Tuesday, March 20, 2007
In order for there to be an employee benefit plan for purposes of ERISA, both the Dillingham factors (688 F.2d 1367 (11th Cir. 1982)) and the Ft. Halifax test (482 U.S. 1 (1987)) must be met. Dillingham requires the presence of: (a) an intended benefit, (b) an intended beneficiary, (c) a source of financing; and (4) a procedure for claiming benefits. Ft. Halifax adds that there must also be an ongoing administrative scheme.
These necessary prerequisites to ERISA plan formation were clearly missing in the 2nd Circuit case of Guilbert v. Gardner, 04-1003 (2nd Cir. Mar. 7, 2007). Here's a summary of the case from PlanSponsor.com:
According to the appellate court ruling, Guilbert went to work for a print brokerage firm owned by a family friend in January 1992. Guilbert claimed that in employment discussions with the owners the month before, the owners promised that they would start a pension fund for him with an initial $39,000 deposit and would add $10,000 to the account each year.
One member of the family owning the business wrote down the terms of the pension on a legal pad, according to Guilbert, and he received numerous oral assurances that the pension plan had been set up. Guilbert also submitted the company's tax returns indicating the company took certain tax deductions for "employee benefit programs."
Eight years later, according to the ruling, the print brokerage business failed
However, even taken together, Circuit Judge Peter Hall ruled that Guilbert's evidence did not prove an ERISA plan had been put into place from which he was owed benefits. Hall noted  that an ERISA plan is established only if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.
I guess the take-home point here is that in these small businesses employees should demand to see the plan documents establishing the pension before taking for granted that one actually exists. PS