A recent New York federal court decision illustrates the authority an employer can retain to amend material provisions of nonqualified plans in ways that could not be done in a qualified plan. In this case, an employer maintained a nonqualified arrangement for a select group of management employees. The arrangement allowed the covered employees to defer current compensation for later distribution. The deferred amounts were to be credited with growth or earnings based on elections made by the employee. The investment options included interest-bearing accounts, stock accounts, and mutual funds. The nonqualified arrangement maintained a “phantom” account for each employee to which the deferred compensation and earnings were credited. Under the arrangement, the employer reserved the right to amend the plan. The interest-bearing option under the arrangement credited earnings based on a bank prime interest rate. The participant in this case participated in the arrangement beginning in the 1980s. The employer amended the plan in late 2006 to change the basis for crediting interest in the interest-bearing option from the bank prime rate to an applicable federal rate of interest used by the IRS for numerous interest rate adjustments. The new interest rate was to be used beginning in 2007. While participants were permitted to move their accounts in the nonqualified plan before 2007 began, an account that was left in the interest-bearing option would have the new interest rate calculation applied to all the years of the account, including years before and after 2007. The employee in this case had elected the interest-bearing option before 2007 and remained in that option after the change. In the lawsuit, the employee claimed that the employer could not retroactively adjust the interest rate credit for the periods before 2007. Because the employer had effectively reserved the right to amend this nonqualified plan, the court upheld the employer’s action and dismissed the employee claim. The lesson is that careful plan drafting can effectively preserve an employer’s ability to adjust benefit plans in appropriate circumstances. (Cram v. PepsiCo Executive Income Deferral Compensation Program, S.D.N.Y. 2010)