In Tolbert v. RBC Capital Markets Corporation, No. 13-20213 (5th Cir. 2014), the plaintiffs in this case are former employees of the defendant (“RBC”) who participated in a wealth accumulation plan (“WAP”) during their periods of employment. Giving rise to this lawsuit, portions of the plaintiffs’ WAP accounts were forfeited when the plaintiffs left their jobs at RBC. The plaintiffs allege that the forfeitures amounted to violations of ERISA. The district court granted RBC’s motion for summary judgment, concluding that the WAP is not subject to ERISA because it is not an “employee pension benefit plan.”
In analyzing the case, the Fifth Circuit Court of Appeals (the “Court”) said the following. If the WAP is a “pension plan,” ERISA applies, and the plaintiffs may proceed with their lawsuit. To be a “pension plan”, by its express terms or as a result of surrounding circumstances, the WAP must either (1) provide retirement income to employees or (2) result in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” See 29 U.S.C.§ 1002(2)(A)(i)-(ii).
As to clause (1), the record reflects that the WAP was not designed to provide retirement income, considering, for example: the WAP’s statement of purpose at the beginning of the document (announcing the goal of allowing “employees to share in [RBC’s] growth and profitability” and the de facto distribution date immediately upon vesting. To fall within clause (2), the arrangement must allow the employees to defer the income to the end of their employment or beyond. The WAP satisfies clause (2) and therefore is a pension plan. The WAP’s “express terms” reveal themselves at the outset of the document. The first section of the WAP, 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.” The WAP provides for several categories of compensation which is deferred. A deferral of income thus ensues from (or, “arises as an effect of”) the express terms of the WAP to termination of employment or beyond. As such, the Court reversed the district court’s grant of summary judgment.