Court Finds No Fault with Top-Hat Plan Termination Payment

A participant in NCR Corp.’s supplemental plan for executives filed a lawsuit claiming that the conversion of his monthly retirement benefit to a lump-sum payment upon the plan’s termination violated the terms of the plan document and that he was due relief under the Employee Retirement Income Security Act (ERISA).

Keith A. Taylor claimed that the distribution illegally reduced his accrued benefit by causing him to suffer great tax consequences and by including a present-value reduction rate in its calculation. However, U.S. District Judge William S. Duffey Jr. of the U.S. District Court for the Northern District of Georgia found that courts uniformly have concluded that tax losses do not fall within the relief available to redress a violation of ERISA, and the 11th U.S. Circuit Court of Appeals specifically has held that “the various types of relief available to plaintiffs in civil actions brought pursuant to ERISA’s civil enforcement scheme do not include extra-contractual … damages.”

Duffey agreed that an adverse tax impact is not a basis for an ERISA remedy under Section 502(a)(1)(B).

While Taylor also cited NCR’s use of a 5% present-value reduction factor to calculate the lump-sum benefits as causing a decrease in his benefits, he did not allege that the present-value reduction factor was miscalculated, incorrect or improperly applied, the court noted in its opinion. Duffey found the allegation that use of the present value reduction factor was, in itself, improper because it amounted to a reduction of future monthly payments under the plan to be incorrect as a matter of law.

Citing the 11th Circuit decision in Holloman v. Mail-Well, Duffey said discounting to present value is a standard way to account for the fact that a dollar amount to be received in the future is generally worth less than the same dollar amount received in the present.

Because Taylor failed to allege any plausible basis for an ERISA remedy under Section 502(a)(1)(B), the court dismissed the claim.

Taylor also asserted a claim for civil statutory penalties under ERISA Section 502(c)(1)(B), alleging that the plan administrator failed to comply with ERISA Section 104(b)(4), by not responding to his document request within 30 days. The court found that regulations allow the administrator of a top-hat plan to satisfy the reporting and disclosure provisions of Title I of ERISA by filing a statement with the Secretary of Labor and providing plan documents to the secretary upon request. Duffey noted that top-hat plan information is available on the Department of Labor (DOL)’s website. 

Since the regulations exempt top-hat plans from ERISA’s disclosure requirements, the court also dismissed Taylor’s claim for penalties. 

The Case  

Taylor retired from NCR on March 31, 2006. For the top-hat plan, Taylor elected a joint and 100% survivor annuity benefit so that he and his wife would receive an annual benefit of $29,062.80 for their lives, paid in monthly installments. On or about April 12, 2013, NCR informed Taylor that it had terminated the plan effective February 25, 2013, and that Taylor would receive a lump-sum payment “equal to the actuarial present value of [his] accrued benefit under the plan(s) on April 25, 2014.”  

NCR’s correspondence indicated that Taylor’s lump-sum payment value before taxes was $370,236.01, and Taylor would be paid an additional $70,739.87 for the joint and survivor annuity component of the benefit. The total lump sum payment was $440,975.88, and after federal and state income taxes were withheld, $254,063.00 was distributed to Taylor. 

After his appeals to the plan committee were denied, Taylor filed the lawsuit. The court’s opinion is here.