## Facts

- Yankee Bank had a policy under which employees accrued paid vacation and, if unused, received a lump-sum cash payment for unused vacation upon termination.
- The lump-sum payments were made from the Bank’s general assets, not from a separate fund or trust.
- Two bank vice presidents were discharged and were not paid for accrued but unused vacation time.
- Massachusetts initiated criminal complaints against Richard N. Morash, the Bank’s president, under a wage-payment statute requiring payment of full wages, including vacation payments, on the date of discharge.
- The parties stipulated that the Bank agreed to pay cash in lieu of unused vacation time and that payment was made in lump sums from general assets upon termination.
- The Massachusetts Supreme Judicial Court held the policy was an ERISA “employee welfare benefit plan” and that ERISA preempted the state prosecution.
- The U.S. Supreme Court granted review.

## Issues

1. Whether a policy of paying discharged employees a lump sum for unused vacation time from the employer’s general assets is an “employee welfare benefit plan” under ERISA § 3(1).
2. If the policy is an ERISA plan, whether ERISA § 514(a) preempts a state criminal action enforcing a wage-payment statute.

## Decision

- The Supreme Court unanimously reversed.
- The Court held the Bank’s vacation-pay practice was not an ERISA “employee welfare benefit plan” where benefits were paid in lump sums from general assets.
- Because there was no ERISA plan, ERISA’s preemption provision did not bar Massachusetts from enforcing its wage-payment law through a criminal prosecution.
- The case was remanded for further proceedings consistent with the Court’s holding.

## Legal Principles

- ERISA’s definition of an “employee welfare benefit plan” covering “vacation benefits” does not extend to ordinary vacation payments that are fixed, payable at known times, and paid from an employer’s general assets as part of normal compensation.
- ERISA primarily targets risks associated with the accumulation, management, and payment of benefits from plan funds; routine wage-like payments do not implicate those concerns.
- Department of Labor regulations excluding specified “payroll practices” from ERISA coverage (including vacation pay paid from general assets) are entitled to deference as reasonable interpretations of ERISA’s terms.
- ERISA § 514(a) preempts only state laws that “relate to” an ERISA-covered plan; absent a covered plan, the preemption clause does not apply.

## Conclusion

A lump-sum vacation-pay policy funded from an employer’s general assets is a payroll practice rather than an ERISA welfare benefit plan, so ERISA does not preempt state wage-payment enforcement based on failure to pay accrued vacation at discharge.


Massachusetts v. Morash, 490 U.S. 107 (1989)