Opinion ID: 201737
Heading Depth: 2
Heading Rank: 4

Heading: Violation of ERISA's Minimum Participation Standards

Text: 30 ERISA sets minimum participation standards in the form of limits on a plan's imposition of age- or length-of-service-related conditions of participation, see ERISA § 202(a)(1), 29 U.S.C. § 1052(a)(1), on any employee who is otherwise entitled to participate in the plan, 29 U.S.C. § 1052(a)(4). A provision of the Code of Federal Regulations, 26 C.F.R. § 1.410(a)-3(e)(1), which is made applicable to ERISA's statutory minimum participation standards under ERISA § 3002(c), 29 U.S.C. § 1202(c), clarifies that [p]lan provisions which have the effect of requiring an age or service requirement ... will be treated as if they imposed an age or service requirement, thereby preventing a plan from evading ERISA's minimum participation standards through creative plan design. Apart from these limitations, [s]o long as a plan does not discriminate based on age or length of service, nothing in ERISA requires a plan to extend benefits to every common law employee. Kolling, 347 F.3d at 14. 31 Plaintiffs make a cursory attempt to argue that the GTE ERISA plans' eligibility criterion—whether an employee is paid directly or by a third-party payroll agency—is a condition of participation imposed on employees who are otherwise entitled to participate that ha[s] the effect of a minimum-service requirement exceeding the permissible limits of ERISA's minimum participation standards. Under Plaintiffs' theory, [s]ince GTE could choose at any time (or never) to place Plaintiffs on GTE's own payroll, what GTE has created are exclusions of uncertain and arbitrary duration. Even if this is so, Plaintiffs' indefinite exclusion from plan eligibility simply renders them employees who are not (and may never be) entitled to participate in the plan[s], 29 U.S.C. § 1052(a)(4)—not employees who are otherwise eligible but who are nevertheless excluded pending completion of a specific period of service exceeding the minimum permitted under ERISA. 32 Despite Plaintiffs' attempt to hitch their claim to ERISA's minimum participation standards limiting the use of age—or length-of-service-related conditions of participation, their true complaint remains that the GTE ERISA plans use arbitrary criteria to establish an employee's threshold eligibility for plan participation—a complaint that has nothing to do with ERISA's minimum participation standards. Indeed, Plaintiffs identify no statutory provision that prohibits the use of such arbitrary eligibility criteria. Rather, Plaintiffs rely on a Treasury regulation, 26 C.F.R. § 1.410(b)-4(b), which sets forth one method by which an ERISA plan may voluntarily satisfy certain requirements in order to qualify for preferential tax treatment. See 26 U.S.C. § 410(b); 26 C.F.R. § 1.410(b)-2(b). 33 Under § 1.410(b)-4(b), 34 [a plan] classification is established by the employer in accordance with this paragraph (b) if and only if, based on all the facts and circumstances, the classification is reasonable and is established under objective business criteria that identify the category of employees who benefit under the plan. Reasonable classifications generally include specified job categories, nature of compensation (i.e., salaried or hourly), geographic location, and similar bona fide business criteria. An enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable classification. 35 (emphases added.) According to Plaintiffs, the GTE ERISA plans' use of arbitrary distinctions between employees who are paid directly and those who are paid by third-party payroll agencies has substantially the same effect as an enumeration by name and is not considered a reasonable classification . . . established under objective business criteria within the meaning of the regulation. On this basis, Plaintiffs argue that Defendants impermissibly excluded them from plan eligibility. 36 There are two problems with this argument. Even if Plaintiffs are right that the GTE ERISA plans violate this regulation (a judgment we do not make), Plaintiffs themselves recognize that § 1.410(b)-4(b) is not incorporated into ERISA. Hence a violation of this regulation cannot be a violation of ERISA through incorporation. Nor does § 1.410(b)-4(b) confer substantive rights on ERISA plan participants or would-be participants independent of ERISA's statutory provisions. The district court concluded that, [w]hile GTE's classification may well be unreasonable and arbitrary under the Treasury regulations,. . . this failure to comply with the tax regulations does not permit the Court to rewrite the plan. Edes, 288 F.Supp.2d at 64. As the Fifth Circuit reasoned in Abraham, 85 F.3d at 1131: 37 [t]he [Treasury] regulations purport to do no more than determine whether a plan is a qualified tax plan. Failure to meet the requirements of those regulations results in the loss of a beneficial tax status; it does not permit a court to rewrite the plan to include additional employees. The Treasury regulations do not create substantive rights under ERISA that would permit the relief [plaintiff] requests. 38 Accord Bronk v. Mountain States Tel. & Tel., Inc., 140 F.3d 1335, 1338 (10th Cir.1998); Montesano v. Xerox Corp., 117 F.Supp.2d 147, 162 (D.Conn.2000), aff'd in part and rev'd on an unrelated ground, 256 F.3d 86, 89 (2d Cir.2001). Plaintiffs therefore fail to state a claim under ERISA based on Defendants' alleged violation of 26 C.F.R. § 1.410(b)-4(b) or, in the alternative, under that regulation standing alone. 13 39