Update on Top Hat Plan Litigation

Lawsuits over top hat (non-qualified benefit) plans continue like the march of time. And the courts’ decisions vary depending on the specific facts of each case. Today, I want to follow-up on two federal appellate court decisions in cases that I have previously mentioned.

In 2016, I blogged on Sikora v. UPMC, when the federal district court found in favor of the company/plan sponsor, holding that that the requirement that a plan be maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” is disjunctive; that is, covered employees can be either management or highly compensated employees. Late last year, the Circuit Court of Appeals affirmed the lower court’s holding. One of the interesting points of the Court’s decision was its discussion of the DOL’s only guidance on this requirement, Opinion Letter 90-14A, and the question of whether an employee must have “bargaining power” in order to qualify as a member of “a select group of management or highly compensated employees.”

Rather than suggest that courts inquire into whether a particular participant wielded the requisite level of “bargaining power,” the opinion letter observes that participants in top-hat plans were deemed by Congress to possess bargaining power “by virtue of their position or compensation level.” In other words, Congress felt justified in including the top-hat plan provisions in ERISA, at least in part because individuals in positions such as Sikora’s “have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan.” In short, reading the DOL opinion letter in light of Skidmore does not support Sikora’s position.

Although the Second, Sixth, and Ninth Circuits have inquired into plan participants’ bargaining power, those decisions do not clearly adopt bargaining power as an additional requirement.[fn] Even assuming that those opinions did adopt bargaining power as an additional requirement, they offer no reason for doing so. Given that lack of reasoning, the plain text of ERISA’s top-hat provisions, and our reading of the DOL’s opinion letter, we decline to engraft a bargaining power requirement onto the elements of a top-hat plan. We conclude that plan participants’ bargaining power is not a substantive element of a top-hat plan.

Last year I wrote about Tolbert v. RBC Capital Markets Corporation, which has gone up and down between the federal district courts and the Fifth Circuit since 2013. Earlier this year, a federal district court in Washington State decided a related case against the same company and involving the same plan. The decision in Paul v. RBC Capital Mkts. Corp., is unexceptional, except so far as it completes the long saga of the company’s wealth accumulation plan (WAP). In Paul, the federal district court found that the company was collaterally estopped from re-litigating the WAP’s status as an employee pension benefit plan. The company had a full and fair opportunity to litigate the identical issue of whether the WAP is an employee pension benefit plan in Tolbert and that precise issue was litigated. The Court added, however, that it would reach the same conclusion as the Fifth Circuit and determine that the WAP was an employee pension benefit plan under ERISA, even if the company was not collaterally estopped from re-litigating the pension plan issue.