In Boos v. AT&T, Incorporated, No. 10-50353 (5th Cir. 2011), the Fifth Circuit Court of Appeals (the “Court”) faced the issue of whether the Defendants’ practice of offering discounted telephone services, or reimbursement for part of the costs of telephone services, to employees and retirees (the “Concession”) is a pension plan. The district court had granted summary judgment to Defendants, ruling that the Concession is not a pension plan, in whole or in part. The Plaintiffs appealed this decision. The Court affirmed the district court’s judgment.
In analyzing this case, the Court noted that a pension plan, for purposes of ERISA, is any plan, fund or program established or maintained by an employer to the extent that by its express terms or as a result of surrounding circumstances such plan, fund or program: (1) provides retirement income to employees, or (2) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond. 29 U.S.C. section 1002(2)(A).
One important concern in determining if an arrangement is a pension plan is whether the arrangement provides income, within the meaning of the Internal Revenue Code (the “Code”). If the arrangement does not provide income, it is not a pension plan. For those retirees receiving the discount, the Concession is not income. Rather, it is a “no additional cost” service under Section 132(a)(1) of the Code and Treas. Reg. section 1.132-2(a)(2). As such, that part of the Concession is not a pension plan.
For those retirees receiving the reimbursement, this part of the Concession is likewise not a pension plan, since: (1) the entire Concession is a single plan, as the employer intended it to be such, (2) the “to the extent” language in 29 U.S.C. section 1002(2)(A) does not require a court to split up a single benefit to establish a pension plan, (3) the Concession does not provide retirement income, since, although the reimbursements are income under the Code, most Concession recipients receive the discount, not the reimbursement, so that the income is incidental to the primary benefit of the Concession and (4) there is no deferral of income, since there is no showing the Concession recipients ever forewent income at some point in exchange for receiving income at a later date.
Based on the foregoing, the Court concluded that the Concession is not a pension plan, in whole or in part, for purposes of ERISA.