Whether a one-time payment of benefits constitutes an employee benefit plan under ERISA has been the source of some consternation in the courts for many years.  The Fifth Circuit, in Atkins v. CB&I, LLC, recently had occasion to consider the issue and held that a bonus conditioned on completing a project was not an ERISA severance plan.  2021 WL 1085807 (5th Cir. Mar. 22, 2021).

In Atkins, the employer’s “Project Completion Incentive Plan” offered a bonus to employees who worked until completing their roles on a project.  The bonus was styled as a “retention” bonus, but it was payable upon being laid off in a reduction-in-force or transfer to a different project site.  The plaintiffs were five former employees who quit mid-project.  They sued the employer in Louisiana state court alleging that the plan violated state wage law by denying bonuses to employees who quit prior to the project’s completion.  The employer removed the case to federal court on the ground that the plan was an ERISA-governed severance plan.

The district court treated the plan as a severance arrangement and held that ERISA applied because the plan’s individualized eligibility determinations required an “ongoing administrative scheme” typical of ERISA plans.  As a result, the district court concluded that the plan was governed by ERISA, which meant that ERISA preempted plaintiffs’ state law claims and the case would be adjudicated in federal court.

On appeal, the Fifth Circuit vacated the district court’s judgment and remanded the case to state court.  In its view, the plan was not subject to ERISA for several reasons.  First, the bonus was a single payment with a simple calculation: five percent of the employee’s earnings for the project.  Second, an individual’s eligibility coincided with the end of a discrete project and there was little, if any, discretion involved.  Finally, the employer lacked any special administrative procedures for handling claims and appeals, offering the plan on a large scale, or monitoring participants.  As a result, the Court concluded that the plan lacked the “complexity and longevity” typical of ERISA plans and was thus outside its scope.

Proskauer’s Perspective

The question of whether a severance plan requires an ongoing administrative scheme sufficient to be subject to ERISA is fact-specific, and the case law is not consistent from one court to the next, which makes it difficult to predict whether particular arrangements will be subject to ERISA.  This case caught our attention, because it appears that the plan could have been excluded from ERISA under 29 C.F.R. § 2510.3-2(c) by reason of being a bonus program that provided payments for work performed.  Unlike a typical severance arrangement, the plan language described the benefit as a “retention incentive” and payment was tied to completing projects, without regard to whether employment actually terminated.

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Photo of Seth Safra Seth Safra

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined…

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined benefit to cash balance and floor-offset arrangements, ESOPs and 401(k) plans—often coordinating qualified and non-qualified arrangements. He also advises tax-exempt and governmental employers on 403(b) and 457 arrangements, as well as innovative new plan designs; and he advises on ERISA compliance for investments.

On the health and welfare side, Seth helps employers provide benefits that are cost-effective and competitive. He advises on plan design, including consumer-driven health plans with HSAs, retiree medical, fringe benefits, and severance programs, ERISA preemption, and tax and other compliance issues, such as nondiscrimination and cafeteria plan rules.

Seth also advises for-profit and non-profit employers, compensation committees, and boards on executive employment, deferred compensation, change in control, and equity and other incentive arrangements. In addition, he advises on compensation and benefits in corporate transactions.

Seth represents clients before the Department of Labor, IRS and other government agencies.

Seth has been recognized by Chambers USA, The Legal 500, Best Lawyers, Law360, Human Resource Executive, Lawdragon and Super Lawyers.

Photo of Russell Hirschhorn Russell Hirschhorn

Russell L. Hirschhorn, co-head of the ERISA Litigation Group, represents plan fiduciaries, trustees, sponsors and service providers on the full range of ERISA and state law benefit and fiduciary issues. From single plaintiff litigation and arbitration to complex class action litigation, he provides…

Russell L. Hirschhorn, co-head of the ERISA Litigation Group, represents plan fiduciaries, trustees, sponsors and service providers on the full range of ERISA and state law benefit and fiduciary issues. From single plaintiff litigation and arbitration to complex class action litigation, he provides practical guidance, develops unique litigation defense strategies and, when appropriate, mediates successful resolutions.

Russell represents clients across a wide array of publicly-held, multi-national companies and privately owned companies across a multitude of industries including, banking, finance and investments, pharmaceuticals, retail products and construction, to name just a few. In addition, he also counsels benefit plan clients on a host of compliance and federal and state government agency enforcement matters, including complex and lengthy investigations and audits by the U.S. Departments of Justice and Labor.

Russell is management co-chair of the American Bar Association Employee Benefits Committee as well as management co-chair of the Trial Institutes Committee of the American Bar Association’s Labor and Employment Law. He also writes on cutting-edge ERISA litigation issues, serving as a contributing author and a past chapter editor to Employee Benefits Law (BNA Third Edition).

Deeply dedicated to pro bono work, Russell was a principal drafter of several amicus briefs for the Innocence Project, a legal non-profit committed to exonerating wrongly convicted people. Russell has been recognized on several occasions for his commitment to pro bono work including by President George W. Bush in receiving the U.S. President’s Volunteer Service Award.

Photo of Sydney Juliano Sydney Juliano

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach…

Sydney L. Juliano is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group, where she focuses on ERISA Litigation.

Sydney works on a variety of ERISA litigation matters, including fee- and investment-related breach of fiduciary duty claims, benefit claims, and claims by trustees of multiemployer plans for withdrawal liability and delinquent contributions. Sydney is also a frequent contributor to Proskauer’s Employee Benefits & Executive Compensation Blog.

Sydney maintains an active pro bono practice, including representing clients in immigration and family court matters.

Sydney received her J.D. from the University of Virginia School of Law, where she was an Articles Editor of the Journal of Law and Politics and Director of Coaching for the Extramural Moot Court team.  While at UVA, she worked at the U.S. Attorney’s office for the Southern District of Florida.