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Under the Employment Retirement Income Security Act’s minimum participation requirements, an employer may preclude hourly employees from participating in a benefits plan, the 3rd U.S. Circuit Court of Appeals has ruled. In the case of first impression, the court agreed with the employer that the ERISA requirements allowed it to deny participation to employees for any reason not based on age or length of service. In Bauer v. Summit Bancorp, Judge James C. Hill, sitting by designation from the 11th U.S. Circuit Court of Appeals, said he found guidance from federal case law coming to the exact same conclusion regarding leased employees. “Barring a contrary directive [from ERISA], we are required to enforce the plan as written, as our judicial amendment is not authorized,” Hill said. According to the opinion, the plaintiff, John Bauer, worked as an hourly employee for Summit Bancorp from 1977 to 1995. Between 1995 and 1999, Bauer was paid on a salaried basis. Bauer retired in 1999. He applied for benefits under Summit’s retirement plan and was told by Summit’s benefits administrators that he was only eligible for benefits for his 3.667 years of employment as a salaried employee, the opinion said. The 18 years Bauer worked on an hourly basis were counted only toward satisfying the plan’s five-year vesting period, Hill said. Bauer appealed to Summit’s benefits committee, requesting benefits retroactive to 1977. The committee denied Bauer’s request. He filed an action in federal district court, claiming the plan violated ERISA by excluding hourly employees. The court granted Summit’s motion for summary judgment, and Bauer appealed to the 3rd Circuit. Bauer argued that under ERISA, he was entitled to participate in the plan for the entirety of his employment with Summit. The plan’s minimum participation requirements stated an employee could participate in the plan on the first of the month following his or her 21st birthday or his or her completion of one year of service, whichever came later. As Hill explained, a plaintiff seeking to establish participation must prove he or she is a common-law employee and that he or she is eligible to receive a benefit under the plan “according to the language of the plan itself.” The court will enforce the plan as it is written unless it finds ERISA “contains a ‘contrary directive,’” Hill said. Hill said there has been much litigation over benefit plans that exclude hourly employees, with the courts focusing on whether the plan discriminated in favor of highly compensated employees rather than whether the salaried-employee-only exclusion was allowable by statute. Bauer’s argument, that the plan violated ERISA’s minimum participation requirement, was a novel question for the courts, Hill said. “By not crediting his years of hourly employment, the plan, Bauer argues, imposed an additional requirement not sanctioned by statute or regulation,” Hill said. Bauer argued any employee who worked at least 1,000 hours per year was eligible for benefits for that year. He also claimed Summit could not propose a third minimum participation requirement after the 21st birthday or one-year-of-service requirements. Hill said Bauer did not point to any contrary directive in ERISA. He relied, instead, on an unpublished case from the Southern District of New York, Ambris v. Bank of New York, from 1997. The employee in Ambris also argued exclusion of hourly employees from participation was impermissible. The New York court denied the defendants’ motion to dismiss, having heard no evidence and relying solely on the plaintiff’s complaint. Hill noted that the Ambris court provided no “reasoning.” It only found “it did not appear that the plaintiff had not stated a claim upon which relief could be granted,” Hill said. Summit argued the minimum participation requirements do not prevent an employer from denying employee participation for reasons outside of age or length of service. The court agreed. “Summit had no duty to create the plan in this case,” Hill said. “It also had no duty to provide benefits to every employee. Summit could limit plan participation to certain groups or classifications of employees, as long as that limitation was not based upon age or length of service.” The court found guidance, and analogies to hourly workers, in case law regarding leased employees, citing cases from the 4th, 5th, 10th and 11th Circuits. The 5th Circuit, for example, decided the validity of a plan that excluded leased employees in Abraham v. Exxon Corp., Hill noted. The court also decided that ERISA’s minimum participation requirements did not preclude an employer from denying participation for reasons other than age and length of service.

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