Reproduced with permission from Pension & Benefits Daily, 25 PBD, 02/06/2014. Copyright 姝2014 by The Bureau
of National Affairs, Inc. (800-372-1033) http://www.bna.com
View From McDermott: Conflicting Review Standards in Executive Retirement Plan
Benefit Claims—Is There Really a Difference?
BYMICHAEL T. GRAHAM
Under the Employee Retirement Income Security
Act, retirement plans generally come in two fla-
vors – (i) retirement plans qualified under Section
401 of the Internal Revenue Code (the Code) and (ii) ex-
ecutive retirement plans, called ‘‘top hat’’ plans, which
aren’t Code-qualified. What does that mean? While
qualified retirement plans are subject to all of ERISA’s
funding, participation and fiduciary provisions, top hat
plans aren’t and may offer benefits exceeding those al-
lowed under Code-qualified plans. Simply put, top hat
plans are unique animals under ERISA.
ERISA defines a top hat plan as one ‘‘which is un-
funded and is maintained by an employer primarily for
the purpose of providing deferred compensation for a
select group of management or highly compensated
employees.’’
1
ERISA treats top hat plans differently in
several ways. First, ERISA explicitly exempts top hat
plans from its fiduciary requirements.
2
In addition,
ERISA doesn’t require top hat plans to satisfy participa-
tion, funding and vesting requirements that are appli-
cable to other ERISA-governed retirement plans.
3
Moreover, the Department of Labor allows top hat
plans an exemption from disclosure requirements.
4
So,
in essence, top hat plans are only subject to ERISA’s
civil enforcement remedies and administrative claims
procedures.
5
As a result, ERISA affords top hat plan
participants and beneficiaries their sole remedies for re-
covering benefits or enforcing plan terms.
6
Put another
way, while top hat plan participants may not sue for
breaches of fiduciary duty or illegal benefit cutbacks
under ERISA, they may challenge benefit determina-
tions, but must do so only under ERISA Section
502(a)(1)(B) and only after exhausting their administra-
tive claim remedies.
7
Litigation involving top hat plans isn’t plentiful—
likely due to the fact that such plans are available only
to a small number of highly paid executives. However,
within the limited top hat litigation realm, there exists a
conflict among the federal courts of appeals over a
seminal question—what review standard is to be ap-
plied to a benefit determination? While the U.S. Su-
1
See 29 U.S.C. § 1051(2).
2
See 29 U.S.C. § 1101(a).
3
See 29 U.S.C. § 1083(a)(3) (exemption from minimum
funding standards); 29 U.S.C. § 1051(2) (exemption from par-
ticipation and vesting requirements).
4
See 29 C.F.R. § 2520.104-23.
5
See 29 U.S.C. §§ 1021, 1132, 1133.
6
See 29 U.S.C. § 1132(a)(1)(B); Great-W. Life & Annuity
Ins. Co. v. Knudson, 534 U.S. 204, 209, 27 EBC 1065 (2002)
(expressing reluctance to ‘‘extend[] remedies not specifically
authorized by [ERISA’s] text’’) (6 PBD, 1/9/02;29 BPR 217,
1/15/02); Mertens v. Hewitt Assocs., 508 U.S. 248, 254, 16 EBC
2169 (1993) (noting that ERISA’s ‘‘carefully crafted and de-
tailed enforcement scheme provides ‘strong evidence that Con-
gress did not intend to authorize other remedies that it simply
forgot to incorporate expressly’ ’’).
7
In re New Valley Corp., 89 F.3d 143, 153, 20 EBC 1537 (3d
Cir. 1996) (because top hat plans are exempt from ERISA’s fi-
duciary requirements, there is no ERISA-based cause of action
for a fiduciary breach under a top hat plan); Miller v. Eichleay
Eng’s, Inc., 886 F.2d 30, 34 n.8 (3d Cir. 1989) (because top hat
plans are exempt from ERISA’s substantive participation and
vesting rules, ERISA’s anti-cutback provision isn’t applicable
to top hat plans).
Michael T. Graham (mgraham@mwe.com) is
a partner in the law firm of McDermott Will
& Emery LLP based in the firm’s Chicago
office. His practice specializes in employee
benefits litigation and controversy mat-
ters, advising plan administrators and fiducia-
ries on proper compliance with ERISA’s
claims and appeals procedures and litigating
benefit matters in state and federal courts
around the country.
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