Employer-funded IRA bonus program under ERISA

                      U.S. DEPARTMENT OF LABOR
                      Pension and Welfare Benefit Programs
                             Washington, D.C. 20216




       FEB   9 1977                                          OPINION 77-22   A


                                                             3(2)
                                                             4(a)
                                                             201(6)
Thomas G. Mancuso, Esquire                                   301(a)(7)
Robison, Belser, Brewer,
  and Phelps
[Recipient address omitted]

Dear Mr. Mancuso:

This is in reply to your letter concerning the Employee Retire-
ment Income Security Act of 1974 (ERISA). We regret that the
volume of correspondence has resulted in a delay in responding.

You state that you represent the Union Springs Telephone
Company (the Company), a firm which has established a bonus
program for employees. An employee who has reached the age
of 21 years and who has three or more years of consecutive
service as of June 30 of each year shall be eligible to partici-
pate and receive a bonus. The Company will make direct deposits
into each eligible employee's Individual Retirement Account (IRA)
established with First Alabama Bank of Montgomery, N.A., the
employees do not have an option to receive the bonus in cash,
and the maximum bonus to be paid to any individual employee is
$1,500 or 15 per cent of wages, whichever is less. You question
whether this program is an employee pension plan and, if so,
whether the Company will be obligated to comply with any part of
Title I of ERISA other than Part I.

The Department of Labor has adopted an advisory opinion procedure
(ERISA Procedure 76-1, copy enclosed) which describes the general
procedures for issuing information letters and advisory opinions
under ERISA. Pursuant to ERISA Procedure 76-1, this letter is to
have the effect of an advisory opinion.

                                                           OPINION 77-22   A
Thomas G. Mancuso, Esquire                                                 2



Section 3(2) of ERISA defines the term "pension plan" to include
any program established or maintained by an employer to the extent
that it provides retirement income or results in a deferral of
income to periods extending to the termination of covered employ-
ment or beyond. An IRA established by an employer would there-
fore, constitute a pension plan within the meaning of section 3(2)
of ERISA. Section 4(a) of ERISA indicates that such plans are
subject to the provisions of Title I of ERISA.

Section 2510.3-2 of regulations issued by the Department on
August 15, 1975 (copy enclosed) clarifies the definition of
"pension plan" by identifying certain specific programs which
do not constitute pension plans. Section 2510.3-2(c), to which
you refer, indicates that the term "pension plan" does not in-
clude bonus payments for work performed unless such payments are
systematically deferred to the termination of covered employment
or beyond or so as to provide retirement income to employees.
The bonus program maintained by the Company requires that the
bonus be deposited in an IRA. As a result, the payments provide
retirement income and the plan does not qualify as a bonus pro-
gram under section 2510.3-2(c).

Section 2510.3-2(d) indicates that in certain circumstances, an
IRA will not be deemed a pension plan within the meaning of
section 3(2) of ERISA. In order to qualify under this section,
there must be no employer contributions, participation must be
voluntary, the sole involvement of the employer must be the
collection of contributions through payroll deductions, and the
employer must receive no consideration other than reasonable
compensation for services rendered in connection with payroll
deductions. As the Company's participation in the plan is more
pervasive than that permitted and as the condition to receipt
of the bonus precludes employee participation from being
considered voluntary, the program would not qualify under section
2510.3-2(d).

Therefore, the program maintained by the Company is a pension
plan within the meaning of section 3(2) of ERISA and, pursuant
to sections 4(a), is covered under Title I. Sections 201(6)
and 30l(a)(7), however, exempt IRAs established pursuant to
section 408 of the Internal Revenue Code of 1954 from coverage
under Parts 2 and 3 of Title I which contain the participation,

                                                 OPINION 77-22 A




Thomas G. Mancuso, Esquire                                  - 3


vesting, accrual, and funding provisions. As such, the Company's
plan will be subject to Parts 1, 4, and 5 of Title I of ERISA
which contain the reporting and disclosure, fiduciary responsi-
bility and enforcement provisions respectively. As indicated in
section 402(a)(1), every employee benefit plan must be maintained
pursuant to a written instrument.

Sincerely,


Fred W. Stuckwisch
Director
Office of Regulatory
  Standards and Exceptions



Enclosures