Investment Banker as a Professional Employer

In 2010, there was an interesting PBGC Appeal Board decision regarding the definition of professional employer. An appeal was brought by a participant of the Compass Capital Partners, Ltd Defined Benefit Retirement Plan (the ‘Plan’) because the PBGC had determined that the Plan was not covered by the PBGC, and thus the participant was not eligible for benefits from the PBGC. The PBGC had determined that Compass Capital Partners (‘Compass’) was a professional employer and it was undisputed that there were always fewer than twenty-five active participants. So, the appeal focused on whether Compass was a professional employer with the PBGC arguing Compass was and the participant arguing that Compass was not.

The PBGC said that Compass was a professional firm because it met both of the following conditions:
• Compass provided professional services, and
• Compass was owned by professionals.

In determining that Compass provided professional services, the PBGC focused on the fact that the advice that Compass provided was intellectual in character and required the consistent use of discretion and judgment. This determination was partially based upon information on Compass’s website. Compass’s website described their expertise and industry knowledge. From this description, the PBGC concluded Compass rendered professional advice to its clients.

In determining that Compass was owned by professionals, the PBGC looked at the education of Compass’s partners citing that all of them had MBAs. The participant argued that this criteria was too broad, but the PBGC Appeal Board was unswayed. Instead, the PBGC looked at the education and experience of each partner and concluded that they were professionals.

In determining whether an employer is a professional employer for PBGC coverage purposes, it is important to look beyond the list of enumerated professions in the PBGC regulations and look at the definition of a professional employer. Also, employers should keep in mind that the PBGC and other government agencies may use information on employer websites.