Court Finds ERISA Can Be Used to Enforce Top-Hat Plan Terms

Among other things, a federal district court held that “appropriate equitable relief” under ERISA Section 502(a)(3) may extend to remedy inequitable conduct pertaining to a supposed waiver of plan rights.

By Rebecca Moore | September 26, 2016
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U.S. District Judge William Alsup of the U.S. District Court for the Northern District of California ruled equitable remedies under Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) can be used to enforce provisions of a top-hat retirement plan.

The case involves Steven K. Buster, former president and chief executive officer of Mechanics Bank, who in 2012, when terminated, was presented with a separation agreement that released the bank of all claims including “claims arising under the Employee Retirement Income Security Act.” During his employment with the bank, Buster participated in several of Mechanic Bank’s retirement plans including the Mechanics Bank Supplemental Executive Retirement Plan (SERP). In 2008, Mechanics Bank froze the accrual of new benefits pursuant to the SERP, and adopted a separate Executive Retirement Plan (ERP), in which Buster also participated.

Upon termination, the agreement provided for a lump-sum payment to Buster of one million dollars designated as “Retirement Pay,” as well as a separate payment of $1.8 million under the ERP, and a one-year severance payment of just over one million dollars, for a total payment of $3.8 million. The agreement made no mention of the SERP. Allegedly, Buster was expressly informed by Mechanics Bank Board Member Diane Felton that his benefits under the SERP, his 401(k) plan, and his pension plan would be unaffected by the agreement.

Relying on that representation, Buster signed the agreement. That evening, after Buster signed the agreement, Garrett Lambert, senior vice president and treasurer of Mechanics Bank, sent an email to Daniel Albert, chairman of the Directors Compensation Committee, quantifying the amount of benefits Buster accrued under his pension, SERP and ERP plans. Buster was copied as a recipient on that email. The email made no mention of the agreement.

In May 2015, Buster sent an inquiry to the director of human resources at Mechanics Bank asking for an estimate of his retirement benefits. She responded stating that Mechanics Bank had no obligation to pay any benefits under SERP due to the release in the agreement. After an appeal, Buster filed a lawsuit in March 2016.

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