Ninth Circuit Rules that Stock Rights Plan is Not Subject to ERISA

In a case of first impression in the Ninth Circuit, the Court held that the Booz Allen Hamilton, Inc. Stock Rights Plan (“SRP”) was not subject to ERISA because its primary purpose was not to provide deferred compensation or other retirement benefits.  As background, ERISA applies to “employee welfare benefit plans” and “employee pension benefit plans.”  For an “employee pension benefit plan” to be subject to ERISA, it must provide retirement income to employees or result in the deferral of income by employees for periods extending to termination of covered employment or beyond.  Being subject to ERISA, subjects a benefit plan to a number of requirements including, without limitation, a Form 5500 filing requirement, fiduciary requirements, vesting rules, and participation rules.

In analyzing the SRP, the Ninth Circuit looked to the stated purpose of the Plan which was “to provide incentives for Officers to continue to serve as employees of the Company and its subsidiaries.” The Ninth Circuit also took into account when the participant’s stock could be redeemed under the Plan. While SRP participants were expected to hold their SRP shares until termination of employment, the Ninth Circuit found it important that the SRP allowed the participants to dispose of their shares at any time (including prior to their termination of employment). In this regard, the Court held that “mere possibility that income can be deferred does not mandate ERISA coverage.”

In reaching its decision the Ninth Circuit joined the Third, Fifth, and Eighth Circuits in holding that the paramount consideration in determining whether a plan is subject to ERISA is the stated primary purpose of the Plan. The full text of the Ninth Circuit’s opinion can be found here.

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