Brenda Tolbert, et al v. RBC Capital Markets Corp., et al

Filing

PUBLISHED OPINION FILED. [13-20213 Reversed and Remanded] Judge: WED , Judge: RHB , Judge: JWE Mandate pull date is 08/04/2014 [13-20213]

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IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 13-20213

July 14, 2014
Lyle W. Cayce
Clerk

BRENDA TOLBERT; JOSEPH RICE NEUHAUS, JR.; and LAWRENCE
GIFT, JR.,
Plaintiffs–Appellants,
v.
RBC CAPITAL MARKETS CORPORATION, now known as RBC Capital
Markets, L.L.C.; RBC CENTURA BANK, now known as RBC Bank, (USA);
RBC U.S. INSURANCE SERVICES, INCORPORATED,
Defendants–Appellees.
Appeal from the United States District Court
for the Southern District of Texas
Before DAVIS, BARKSDALE, and ELROD, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
The plaintiffs in this case are former employees of the defendant (“RBC”)
who participated in a wealth accumulation plan (“WAP”) during their periods
of employment. Giving rise to this lawsuit, portions of the plaintiffs’ WAP
accounts were forfeited when the plaintiffs left their jobs at RBC.

The

plaintiffs allege that the forfeitures amounted to violations of the Employment
Retirement Income Security Act (“ERISA”). The district court granted RBC’s
motion for summary judgment, concluding that the WAP is not subject to
ERISA because it is not an “employee pension benefit plan.” We conclude that

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the WAP is an “employee pension benefit plan” and therefore REVERSE and
REMAND.
I.
A.
An ambitious statutory scheme, ERISA is designed “to protect . . . the
interests of participants in employee benefit plans and their beneficiaries” by
(1) “requiring the disclosure and reporting to participants and beneficiaries”;
(2) “establishing standards of conduct, responsibility, and obligation for
fiduciaries of employee benefit plans”; and (3) “providing for appropriate
remedies, sanctions, and ready access to the Federal courts.”

29 U.S.C.

§ 1001(b). The primary enforcement mechanism is located in 29 U.S.C. § 1132,
which is titled “Civil enforcement.” See Aetna Health Inc. v. Davila, 542 U.S.
200, 208 (2004) (“This integrated enforcement mechanism, [§ 1132(a)], is a
distinctive feature of ERISA, and essential to accomplish Congress’ purpose of
creating a comprehensive statute for the regulation of employee benefit
plans.”). Section 1132(a) creates, among other things, a private cause of action
against a fiduciary who breaches his fiduciary duties vis-à-vis an employee
benefit plan.

See Tiblier v. Dlabal, 743 F.3d 1004, 1007 (5th Cir. 2014)

(declining to determine whether defendant satisfied “ERISA’s strict fiduciary
duties” because defendant “was not a fiduciary as defined by ERISA”).
Here, ERISA coverage turns not on whether the defendant is a fiduciary
but on whether the WAP is an “employee pension benefit plan” (or “pension
plan”) under 29 U.S.C. § 1002(2)(A). A “pension plan” is
any plan, fund, or program . . . maintained by an employer . . . to
the extent that by its express terms or as a result of surrounding
circumstances such plan, fund, or program
(i) provides retirement income to employees, or

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(ii) results in a deferral of income by employees for periods
extending to the termination of covered employment or
beyond,
regardless of the method of calculating the contributions made to
the plan, the method of calculating the benefits under the plan or
the method of distributing benefits from the plan. . . .
§ 1002(2)(A)(i)–(ii). Thus, if the WAP is a “pension plan,” ERISA applies, and
the plaintiffs may proceed with their lawsuit. If the WAP is not a “pension
plan,” ERISA does not apply, and the plaintiffs have no ERISA remedy.
B.
It is within this framework that we view the WAP. The “General Nature
and Purpose” of the WAP is announced at the beginning of the document:
[The WAP] is a nonqualified, deferred compensation plan pursuant
to which a select group of management or highly compensated
employees of [RBC] may be offered the opportunity to elect to defer
receipt of a portion of their compensation to be earned with respect
to the upcoming Plan Year. The [WAP] is designed to provide an
opportunity for such employees to invest a portion of their
compensation in tax-deferred savings and investment options in
an effort to support long-term savings and allow such employees
to share in [RBC’s] growth and profitability, if any.
A “Committee” of RBC executives administers the WAP.

