Trader Forfeits Plan Benefits by Misconduct

March 9, 2006 ( - The US District Court for the Southern District of Ohio has ruled that a former energy trader gave up his rights to top-hat plan benefits when he engaged in misconduct for which he was fired.

Even though the top-hat plan did not contain explicit language allowing the employer to forfeit the trader’s benefits for his misconduct, the judge said the lack of such language did not prevent the employer from forfeiting the benefits, BNA reports.   According to the court opinion, since top-hat plans are exempt from much of the Employee Retirement Income Security Act (ERISA), including the non-forfeiture and anti-alienation provisions, contract principles governed the ruling on the plan in this case.

The case was brought by Joseph Foley, a former senior energy trader with American Electric Power Service Corp., a subsidiary of American Electric Power (AEP).   After admitting to charges of false reporting to industry publications of energy trading transactions, Foley was fired.   He then requested $2 million in benefits from AEP’s top-hat plan, in which he had rolled 90% of his compensation from a phantom equity plan.   AEP denied his request, saying the $2 million would be used to offset damages caused by his misconduct.

Foley sued AEP under state law and ERISA, saying AEP wrongly denied him benefits since the top-hat plan did not contain language that gave them the authority to do so.

The case is Foley v. American Electric Power, S.D. Ohio, No. 03-CV-328, 3/7/06.