the express terms of the WAP,” the court concluded in its opinion.

The court also found the express terms of the WAP contemplate employees deferring income “to the termination of covered employment or beyond.” The vesting sections explain that, upon separation, unvested amounts vest immediately. Also, the distribution sections mention available forms of distributions if a distribution is made due to separation.

For these reasons, the court determined the plan fell into the second condition for a plan to be a “pension plan” under ERISA. The court refused to consider RBC’s citing of a previous court case that applied a conditional clause found in another section of ERISA about pay being systematically deferred, noting that the plan in that case was a bonus plan and the WAP was clearly not a bonus plan.

The case was brought by former plan participants who had portions of their WAP accounts forfeited when they left their jobs at RBC. The plaintiffs alleged the forfeitures were violations of ERISA. But, a federal district court ruled that the plan was not an ERISA plan because its purpose was not to provide retirement income.

RBC had argued that, regardless of whether the WAP is a “pension plan” under ERISA, it is a “top hat” plan—a plan that is (1) unfunded and (2) maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees”—thereby making it exempt from the fiduciary duties imposed by ERISA. The district court did not address this argument.

However, the 5th Circuit found the resolution of the dispute over the “top hat” exemption—now that it determined the plan is a “pension plan” under ERISA—may require factual determinations regarding, for example, selectivity and high compensation. The appellate court remanded the case back to the district court to decide this issue.

The 5th Circuit’s opinion in Tolbert v. RBC Capital Markets Corporation is here.