The amounts

funneled into the participating employees’ WAP accounts fall into three
categories: (1) Voluntary Deferred Compensation; (2) Mandatory Deferred
Compensation; and (3) Company Contributions.
Voluntary Deferred Compensation (i.e., the percentage of a participating
employee’s compensation that the employee elects to defer) is always fully
vested.

Mandatory Deferred Compensation (i.e., the percentage of an

employee’s compensation that the Committee designates as a required
deferral) and Company Contributions (i.e., contributions made by RBC,
including matching contributions and discretionary contributions) vest later,
on dates determined by the Committee. Notwithstanding the Committee’s
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vesting dates, Mandatory Deferred Compensation and Company Contributions
vest immediately upon either the death of the employee or the separation of
the employee. In order for the amounts to vest at the time of an employee’s
separation, certain criteria must be met; if the criteria are not met, then the
employee forfeits the unvested amounts. 1
A participating employee is required to elect a distribution date.
Generally, a participating employee may elect to have her account distributed
either “In-Service” (i.e., during her employment) or upon separation from
employment. For the latter choice, “[a]vailable forms of distribution include a
single lump sum or, if a Participant meets the requirements for Retirement at
the time of Separation, substantially equal annual installments for up to ten
years.” If an employee fails to elect a distribution option, distribution occurs
by default promptly upon the vesting date. Distribution also occurs promptly
upon death or disability. If an employee is terminated “for Cause” prior to the
distribution of her account balance, all Mandatory Deferred Compensation and
Company Contributions are forfeited.
Under the heading “ERISA Matters,” the WAP speaks to the term at
issue here—“employee pension benefit plan”:
Although the [WAP] is not intended to be a tax-qualified plan
under [26 U.S.C. §] 401, the [WAP] might be determined to be an
“employee pension benefit plan” as defined by ERISA. If the
[WAP] is determined to be an “employee pension benefit plan,”
[RBC] believes that it constitutes an unfunded plan of deferred
compensation maintained for a select group of management or
highly compensated employees and, therefore, exempt from many
ERISA requirements. A statement has been filed with the

Vesting where the employee has separated from employment is dependent on the
employee either (1) entering into a “business transition agreement” or (2) satisfying the
requirements “under the Plan for Retirement” and entering into a non-competition
agreement. These provisions are not central to the dispute.
1

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Department of Labor to comply with ERISA reporting and
disclosure requirements.
C.
Each plaintiff in this case participated in the WAP as an RBC employee.
Brenda Tolbert worked as an administrative assistant at RBC and participated
in the WAP until 2009, when she was terminated for cause. 2 Joseph Rice
Neuhaus, Jr., and Lawrence Gift, Jr., were financial consultants at RBC.
Neuhaus and Gift participated in the WAP until they voluntarily resigned in
2011, without satisfying the separation criteria. Under the terms of the WAP,
the amounts in the plaintiffs’ accounts that had not yet vested (in the case of
Neuhaus and Gift) or had not yet been distributed (in the case of Tolbert) were
forfeited.
The plaintiffs do not quibble over whether the forfeitures complied with
the terms of the WAP. Instead, the plaintiffs allege in this lawsuit that the
forfeiture provisions violate ERISA’s mandates. 3 The plaintiffs assert a claim
for breach of fiduciary duty under § 1132(a)(2) and a claim for equitable relief
under § 1132(a)(3). RBC filed a motion for summary judgment on the grounds
that the WAP does not constitute an “employee pension benefit plan” and, in
the alternative, that the WAP is an exempt “top hat” plan. The district court
granted the motion on the first ground, without deciding whether the WAP
constitutes a “top hat” plan.
II.
We review a grant of summary judgment de novo.

Clayton v.

ConocoPhillips Co., 722 F.3d 279, 290 (5th Cir. 2013). Generally, whether
ERISA covers a given plan is a mixed question of fact and law, but where the
2

The facts underlying Tolbert’s termination are not at issue here.

3

Tolbert filed the lawsuit; Neuhaus and Gift joined the lawsuit later.

