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CCH® PENSION — 07/11/11

Retirees' discounted telephone service not ERISA pension plan

Discounted telephone services provided to telephone company retirees did not constitute a pension plan subject to ERISA's funding, vesting, and disclosure requirements, the U.S. Court of Appeals in New Orleans (CA-5) has ruled in Boos v. AT&T Incorporated.

"Concession" benefit

For decades, the telephone company's "concession" benefit offered discounted telephone services to its retirees. For retirees living within its service region, the phone company discounted their phone bills. For retirees living outside its service region, the company provided reimbursement (in the same amounts) of their local telephone bills.

Under ERISA §3(2)(A), a pension plan is a fund or program established by an employer "to the extent" that it "provides retirement income" to employees, or "results in a deferral of income" by employees.

The retirees conceded that with respect to the in-region retirees, the benefit did not provide retirement income, but was rather a "no-additional-cost service" as defined under Code Sec. 132. However, they argued, because the out-of-region retirees received the benefit as taxable income, the benefit must be treated as a defined benefit pension plan.

Not a pension plan under ERISA

The Fifth Circuit, affirming the lower court, rejected this argument. It first rejected the contention that the benefit for out-of-region retirees was a plan separate from that for in-region employees. It also dismissed the notion that the phone expense reimbursements offered to the out-of-region employees amounted to retirement income. To "provide retirement income" for purposes of ERISA §3(2)(A), a plan must be designed for the purpose of providing retirement income. In contrast, the "primary thrust" of the concession benefit was to provide retirees with discounted phone services. Thus, although the benefit provided income to some of the retirees, such income was incidental to the overall purpose of the program.

Finally, the court concluded, the benefit for out-of-region retirees was not a deferral of income, as the retirees had no rights to the benefit prior to the purchase of eligible services from a local telephone company.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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