Musmeci v. Schwegmann Giant Super Markets, Inc.
332 F.3d 339, 2003 WL 21221728 (2003)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An employer's program providing non-cash, in-kind benefits to retirees constitutes an "employee pension benefit plan" under the Employee Retirement Income Security Act (ERISA) if the benefits represent "retirement income," which includes anything that has a readily ascertainable value in terms of currency.
Facts:
- In 1985, Schwegmann Giant Super Markets (SGSM), a grocery store chain, implemented a grocery "Voucher Plan" for its retirees.
- To qualify, an employee needed to have completed 20 years of service, reached age 60, and held a supervisory position for at least one year at retirement.
- Eligible retirees received a monthly set of four vouchers worth a total of $216, redeemable for goods only at SGSM stores.
- The Voucher Plan was not funded by a separate trust; instead, the vouchers were funded from SGSM's general revenue.
- SGSM deducted the total face value of the vouchers as a business expense on its tax returns under the category of "retirement plans, etc." and issued IRS form 1099-R to each recipient.
- In 1997, SGSM experienced financial losses and sold the business.
- One week before the sale, SGSM's chief executive officer, John F. Schwegmann, Sr., sent a letter to all voucher recipients informing them that the program was being terminated immediately.
- SGSM made no provision for the continuation of the Voucher Plan after the sale of the business.
Procedural Posture:
- Former employees of SGSM (Plaintiffs) filed a class-action lawsuit against SGSM, its related entities and owners, and its insurer, USF&G (Defendants), in the United States District Court for the Eastern District of Louisiana.
- The suit alleged violations of ERISA and Louisiana state law.
- The district court certified the matter as a class action.
- Following a bench trial, the district court dismissed the state law claims but ruled in favor of the Plaintiffs on the ERISA claims.
- The district court held that the Voucher Plan was an ERISA pension plan, the defendants breached their fiduciary duties, and the Plaintiffs were entitled to monetary relief.
- The district court also found the insurer, USF&G, liable and held that its policy's Self-Insured Retention (SIR) applied only once to the entire class claim.
- The Defendants appealed the judgment to the United States Court of Appeals for the Fifth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an employer's grocery voucher program, which provides retirees with non-cash, in-kind benefits, constitute an 'employee pension benefit plan' providing 'retirement income' under the Employee Retirement Income Security Act (ERISA)?
Opinions:
Majority - W. Eugene Davis
Yes, an employer's grocery voucher program that provides retirees with non-cash benefits is an employee pension benefit plan under ERISA because the vouchers represent 'retirement income.' The court affirmed the district court's finding that the plan fell under ERISA's purview. The court's reasoning was that although ERISA does not define 'income' or require that benefits be paid in cash, the term should be interpreted broadly. Citing the close relationship between ERISA and the Internal Revenue Code (IRC), the court adopted the IRC's broad definition of income as anything that can be valued in currency. The vouchers had a readily ascertainable cash value on their face, and SGSM's own tax treatment of the vouchers—deducting them as a retirement plan expense and issuing 1099-R forms—confirmed their status as income. The court rejected the argument that the program was an excluded 'sale to employees,' finding it was more akin to a gift. The court also held that the proper remedy for the denied benefits was their monetary value and that SGSM and its CEO, Mr. Schwegmann, were liable as fiduciaries for failing to properly fund the plan. However, the court vacated the judgment against the insurer, USF&G, concluding that the insurance policy's self-insured retention (SIR) of $250,000 applied to each individual retiree's claim, none of which met that threshold.
Analysis:
This decision broadens the scope of ERISA by establishing that 'retirement income' is not limited to cash payments and can include in-kind benefits. It sets a precedent that employers cannot evade ERISA's stringent fiduciary and funding requirements by structuring retirement benefits in a non-cash form, so long as those benefits have a readily ascertainable monetary value. The court's use of the Internal Revenue Code to define a key ERISA term creates a significant analytical link between the tax treatment of a benefit and its status as an ERISA plan. This holding cautions employers that informal, unfunded promises of valuable post-retirement perks may be deemed formal pension plans with substantial legal obligations.
Unlock the full brief for Musmeci v. Schwegmann Giant Super Markets, Inc.