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underlying factual circumstances are undisputed, we have treated the question
as one of law to be reviewed de novo. Id.
A.
As indicated above in Part I.A, the question before us is a discrete one:
whether, “by its express terms or as a result of surrounding circumstances,”
the WAP (i) “provides retirement income to employees” or (ii) “results in a
deferral of income by employees for periods extending to the termination of
covered employment or beyond.” See § 1002(2)(A)(i)–(ii).
The parties offer competing views of the statutory text. The plaintiffs
argue—through the lens of case law indicating that ERISA must be “liberally
construed”—that “all Congress requires of an ERISA pension is that it provide
employees an ability, by the plan’s express terms or surrounding
circumstances, to defer current compensation until retirement or until
separation or beyond.” RBC argues in response that the WAP is not a “pension
plan” because “the primary purpose of the WAP is not to provide retirement or
deferred post-termination income, but rather, to attract and retain key
employees by awarding bonuses and other . . . incentives.” RBC thus takes a
narrow view of the statute.
To resolve the dispute, we begin by noting that the definition of “pension
plan” in § 1002(2)(A) is neither “algorithmic” nor meant “to be read as an elastic
girdle that can be stretched to cover any content that can conceivably fit within
its reach.” Murphy v. Inexco Oil Co., 611 F.2d 570, 575 (5th Cir. 1980). Turning
to subsection (i) specifically, we first addressed the phrase “provides retirement
income” in 1980: “The words ‘provides retirement income’ patently refer only
to plans designed for the purpose of paying retirement income whether as a
result of their express terms or surrounding circumstances.” Id. (emphasis
added). We reiterated that interpretation in 2011. Boos v. AT&T, Inc., 643
F.3d 127, 134 (5th Cir. 2011). We also reinforced the notion that a plan is not
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a “pension plan” under subsection (i) if “‘the primary thrust of the plan is to
reward employees during their active years.’” Id. at 133 (quoting Murphy, 611
F.2d at 574).
With this interpretation in mind, we agree with the district court and
RBC insofar as subsection (i) is concerned. The record reflects that the WAP
was not designed to provide retirement income, considering, for example: the
WAP’s statement of purpose (announcing the goal of allowing “employees to
share in [RBC’s] growth and profitability”) and the de facto distribution date
(immediately upon vesting). The plaintiffs have not demonstrated otherwise.
Accordingly, we conclude that the WAP does not “provide[] retirement income”
within the meaning of subsection (i).
If the WAP is to be considered a “pension plan,” then, it must fall within
subsection (ii). On appeal, RBC conflates subsections (i) and (ii). RBC argues
that the “critical inquiry” in this case turns on the above-quoted Murphy and
Boos language (“designed for the purpose of paying retirement income”),
without distinguishing between the two subsections. We reject that approach.
The plain language of the statute makes clear that subsection (ii) is separate
and distinct from subsection (i). Under subsection (ii), the critical inquiry is,
according to the text of the statute, whether the plan “results in a deferral of
income by employees for periods extending to the termination of covered
employment or beyond.”

Our court has never held that, to fall within

subsection (ii), a plan must be designed for the purpose of paying retirement
or post-termination income.

