ERISA-Second Circuit Holds That Plan Distributing Stock Is Not Subject To ERISA, So Claim Of Insufficient Payment Under That Plan May Not Be Brought Under ERISA

In Pasternack v. Shrader, Docket Nos. 16-217 (Lead), 16-218 (Con) (2nd Cir. 2017), retired officers of Booz Allen Hamilton (“Booz Allen”) allege that they received insufficient payment in connection with Booz Allen’s sale of a division to another company. They sue Booz Allen and others in the United States District Court for the Southern District of New York, asserting liability under ERISA,  the Racketeer Influenced and Corrupt Organizations Act (“RICO”), federal securities law, and common law. Each claim was resolved adversely to plaintiffs, either by dismissal or by denial of leave to amend.

Upon review by the Second Circuit Court of Appeals (the “Court”), the Court affirmed the district court’s dismissal of the ERISA claims because the plan through which Booz Allen distributed its stock to plaintiffs is not an employee pension benefit plan within the meaning of ERISA. The plan did not provide retirement income or defer income until or termination of employment, as required for a plan to be subject to ERISA, as the dominant benefits were the ownership stake in the enterprise and the corresponding rights of management—and these rights were exercised before retirement and ended with the retirement process.

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