The U.S. Court of Appeals for the Fifth Circuit has ruled in Atkins vs. CB&I, LLC, that a Project Completion Incentive (“PCI”) plan which offered a bonus to employees upon termination of employment is not an ERISA-covered severance plan and therefore did not preempt state wage laws.
Background. An employer established the PCI plan for employees as a retention incentive to continue working until completing their roles. The PCI bonus amount was based on total earnings of the employee from the employee’s first day on the project until the employee was laid off in a reduction-in-force, transferred from the project, or until the employee’s role on the project was completed.
Several employees who did not receive the bonus payment sued under the state’s Wage Payment Act. In response, the employer asserted that the state law should not be applied because it was preempted by ERISA.
Law. The Supreme Court established the standard for determining whether an employer’s severance policy is a “plan” subject to ERISA in Fort Halifax Packing Co., Inc. v. Coyne. In Fort Halifax, the Supreme Court held that a one-time lump sum severance payment did not create an ERISA plan because it did not create the need for an “ongoing administrative arrangement.”
Under Fort Halifax, the crucial questions for determining whether an employer’s severance policy is a plan subject to ERISA are:
- Is the plan more than a one-time lump sum payment to a group of employees triggered by a single event that is not expected to recur?
- Does the plan require an ongoing administrative scheme?
Fifth Circuit. The Fifth Circuit noted that while the PCI bonus plan is “akin to a severance plan…we do not see the ongoing administrative scheme characteristic of an ERISA plan.” The court explained that the PCI plan provides for only a single payment, which usually does not require an ongoing administrative scheme because the “employer assumes no responsibility to pay benefits on a regular basis, and thus faces no periodic demands… or create a need for financial coordination and control.”
The court further observed that while determining eligibility might require the exercise of some discretion, an administrative structure is not required for overseeing the PCI plan. The court ultimately determined that the PCI plan lacked the complexity and longevity that comprise a “ongoing administrative scheme” covered by ERISA. Therefore, because the PCI is not covered by ERISA, the Fifth Circuit ruled that the state’s Wage Payment Act was not preempted.