Source: https://www.executiveloyalty.org/lit---nonqualified-plan-benefits.html
Timestamp: 2019-04-20 06:29:45+00:00

Document:
​"on the present record, we have a strong showing that Mechanics Bank cheated Buster out of his SERP benefits by telling him the release would not affect his pension yet, once the ink was dry, the bank reversed field and insisted that the release had done just that."
"This order holds that 'appropriate equitable relief' under ERISA Section 502(a)(3) may extend to remedy inequitable conduct pertaining to a supposed waiver of plan rights."
2015.09.23 Lost Tax Benefits Held Not Recoverable on Plan Termination. In Taylor vs NCR, a N.D. Georgia court cited extensive precedent to support its conclusion that "The Plan expressly grants the Committee the right to amend or modify the Plan, and Taylor cannot maintain a claim under Section 502(a)(1)(B) for the "adverse effect" of tax consequences. Taylor fails to allege that the application of a present value reduction factor or any other assumption resulted in a lump sum payment that was actuarially less than his accrued benefit under the Plan. "
2015.01.06 Nonqualified Plans and Late FICA Withholding – Retirees Win Round 1 of Class Action. On January 6th, a Michigan district court granted summary judgment to retirees who paid increased FICA taxes on their deferred compensation and SERP benefits because of Henkel Corp.’s failure to withhold FICA when the payments were earned (rather than later when they were paid). Employers should take note because the court granted class action status -- and found for the retiree class – for three main reasons that are worth self-inspection. First, Henkel’s initial letter to retirees informed them that FICA taxes had “not been properly withheld.” That was a costly admission, especially because the employer later sought to argue that the tax laws permit alternative methods for FICA compliance, and they had merely pursued one that was allowable but less favorable to retirees. Worse for Henkel, the tax provision within its plan expressly required tax withholding in the year in which deferrals occurred. Those reasons complemented the district court’s third finding: namely, that the purpose of the underlying plan was tax deferral, and that Henkel controlled the time of FICA withholding and should have administered the plan in a manner favorable to plan participants.
Whether or not the Henkel Corp. decision survives if appealed, those who administer supplemental retirement, deferred compensation, and other nonqualified plans should examine how they are handling FICA withholding – and how their plans could be revised to defuse litigation risks. If stumbles are found, thoughtful remediation is key. Finally, recent ERISA litigation favorable to plan employers and administrators warrants consideration of controls through plan amendments adding internal statutes of limitations for claims, and forum designation provisions. Amendments of this kind may streamline administration and reduce litigation risks not only for nonqualified plans, but also for 401(k), pension, and welfare plans.
Backstory: Previously, in a decision dated 12/12/2013 in Davidson v. Henkel Corp, the E.D.MI court refused to dismiss the underlying ERISA claims, which on the following ground: "Defendants may be liable under this theory [i.e., breach of ERISA fiduciary duty] because the Plan gave them discretionary control over participants’ funds and their tax treatment and the Plan authorized and obligated Defendants to properly manage the tax withholding from Plaintiff’s benefits, which they purportedly admitted to mishandling."
Based on the regulations and caselaw, this Court concludes that top hat plans are subject to the full and fair review with one caveat - the full and fair review need not be undertaken by a "fiduciary" as there is no fiduciary relationship between administrator and beneficiary in top hat plans. Indeed, the "full and fair review" provision of ERISA is "itself a component of good-faith plan administration." Goldstein, 251 F.3d at 447 n.9. See "Standard of Review" below.
2016.01.29 NQDC Claims Period Three Years from Employer's Notice of Plan Vesting Terms. In Bond v. Marriott, the 4th Circuit first held that Maryland's three year statute of limitations applied to the benefit collection claim asserted by a participant in Marriott's non-qualified plan. The court then wrestled with when that period began, because the participant never made a claim under the plan.
Applying this rule here, we conclude that the Appellants' claims are untimely. To begin, the 1978 Prospectus—in a section entitled "ERISA"—plainly stated that the Retirement Awards did not need to comply with ERISA's vesting requirements. The Prospectus explained that "inasmuch as the Plan is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a selected group of management or highly compensated employees," the Plan was a top hat plan "exempt from the participation and vesting, funding and fiduciary responsibility provisions" of ERISA. (J.A. 298). This language clearly informed plan participants that the Retirement Awards were not subject to ERISA's vesting requirements, the very claim made by the Appellants here. This language was included in prospectuses distributed in 1980, 1986, and 1991.
Marriott informed the Appellants in 1978 that the Plan was exempt from ERISA's vesting requirements. The Appellants then waited more than 30 years to file suit, alleging that the Plan violates ERISA's vesting requirements. . . . Here, Marriott clearly repudiated any right the Appellants had to the vesting requirements of ERISA in 1978.