Moreover, RBC’s reading would render the

entirety of subsection (ii) superfluous, an unacceptable result. See United
States v. Butler, 297 U.S. 1, 65 (1936) (“These words cannot be meaningless,
else they would not have been used.”); see also Corley v. United States, 556 U.S.
303, 314 (2009) (recognizing that “one of the most basic interpretative canons”
is that a “statute should be construed so that effect is given to all its provisions,
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so that no part will be inoperative or superfluous, void or insignificant”
(internal quotation marks omitted)); Antonin Scalia & Bryan A. Garner,
Reading Law: The Interpretation of Legal Texts 174 (2012) (“If possible, every
word and every provision is to be given effect (verba cum effectu sunt
accipienda). None should be ignored. None should needlessly be given an
interpretation that causes it to duplicate another provision or to have no
consequence.” (footnote omitted)).
In analyzing subsection (ii), we begin with the predicate—“results in a
deferral of income.” The Supreme Court had occasion recently to construe the
ordinary meaning of the word “results” in Burrage v. United States, 134 S. Ct.
881 (2014). The Court explained that “[a] thing ‘results’ when it arises as an
effect, issue, or outcome from some action, process or design.” Id. at 887
(internal quotation marks and alterations omitted) (citing 2 The New Shorter
Oxford English Dictionary 2570 (1993)). 4 Accordingly, subsection (ii) provides
that a “plan” is a “pension plan” when a “deferral of income” arises as an “effect,
issue, or outcome” from that plan. The remaining text of subsection (ii)—“by
employees for periods extending to the termination of covered employment or
beyond”—indicates that the employees must defer the income to the end of
their employment or beyond.
Our precedent is in accord. Murphy involved an employer that, through
a “plan,” assigned its employees “royalty interest[s]” in a drilling project.
Murphy, 611 F.2d at 572–73. We explained that the payments from the royalty
interests did not result in a “deferral of income”:
The record before us does not establish that any deferral of income
ensues from the plan; royalty is paid to the employee annually as
The Court in Burrage was interpreting a drug crime statute. See 21 U.S.C.
§ 841(b)(1)(A)–(C) (providing for increased sentence “if death or serious bodily injury results
from the use of [the controlled] substance”). The word “results” retains its ordinary meaning,
regardless of whether it appears in Title 21 or Title 29 of the United States Code.
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it is received. . . . Under the statutory definition, therefore, the
mere fact that some payments under a plan may be made after an
employee has retired or left the company does not result in ERISA
coverage.
Id. at 575. The “mere fact” of post-termination payments was thus the sort of
scenario around which we declined to stretch the “elastic girdle.” See id. (“Any
outright conveyance of property to an employee might result in some payment
to him after retirement.”). Boos built upon that interpretation. In Boos, we
held that, to establish coverage via subsection (ii), employees “must show that
they forewent income at some point in exchange for receiving income from [the
plan] at a later date.” Boos, 643 F.3d at 134. The plaintiffs in Boos were
retirees who received reimbursements for their telephone expenses from their
former telephone-company employer. Id. As a result, we held, the plaintiffs
had no right to income until they purchased telephone services, and therefore,
the plaintiffs had not foregone any income in exchange for receiving income at
a later date. Id. at 134–35 (citing Rathbun v. Qwest Commc’ns Int’l, Inc., 458
F. Supp. 2d 1238, 1248 (D. Colo. 2006) (“[T]he program reimbursements cannot
be characterized as deferred income because employees and retirees have no
entitlement to any funds until they have expended the reimbursable amount
on telephone services.”)). We analogized to Murphy in concluding that the
nature of the reimbursements was “such that the beneficiaries are paid over
time, as the right to the income is realized.” Boos, 643 F.3d at 135.
We conclude that the plain language of the statute and the
interpretations expressed in Murphy and Boos all compel one result: The WAP
is a “pension plan” under subsection (ii). The WAP’s “express terms” reveal
themselves at the outset of the document. The first section of the WAP, the
statement of purpose, refers to the WAP as a “deferred compensation plan” and
explains that, by design, employees have the option “to defer receipt of a
portion of their compensation to be earned with respect to the upcoming Plan
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Year.”

Later sections of the WAP contain provisions for both Voluntary

Deferred Compensation and Mandatory Deferred Compensation, terms that
plainly refer to income that is deferred. A deferral of income therefore “ensues
from” (or, “arises as an effect of”) the express terms of the WAP. See Murphy,
611 F.2d at 575. Put another way, by participating in the WAP, the plaintiffs
have “fore[gone] income . . . in exchange for receiving income” at a later date.
See Boos, 643 F.3d at 134.
The “express terms” of the WAP also contemplate employees deferring
income “to the termination of covered employment or beyond.” The vesting
sections explain that, upon separation, unvested amounts vest immediately.
The distribution sections contain further support: “If distribution is made due
to Separation,” then “[a]vailable forms of distribution include a single lump
sum or, if a Participant meets the requirements for Retirement at the time of
Separation, substantially equal annual installments for up to ten years.”
Accordingly, the WAP fits comfortably within the meaning of subsection (ii). 5
In concluding that the WAP is a “pension plan,” we reject RBC’s
arguments rooted in a Department of Labor regulation, 29 C.F.R. § 2510.3–
2(c). That regulation provides:
[T]he terms “employee pension benefit plan” and “pension plan”
shall not include payments made by an employer to some or all of
its employees as bonuses for work performed, unless such
payments are systematically deferred to the termination of
covered employment or beyond, or so as to provide retirement
income to employees.
Id. To begin, RBC admits that the WAP is not a “bonus program” under
§ 2510.3–2(c)—indeed, RBC never argued otherwise at the district court. For
good reason: The WAP’s statement of purpose provides that the WAP is a

