Blogging Employee Benefits

January 25, 2006

Vacation Trust Payments Not Counted As Service Credits

Filed under: Collective Bargaining, Litigation — Fuguerre @ 5:57 pm

The trustees and the tax authorities have not been in the dark for over thirty-eight years.

Contributions made to a collectively bargained vacation trust do not generate service credits that need to be counted for purposes of pension accruals, according to a 9th Circuit ruling affirming the district court. [Mora v. Construction Laborers Pension Trust for Southern California, CA9, No. 04-55594, 1/25/06]  Contributions had been made on behalf of Mora to a “vacation trust,” which had been negotiated to some extent to fill the void left by some employers not giving their workers paid vacation time. However, rather than counting vacation trust amounts as paid vacation time, the pension trust treated the arrangement as a “savings type vehicle” in which was accumulated “simply payment for wages in the same manner as a wage paymentis for the hour worked.”

Had Mora’s vacation trust payments counted as hours of service for paid vacation time, he would have had sufficient additional service to increase his pension benefit. Mora pointed to DOL regulation 29 CFR 2530.200b-2(a)(2), which defined an hour of service as including “each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed . . . due to vacation . . . .”

Mora’s difficulty, stated the court, was that payments to the vacation trust were not made on account of time when no duties were performed, but were merely a part of the payment for the period during which services were performed. To count those payments as hours would constitute impermissible double crediting of service, as the court viewed the arrangement. The court found consistency with that characterization in a 1966 IRS ruling and a 1967 ruling of the state’s Franchise Tax Board. Altogether, the court found Mora’s claim “a confusion largely caused by a name,” that is, that the vacation trust might have done better to have not called itself that.

Dissenting opinion viewed the character of the trust as extending beyond its name, ensuring that the industry’s “transitory workers are provided with paid vacation benefits similar to those provided to employees in other industries.”

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