Employers should take note of Barton v. Martha Stewart, in which a S.D.N.Y. court dismissed a former General Counsel's severance claim because it was untimely due to a one-year statute of limitations applicable under Delaware law (which the plan designated as controlling, and which NY law enforced because of the employer's incorporation there). More at Executive Severance Litigation.
Federal Common Law controls re ERISA Plan Benefits -- see Aramony v. United Way Replacement Benefit Plan, 191 F.3d 140, 147, 149-150 (2d Cir. 1999; In re New Valley Corp., 89 F.3d 143, 149 (3d Cir. 1996).
2010.Aug.30 CA Court Enforces Forfeiture Despite Wage Law. Claims under California's wage protection law were dismissed because incentive compensation does not constitute "wages" unless “all conditions agreed to in advance for earning those wages have been satisfied,” forfeiture of unvested awards was proper where employment terminated before vesting of the awards pursuant to the terms of Merrill Lynch’s Wealthbuilder Plan." Also dismissed, for the same reason, were claims that the forfeitures violated California’s Unfair Competition Law §§17200 and 16600, but note the court’s dicta that “courts have found violations of Section 16600 when employees forfeit some benefit if they later work for a competitor.” Callan v. Merrill Lynch (S.D. CA).
2012.Sept.09 Second Circuit's Top Hat Decision Leaves Open Question re Deference. A well-designed severance plan has the potential to defeat claims, and that occurred in AIG v. Guterman. The case involved an executive who refused a lesser position, and then contested AIG's denial of severance benefits because they were payable for involuntary terminations, not resignations. As the decision notes, "the Plan expressly precludes departing employees from asserting constructive discharge in support of a severance denial claim." The Second Circuit dismissed the executive's claim, but expressly declined to address whether to review the benefits denial under a de novo standard or under the arbitrary and capricious standard set forth in the plan.
Guterman maintains, however, that with respect to top hat plans – particularly those administered by entities within the corporate structure, which in some respect operate under an inherent conflict of interest – we should apply a less deferential standard of review, even when the plan expressly vests the administrator with discretion to interpret its terms. This is a matter of some debate in the circuit courts of appeal. Compare Goldstein v. Johnson & Johnson, 251 F.3d 433, 441-44 (3d Cir. 2001) (holding Firestone Tire analysis inapplicable to top hat plans), with Comrie v. IPSCO, Inc., 636 F.3d 839, 842 (7th Cir. 2011) (applying Firestone Tire and rejecting Goldstein’s analysis). We have not previously addressed this question head-on. See Paneccasio v. Unisource Worldwide, Inc., 532 F.3d 101, 108-09 (2d Cir. 2008) (applying arbitrary and capricious review to administrator’s determination to terminate top hat plan without examining whether a different standard of review might apply). We do not reach this question here, however, because, even making a de novo determination on the administrative record, we reach the same conclusion as did the Administrator.
As for the fact that the administrator of a top-hat plan is not an ERISA fiduciary: One circuit has held that interpretations by a non-fiduciary must be ignored, and that courts must make independent decisions, no matter what a plan's governing documents say. Goldstein v. Johnson & Johnson, 251 F.3d 433, 442-43 (3d Cir. 2001). Another has adopted an intermediate standard divorced from contractual language. Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir.2006). We don't get it. When the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that judges presumptively make independent decisions (often, though misleadingly, called "de novo review", see Krolnik v. Prudential Insurance Co., 570 F.3d 841, 843 (7th Cir.2009)), about claims to benefits under ERISA, it derived this conclusion from an analogy to trust law. The Court understood trust law to call for a non-deferential judicial role. ERISA fiduciaries are like common-law trustees, the Justices thought, so judges normally should make independent decisions in ERISA litigation. In Firestone's framework, deferential review is exceptional, authorized only when the contracts that establish the pension or welfare plan confer interpretive discretion in no uncertain terms. 489 U.S. at 111, 109 S.Ct. 948. See also, e.g., Diaz v. Prudential Insurance Co., 424 F.3d 635 (7th Cir.2005).
Under Firestone, fiduciary status leads to independent judicial decisions, unless the contract specifies otherwise. To hold, as Goldstein does, that non-fiduciary status requiresindependent judicial decisions, despite a contract, is to turn Firestone on its head. Firestonetells us that a contract conferring interpretive discretion must be respected, even when the decision is to be made by an ERISA fiduciary. It is easier, not harder as Goldstein thought, to honor discretion-conferring clauses in contracts that govern the actions of non-fiduciaries.

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