Grounding our decision in the WAP’s “express terms” obviates any need to consider
the “surrounding circumstances.” See § 1002(2)(A).
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“deferred compensation plan” allowing employees “to defer receipt of a portion
of their compensation to be earned with respect to the upcoming Plan Year.”
This is not a bonus plan. Cf. Emmenegger v. Bull Moose Tube Co., 197 F.3d
929, 933 (8th Cir. 1999) (“The [phantom stock plan] thus sets up a classic
‘bonus’ situation: reward (higher cash value [for the participants’ shares]) for
superior performance (higher corporate earnings).”) RBC urges us nonetheless
to apply the regulation’s conditional clause—“unless such payments are
systematically deferred”—to hold that the WAP is not a “pension plan.” We
decline to do so. The regulation is designed to “clarif[y] the limits of the defined
terms ‘employee pension benefit plan’ and ‘pension plan’ . . . by identifying
certain specific plans, funds and programs which do not constitute employee
pension benefit plans.” § 2510.3–2(a). The WAP is not among the “specific
plans” identified in § 2510.3–2(c), and we therefore decline to require the WAP
to satisfy the “systematically deferred” condition. In other words, the WAP fits
comfortably within the meaning of § 1002(2)(A)(ii), and nothing in §2510.3–2(c)
takes it out.
Reliance on Emmenegger is thus misplaced. RBC argues that, under
Emmenegger, “the mere option to defer receipt of benefits until retirement or
termination does not trigger ERISA coverage.” RBC thus argues that the
WAP’s “option” to defer income means that ERISA does not apply. We have no
quibble with Emmenegger; however, that case was premised on the conclusion
that the plan at issue was a bonus program under 29 C.F.R. § 2510.3–2(c).
Emmenegger, 197 F.3d at 932. The Eighth Circuit therefore reasoned that the
option to defer the receipt of income did not bring the bonus program within
§ 2510.3–2(c)’s “systematically deferred” exception. See Emmenegger, 197 F.3d
at 933 (“[T]he shares, or more accurately the redemption thereof, cannot be
characterized as ‘payments [that] are systematically deferred’ to termination
or ‘so as to provide retirement income.’” (quoting § 2510.3–2(c)); see also
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McKinsey v. Sentry Ins., 986 F.2d 401, 406 (10th Cir. 1993) (“The plan permits
a sales representative to withdraw the vested portion of her/his allocations at
any time during the course of her/his employment; it does not provide for
the systematic deferral of payment.”). Here, because the regulation does not
apply, the cases applying that regulation are not persuasive. Furthermore, the
WAP’s option to defer income, which RBC characterizes as a “flexible benefit,”
does not change the fact that the “express terms” of the WAP “result[] in a
deferral of income.” 6
B.
This case does not end with § 1002(2)(A)(ii). Although the district court
did not reach the issue, RBC argues in its brief that, regardless of whether the
WAP is a “pension plan,” the WAP is an exempt “top hat” plan. A “top hat”
plan is a plan that is (1) unfunded and (2) maintained “primarily for the
purpose of providing deferred compensation for a select group of management
or highly compensated employees.” § 1101(a)(1). Such a plan is exempt from
the fiduciary duties imposed by ERISA. Id.; Reliable Home Health Care, Inc.
v. Union Cent. Ins. Co., 295 F.3d 505, 512 (5th Cir. 2002). The WAP itself
contains a statement that RBC believes that the WAP “constitutes an

We are aware of the various policy-based arguments presented in the amicus brief
before us and at oral argument. Amicus and RBC argue that financial services firms face a
problem with retaining financial advisors and that plans such as the WAP are designed to
combat that problem. Amicus further argues that subjecting plans such as the WAP to
ERISA would “eliminate a crucial employee-retention tool in the financial services industry.”
The financial services industry is free to decide what is best for the financial services
industry. We decline, however, to engage in any policy debate that would affect how we
interpret this statute. Indeed, “[i]t is not our role to do so.” United States v. O’Banion, 943
F.2d 1422, 1433 (5th Cir. 1991). We instead apply ERISA as written. See White ex rel. White
v. Ascension Parish Sch. Bd., 343 F.3d 373, 377 (5th Cir. 2003) (“Our role under the
[Individuals with Disabilities Education Act] is purposefully limited. . . . [I]t is the narrow
one of determining whether state and local school officials have complied with the Act.”); see
also Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 626–27 n.9 (5th Cir. 2013) (declining
to look beyond the plain text in interpreting the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010).
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unfunded plan of deferred compensation maintained for a select group of
management or highly compensated employees and, therefore, exempt from
many ERISA requirements.” We do not decide whether it is or is not. The
resolution of the dispute over the “top hat” exemption may require factual
determinations regarding, for example, selectivity and high compensation.
The district court is best equipped to decide this issue in the first instance.
REVERSED and REMANDED.

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