Executives in Chicago and the Midwest may be excited to hear about all the General Motors executives suing to recover executive retirement plan benefits from a previously bankrupt employer. Often, when executives have such retirement plans, commonly referred to as SERPs (or “top hats”), the participants can expect to receive little or nothing if the employer becomes insolvent. That is because ERISA § 201(2) top hat plans are exempt from ERISA’s funding, vesting, and fiduciary responsibility protections, though are still enforceable as ERISA plans. The General Motors that emerged from bankruptcy assumed much of the pre-bankrupt retirement plan obligations, but the credit agreement with the United States Treasury required that certain obligations, including pension obligations, be reduced.
Like most executives and managers who have such non-qualified deferred compensation or excess benefit plans (ERISA § 3(36)), the GM executives appear to also have been participants in qualified retirement plans at GM, a defined benefit pension plan and a defined contribution stock bonus plan. On Monday, approximately 112 former executives (or their beneficiaries or alternate payees pursuant to a Qualified Domestic Relations Order) sued GM under ERISA § 502(a)(1)(B) claiming a denial of benefits due. The dispute between the executives and GM appears to be over interpretation of a provision in the plan which allows for reducing the SERP benefits by two thirds if benefits exceed $100,000 per year on a single life annuity basis.
The retirees argue that the reduction only applies if he benefits of the SERP exceed $100,000 per year. Meanwhile, GM argues the SERP benefits are reduced when benefits under the qualified retirement plan and the SERP combined exceed $100,000 per year. The language over which the parties dicker states: “for executive retirees who have a combined tax-qualified SRP plus non-qualified benefit under this Plan in excess of $100,000 per annum on a life annuity basis, the amount of benefits under this Plan over the combined $100,000 per annum threshold shall be reduced by 2/3rds.” This phrase is certainly open to more than one interpretation, though the question will be whether the administrator’s interpretation was reasonable. Also, the use of “combined” just before the second reference to $100,000 appears to present a hurdle to the retirees they did not appear to argue how they clear in any of the internal appeals.
The retirees’ interpretation of the plan may very well be the only reasonable interpretation when read in conjunction with other portions of the plan document, in light of amendments to the plan, or pursuant to prior Executive Compensation Committee interpretations of the clause. However, several critical pages of the plan document were omitted from that which was filed, and neither of the other categories of information were attached to the complaint, so we will have to wait to see the outcome! If you have questions about your executive retirement plan, call a lawyer who concentrates in ERISA today.