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John J. Castellano
29 Ossipee Road
PO Box 423
Cape Neddick, Maine 03902-0423
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1999-01A
ERISA Sec. 000(a)
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Dear Mr. Castellano:
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This is in reply to your request for an advisory opinion regarding the
applicability of Title I of the Employee Retirement Income Security Act of
1974 (ERISA). Specifically, you ask whether the Suffolk University Voluntary
Separation Program (the University Program) is an employee pension plan
within the meaning of section 3(2) of ERISA. You also inquired about whether
ERISA governs withholding for Social Security/Medicare and state income tax
by Suffolk University from separation payments being made under the
University Program.
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The following summary of relevant provisions of the University Program is
based on the plan document you enclosed with your letter. The plan document
indicates that Suffolk University considers the University Program to be a
employee welfare benefit plan covered under Title I of ERISA. The purpose of
the University Program is to provide an enhanced benefits package to those
eligible employees who request voluntary separation from employment with the
university. The document indicates any “regular, titled, full-time faculty
members of the University’s Sawyer School of Management” who were on the
university’s active payroll on January 22, 1997, and who, as of June 30,
1997, had attained the age of sixty (60) years and had twenty (20) or more
years of continuous service with the university were eligible to request
participation. The plan document states the program was to be effective for
the period January 22, 1997 through June 30, 1997, and provides that
requests to participate had to be made on or before March 14, 1997. Suffolk
University reserved the right to extend the effective dates of the program.
Participants were required to voluntarily terminate their employment on June
30, 1997, or other agreed upon date, and must sign a agreement that they
will not apply for unemployment benefits in connection with their voluntary
termination of employment under the University Program. Participants are
also required to sign a release of claims against Suffolk University.
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The University Program includes the following benefits. The program provides
for payment of a separation payment in a sum equal to the employee’s base
annual wage. Separation payments are to be made in a lump sum on June 30,
1997, or, so long as all payments are completed within two years of the
employee’s termination, pursuant to a schedule agreed upon between the
participant and the university. If the participant dies prior to receiving
the separation payment, it is payable to the participant’s designated
beneficiary, or, if no beneficiary is designated, to the participant’s
spouse, living children, and estate in that order. The plan document also
provides that a participant has the right to continue medical coverage under
the university’s health plan for himself or herself and dependents until
eligible for Medicare. A participant who chooses to continue coverage under
the university’s health plan may continue to receive medical coverage
after becoming eligible for Medicare under the university’s supplemental
Medicare plan. The benefits under the plan are to be paid out of the general
assets of the university, except to the extent participant contributions are
required for continuation of medical and/or dental insurance coverage.
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The term “employee benefit plan” is defined in section 3(3) of ERISA as
“ . . . an employee welfare benefit plan or an employee pension benefit
plan or a plan that is both an employee welfare benefit plan and an employee
pension benefit plan.(1) ERISA section
3(2)(A) generally defines the term "employee pension benefit plan"
to include: “. . . any plan, fund, or program which was heretofore or is
hereafter 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 -- (i)
provides retirement income to employees, or (ii) 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.”
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In regulation 29 C.F.R. § 2510.3-2, the Department of
Labor identified certain programs that provide for payments upon severance
from employment which would not be considered to constitute employee
pension benefit plans within the meaning of ERISA section 3(2). Regulation
§ 2510.3-2(b) provides, in relevant part:
(1) For purposes of Title I of the Act and this
chapter, an arrangement shall not be deemed to constitute an employee
pension benefit plan or pension plan solely by reason of the payment of
severance benefits on account of the termination of an employee's
service, provided that:
(i) Such payments are not contingent, directly or
indirectly, upon the employee’s retiring;
(ii) The total amount of such payments does not
exceed the equivalent of twice the employee's annual compensation during
the year immediately preceding the termination of his service; and
(iii) All such payments to any employee are
completed,
(A) In the case of an employee whose service is
terminated in connection with a limited program of terminations, within
the later of 24 months after the termination of the employee's service,
or 24 months after the employee reaches normal retirement age; and
(B) In the case of all other employees, within 24
months after the termination of the employee's service. . . .
