An executive who was denied severance and incentive award benefits after she resigned for “good reason” following a company merger may pursue her claim for benefits under a Massachusetts district court ruling that the plan administrator failed to provide a full and fair review of her claim, as required by the Employee Retirement Income Security Act of 1974 (ERISA). Under her employment and incentive award agreements, the executive was entitled to receive more than $4 million in payments if she resigned for “good reason,” as defined under her employment agreement. Immediately following a company merger, the executive gave written notice of her intention to resign her position for good reason, stating that as a result of the change in control, the nature, status, and prestige of her responsibilities, duties, and position were substantially and adversely altered.
As plan administrator, the post-merger compensation committee was charged with evaluating the validity of the executive’s good-reason claim. Following its review, the committee denied payment of benefits to the executive, finding that she had not demonstrated “good reason” for her resignation. The committee gave no reasons for the denial, provided no information regarding the executive’s appeal rights, and ignored requests from the executive’s attorney for the information the committee had relied on in coming to its decision. The executive sued, alleging violation of her ERISA rights to adequate notice and a full and fair review of her claim.
Determining that the agreements constitute “top-hat” plans under ERISA, as they are unfunded plans maintained primarily for the purpose of providing deferred compensation benefits to a select group of management or highly compensated employees, the court focused on ERISA’s claims requirements for top-hat plans. The court found no top-hat exception to the statutory notice provisions of ERISA and rejected the administrator’s argument that the plan is not subject to ERISA’s full-and-fair-review requirements because the reference in the statute to review by an “appropriate named fiduciary” could not apply to top-hat plans, which are exempt from the fiduciary responsibilities of ERISA. Focusing on the abbreviated committee debate held on the merits of the executive’s claim and other shortcomings in the committee’s decision-making process, the court found that the committee failed to conduct a full and fair review of the executive’s claim. The court also found deficiencies in the committee’s procedures relating to adequate notice, information on the appeals process, and access to documents. Finally, the court found that the committee operated under a conflict of interest in denying the executive’s claim because some committee members had a personal financial stake in the outcome. The court remanded the claim to the plan administrator and awarded reasonable attorneys’ fees to the executive. (McCarthy v. Commerce Group Inc., D. Mass., 2011)