Advisory Opinion 1978-23A

Dear Mr. Jones:

This is in response to your letter of August 14, 1978, requesting an advisory opinion regarding coverage under the Employee Retirement Income Security Act of 1974 (ERISA). Specifically you ask whether a proposed payment program of Columbus McKinnon Corporation (the Corporation) would constitute an employee benefit plan within the meaning of section 3(3) of ERISA.

You advise that the Corporation currently maintains a pension plan qualified under Internal Revenue Code section 401(a). However, the Corporation wishes to start additional payments to certain former employees. To receive such a payment, the former employees or their beneficiaries would have to be currently receiving pension benefits from the qualified plan and the former employees retired or have otherwise terminated service on or before December 31, 1976. The purpose of the proposed payments would be to partially offset the effect of inflation upon pension benefits. You further represent that the proposed payments will not be granted for more than 1 year at a time, that present employees will not be informed about the payments, that the Corporation will not be legally obligated to make the payments, and that each recipient will be notified annually that the payments may be terminated at any time.

Section 3(3) of ERISA defines an "employee benefit plan" to include both pension benefit plans and welfare benefit plans. As there is nothing in your letter which would indicate the proposed payments would constitute an employee welfare benefit plan, this letter shall address only whether or not the proposed payments would constitute an employee pension benefit plan.

Section 3(2) of ERISA defines an employee pension benefit plan to include programs established by an employer which either by their express terms or as a result of surrounding circumstances provide retirement income to employees. In Department of Labor regulation §2510.3-2 (issued August 15, 1975), the Department identified certain payments which would not constitute employee pension benefit plans.

Specifically §2510.3-2(e) excluded certain gratuitous payments to pre-ERISA retirees from the term "employee pension benefit plan" if:

1. payments are made out of the general assets of the employer,
2. former employees separated from the service of the employer prior to September 2, 1974,
3. payments made to such employees commenced prior to September 2, 1974, and
4. each former employee receiving such payments is notified annually that the payments are gratuitous and do not constitute a pension plan.

The Department has indicated that supplemental payments to retirees which do not fully conform with the regulation may nevertheless not be part of an employee pension benefit plan. Subsequent to the issuance of this regulation, the Department expressed the view, for example, that payments outside a pension plan for persons who retire prior to the end of 1976 do not constitute an employee pension benefit plan so long as certain criteria are met. See news release USDL 76-707, April 26, 1976 (copy enclosed).

Therefore, based on your representations, it is the position of the Department of Labor that the Corporation's proposed payments would not constitute an employee pension benefit plan within the meaning of ERISA section 3(2).

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, this letter is issued subject to the provisions of the procedure including section 10 thereof relating to the effect of advisory opinions.