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Employment Agreement as Plan Amendment


BTG
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Is anyone aware of a good discussion on whether/when an individual employment agreement will be construed as an amendment to an ERISA plan?  For example, assume a retirement plan provides for 3% employer contribution, but the company signs a contract with one employee promising 5%.  Or, alternatively, a retiree health plan provides that benefits can be discontinued at any time, but the company signs a contract with one employee promising to maintain those benefits for life.

I have to imagine that this issue comes up relatively frequently especially at less sophisticated companies, but I have found surprisingly little guidance so far.  Thanks!

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ERISA § 402(b)(3) commands: “Every employee benefit plan shall—provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan[.]”

 

Employee-benefits lawyers understand that compound sentence to allow opportunities for widening or narrowing which people can amend a plan, and what kind of writing is valid or ineffective.

 

A plan’s amendment provision could be broad, such as: “The Plan may be amended by anything that is the act of the Plan Sponsor.”  Or narrow, such as: “Only a non-electronic written instrument signed by the Plan Sponsor’s Executive Vice President for Human Capital and witnessed by the Plan Sponsor’s Deputy General Counsel for Employee Benefits can amend the Plan.”

 

Here’s a few of courts’ decisions:

 

Horn v. Berdon, Inc. Defined Benefit Pension Plan, 938 F2d 125, 127, 13 Empl. Benefits Cas. (BL) 2492, 2493 (9th Cir. July 1, 1991) (“[T]there is no requirement that documents claimed to collectively form the employee benefit plan be formally labelled as such.”).

 

Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 18 Empl. Benefits Cas. (BL) 2841 (Mar. 6, 1995) (Stating as little as “[t]he Company” may amend the plan is enough to meet ERISA § 402(b)(3)’s two requirements—that a plan “provide a procedure for amending [the] plan, and [a procedure] for identifying the persons who have authority to amend the plan[.]”).

 

Cerasoli v. Xomed, Inc., 47 F. Supp. 2d 401 (W.D.N.Y. Apr. 30, 1999) (A written plan need not be a single, formal document.).

 

Halbach v. Great-West Life & Annuity Ins. Co., 561 F.3d 872, 46 Empl. Benefits Cas. (BL) 2010 (8th Cir. Apr. 13, 2009) (A letter mailed to participants referred to a summary of material modifications.  Those two writings formed an “instrument”.  That instrument was sufficient to amend an employee-benefit plan.)

 

Tatum v. R.J. Reynolds Tobacco Co., No. 1:02-cv-00373, 51 Empl. Benefits Cas. (BL) 2028, 2011 WL 2160893 (M.D.N.C. June 1, 2011) (An attempted amendment was void because it was not made according to the plan’s amendment procedure.), further proceedings on other grounds, No. 1:02CV00373, 61 Empl. Benefits Cas. (BL) 2860, Pens. Plan Guide (CCH) ¶ 24019B, 2016 WL 660902 (M.D.N.C. Feb. 18, 2016).

 

To understand whether a writing beyond the thing called a “plan document” amends a plan, a starting point is to read the governing documents of the plan that might or might not have been amended.

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First look at the plan document to determine who and how the plan may be amended. Argue that the agreement fails to meet the plan's requirements for making an amendment. Once you pass that hurdle, which I think is achievable with some creativity, the bigger issue you have is what now? The promise to provide benefits to the employee  (e.g., the 5% match) does not go away. You now have a stand-alone promise to an employee to provide future compensation for services performed, and that's subject to 409A.  

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If the employer is a corporation, then only a duly adopted board resolution can amend the plan, unless the board has delegated that authority either in the plan document that it adopted, or in a separate delegation resolutions. That would preclude an employment agreement from being a plan amendment unless the board approved the employment contract, e.g. for the CEO.

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If an employee-benefit plan’s sponsor is a corporation and the plan’s governing documents do not restrict who may amend the plan or how she may do it, anything that is the corporation’s act under the law that governs the corporation could be an act that might amend the plan.  (Whether a particular act does amend a plan is a further analysis.)

 

Justice O’Connor’s Curtiss-Wright opinion cited treatises’ statements that a human’s authority to act for a corporation may, rather than an express delegation, be inferred or implied.  The Supreme Court’s decision remanded the case for fact-finding “into what persons or committees within Curtiss-Wright possessed plan amendment authority, either by express delegation or impliedly[.]”

 

Yet, even an authorized person’s act might not amend a plan.  An authorized person might have signed or otherwise adopted a writing made for some other purpose—for example, to make the corporation’s agreement with a particular officer, employee, or other contractor—and neither stated nor intended an amendment of an employee-benefit plan.

 

In some situations (more for health benefits than for retirement benefits), whether an organization’s written promise to a particular individual is (or is not) also an amendment of an employee-benefit plan might matter less than whether the organization wants to meet its promise and (if so) how it might do so.

 

An individual who obtained a particular promise is unlikely to pursue a dispute if the promise is met.

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