Douglas-Guardian retiree payments and pension status

U.S. Department of Labor
Opinion 78-18 A
September 20, 1978

[Recipient address omitted]

Dear Mr. Riess:

This is in response to your letter of August 3, 1978, requesting an advisory opinion regarding coverage under the Employee Retirement Income Security Act of 1974 (ERISA). Specifically, you ask whether certain monthly payments by the Douglas-Guardian Warehouse Corporation (the Company) constitute an employee pension benefit plan within the meaning of ERISA.

You represent that the Company's stockholders and directors have never authorized the creation of a pension plan, and that employees of the Company have been repeatedly advised that the Company does not have a pension plan. You state, nonetheless, that some (but not all) of the Company's employees have received monthly payments upon retirement, and that six persons currently are receiving such payments. You represent that the payments have been made in appreciation for past service and to ease financial hardships, and you indicate that in at least some cases the payments have been made with the understanding that the recipient would be available as a consultant to the Company. In addition, you represent that the payments have been made out of the Company's general assets, and that the recipients have been advised that the payments can be terminated at any time and do not constitute a pension plan.

Section 3(2) of ERISA defines "employee pension benefit plan" to mean:

any plan, fund or program . . . established or maintained by an employer or by an employee organization, or by both, 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, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.

Regulation 29 CFR §2510.3-2(e), issued by the Department of Labor (Department) on August 15, 1975, describes certain types of arrangements which the Department will not regard as employee pension benefit plans within the meaning of Title I of ERISA. Specifically, that regulation provides that, for purposes of Title I of ERISA, the terms "employee pension benefit plan" and "pension plan" shall not include voluntary, gratuitous payments by an employer to former employees who separated from the service of the employer if:

1. payments are made out of the general assets of the employer,
2. former employees separated from the service of the employer prior to September 2, 1974,
3. payments made to such employees commenced prior to September 2, 1974, and
4. each former employee receiving such payments is notified annually that the payments are gratuitous and do not constitute a pension plan.

Supplemental payments to retirees which do not fully conform with the regulation may nevertheless not be part of an employee pension benefit plan. Subsequent to the issuance of this regulation, the Department expressed the view, for example, that payments outside a pension plan for persons who retire prior to the end of 1976 do not constitute an employee pension benefit plan so long as certain criteria are met. See news release USDL 76-707, April 26, 1976.

The payments you describe do not meet the criteria set forth in the regulation or those subsequently enunciated in the news release. Specifically, it appears that some of the payments have been made to persons who retired after 1976, and it is not clear that the type of notification to recipients described in either the regulation or the news release has been given. Therefore, we are unable to assure you that the payments you describe will not be regarded as a pension plan under Title I of ERISA.

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, this letter is issued subject to the provisions of the procedure, including section 10 thereof relating to the effect of advisory opinions.

Sincerely,

Ian D. Lanoff
Administrator
of Pension and Welfare
Benefit Programs