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Although benefits under the University Program do not
appear to be directly contingent on an employee's retiring, the program
provides that to be eligible for the described benefits an employee must
have completed 20 years of continuous service and attained age 60, or
older. In view of the eligibility requirements, it is the Department's
opinion that benefits under the Program are indirectly contingent upon
retirement. Therefore, the University Program does not fall within the
criteria of section 2510.3-2(b). The preamble to the Federal Register
notice adopting regulation § 2510.3-2(b) recognizes that the regulation
sets forth conditions under which a severance pay plan will not be deemed
to be a pension plan, without excluding the possibility that, in
appropriate circumstances, a severance pay plan not meeting the conditions
might also be deemed not to be an employee pension benefit plan. However,
it is the opinion of the Department that the University Program has been
established as a means of providing retirement benefits to those eligible
employees who chose to participate in the program of employment
terminations and, therefore, is an employee pension benefit plan within
the meaning of section 3(2)(A) of ERISA.(2)
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Section 514(a) of Title I of ERISA generally preempts, with certain
exceptions not relevant to the issue you presented, any state law which
relates to an “employee benefit plan” covered under that title. Section
514(d) provides, also with certain exceptions not relevant in your
situation, that: “Nothing in this title shall be construed to alter,
amend, modify, invalidate, impair, or supersede any law of the United States
. . . or any rule or regulation issued under any such law.” Accordingly,
if the benefits you are receiving from the University Program are subject to
required withholding under federal law governing Social Security and
Medicare, section 514(a) would not affect such required withholding.
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The Department has also stated that the definition of
what constitutes income to an individual under state or local income tax
laws would not be preempted under section 514(a). See Opinion 86-05A
(January 21, 1986), and Letter to Honorable Don J. Pease (March 4, 1982)
(copies enclosed). The Department has not previously addressed the issue
of whether, or under what circumstances, a state or local law regarding
withholding of state income taxes on retirement income would be preempted
under section 514(a). We have insufficient information on the facts and
state law involved for us to express a view on that issue in your case.(3)
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This letter constitutes an advisory opinion under ERISA Procedure 76-1.
Accordingly, this letter is subject to the provisions of the procedure,
including section 10 thereof relating to the effect of advisory opinions. If
you have any questions about this letter, please do not hesitate to contact
John Keene of this Office at (202) 219-8521 (this is not a toll-free
number).
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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Enclosures
cc: Suffolk University, Director of Human Resources
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From the information you provided it
appears that the University Program is maintained by an employer
engaged in commerce or in an industry or activity affecting commerce.
Further, it does not appear that the University Program is in any of
the classes of plans exempted under section 4(b) from Title I
coverage.
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In Advisory Opinion 81-08A (January
12, 1981), the Department concluded that a company program was a
pension plan under section 3(2) where it provided for a $300 monthly
benefit to each employee who attained age 60, had completed 5 years of
service, and voluntarily terminated his or her employment during a
three month period of time. The monthly benefit was to be paid until
the terminated employee reached age 65, died, or was rehired by the
company. The total benefits were to be paid our of the company’s
general assets and were not to exceed twice the employee's annual
compensation during the year preceding the employee's termination. The
company also maintained a separate defined benefit pension plan which
provided for early retirement after age 45 and completion of 10 years
of service. See also Advisory Opinion 80-07A (February 1, 1980).
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We note 4 U.S.C. §114 (copy
enclosed) limits the states’ ability to tax certain retirement
income. The Department ordinarily will not issue advisory opinions on
sections such as §114 that are not part of Title I of ERISA. You may
want to contact the plan administrator or a tax consultant about
whether §114 has any applicability to your situation.
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