Top Hat Plan Dispute Time Barred

A federal appellate court did not even consider whether the plan in question was a top hat plan because it found the lawsuit missed the statute of limitations under Maryland law.

The 4th U.S. Circuit Court of Appeals granted summary judgment to Marriott International in a lawsuit claiming that its Stock and Cash Incentive Plan was not a top hat plan and was subject to vesting requirements of the Employee Retirement Income Security Act (ERISA).

The plaintiffs in the case—former participants in the plan—argued that the plan was not a top hat plan originally because it did not cover only a select group of management or highly compensated employees, as defined by ERISA. At one time the plan covered more than 2,500 employees, but it was amended after a Department of Labor (DOL) 1990 advisory opinion letter, and after that covered only about 100 employees. The plan used a prorated vesting schedule based on each participant’s time until he or she reached age 65. The plaintiffs in the case did not fully vest in their benefits because they left employment before reaching age 65.

However, although an amicus brief was filed by the DOL reiterating this definition, the court did not focus on whether the plan was a top hat plan, but focused on Marriott’s appeal that a district court erred in finding the claim “timely.”  The court noted that except for breach of fiduciary duty claims, ERISA contains no specific statute of limitations, and it therefore looked to state law to find the most analogous limitations period. It found that Maryland’s three-year statute of limitations for contract actions applies.

A district court had determined that an ERISA cause of action does not accrue until a claim of benefits has been made and formally denied, but the appellate court said the district court applied the wrong analysis. In a previous case, the 4th Circuit found that “a formal denial is not required if there has already been a repudiation of benefits by the fiduciary which was clear and made know to the beneficiary.”

With this in mind, the court found that a 1978 prospectus of the plan clearly stated that it was intended to be a top hat plan and did not need to comply with ERISA vesting requirements. The same language was included in prospectuses distributed in 1980, 1986 and 1991.

Since it found that the plaintiffs’ claims were untimely, it reversed a district court opinion and granted summary judgment to Marriott. However, the appellate court noted that since it did not reach the question of whether Marriott’s plan was a valid top hat plan, it vacated the district court’s decision on that. There may be more to come on this case.

The opinion in Bond v. Marriott International is here.