Top Hat Participant Loses SS Offset Legal Battle

April 15, 2005 ( - A retiring executive challenging how the administrator of his employer's top-hat plan calculated his Social Security offset lost a second legal battle when an appeals court upheld a lower court's decision denying his claims.

>The US 3 rd Circuit Court of Appeals ruled that US District Judge Jose Linares of the US District Court for the District of New Jersey correctly rebuffed claims by plaintiff Joseph Ahearn that the administrator of the Marsh & McLennan Supplemental Executive Compensation Program mistakenly figured his benefits when Ahearn retired at age 69. The program was an unfunded arrangement maintained primarily to provide deferred compensation for a select group of managers.

Replying on its decision in a similar 2001 case, the appeals panel ruled that top-hat programs aren’t subject to the Employee Retirement Income Security Act (ERISA). A challenge to the decision by the Marsh & McLennan plan administrator in determining Ahearn’s Social Security offset turned on whether or not that decision was made in good faith and a was a “reasonable” exercise of discretion, the appeals panel said.

According to the appeals ruling, written for the court by Circuit JudgeMaryanne Trump Barry, the dispute centered around the size of the Social Security offset given the fact that Ahearn had worked past the normal retirement age. Social Security regulations require that a person who works beyond age 65 get “delayed retirement credits” for each month worked and that those credits ultimately produce a higher Social Security benefit for the retiree.

The plan administrator said Ahearn’s normal Social Security amount plus the added credits should be offset by his benefits from the top-hat plan. However Ahearn claimed that any offset should only be applied to what he would have received had he stopped working at 65.

While Ahearn argued that the benefit statements provided to him by the employer during the last three years of his employment treated the amount against which the offset would be applied as the amount he would have gotten by working until age 65. However, Marsh & McLennan   countered that the worksheets which actually determined the benefit the retiree was to receive under the top-hat plan always calculated the Social Security offset based upon the actual amount of Social Security benefits received by the retiree.

The ruling is here.