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Fort Halifax Redux: Identifying an ERISA Plan Made Simple Again

We are frequently asked by clients whether a severance policy or program is an "ERISA plan" and, thus, subject to ERISA's documentary, administrative, reporting, and disclosure requirements. A recent decision from the United States District Court for the District of Puerto Rico provides a helpful analysis of this re-occurring question in a concise, six-page opinion, and provides an opportunity for us to review the issues.

In Aguirre-Santos v. Pfizer Pharm., LLC, CIV. 12-1393 JAF, 2013 WL 5724061 (D.P.R. Oct. 21, 2013), a group of terminated employees were engaged in a jurisdictional tug-of-war with Pfizer Pharmaceuticals regarding the removal of their wage and benefit claims to federal court. In support of removal, Pfizer argued that its severance program, pursuant to which the plaintiffs were purportedly precluded from asserting their claims, was an ERISA plan that provided the federal district court with original subject-matter jurisdiction over the lawsuit. Conversely, the plaintiff former employees argued that the severance program was not an ERISA plan and, as a result, their claims should be remanded to state court. The District Court ultimately concluded that Pfizer's severance program was not an ERISA plan and along the way offered some helpful instruction with respect to this question.

At the center of the District Court's analysis are the principles established in Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1 (1987), the seminal case on the question of what constitutes an ERISA plan. In Fort Halifax the Supreme Court of the United States considered whether a Maine statute requiring employers to pay certain terminated employees one week's wages for each year of service was preempted by ERISA. The primary issue was whether the Maine statute constituted a state-mandated employee benefit plan that should be preempted by ERISA. In addressing this question, the Supreme Court offered a critical observation or benchmark for determining when an arrangement should be considered subject to ERISA. Specifically, the Court stated that an employee benefit package or program will only constitute a "plan" under ERISA if it "requires an ongoing administrative program to meet the employer's obligation." Fort Halifax, 482 U.S. at 11. On that basis, the Court concluded that the obligation to pay a one-time lump sum benefit trigged by a single event does not constitute a "plan" under ERISA.

Relying on this fundamental principle, the court in Aguirre-Santos found that Pfizer's severance program did not constitute an ERISA plan. The District Court noted that Pfizer's severance program did not require any ongoing administrative discretion as it offered benefit payments over a period of weeks in an amount dictated by an employee's base salary and years of service. Moreover, the program provided insurance benefits for a time period stated in each employee's employment contract and did not require any ongoing decisions regarding employees that could be excluded from the program. In sum, the District Court found that because there was nothing discretionary about the timing, amount, or form of the benefit payments, Pfizer's severance program did not "rise to the level of an ongoing administrative scheme." Aguirre-Santos, 2013 WL 5724061 at *2.

ERISA and its implementing regulations are complex, susceptible to various interpretations, and frequently developed by way of complicated multifactor tests. Fortunately, some questions – when properly framed – can be answered through more straightforward analysis. The Aguirre-Santos case reminds us that sometimes a one-time payment to a group of employees is just that, and something more must be involved – an arrangement requiring multiple decisions, or an exercise of discretion, or a set of administrative requirements that must be applied over time – in order to rise to the level of an ERISA plan. We take some comfort in that.

Topics: Fiduciary Duties, Plan Administration