Blogging Employee Benefits

March 27, 2006

Pension Survivor Annuity Only for Spouse at Retirement

Filed under: Executive Compensation, Litigation — Fuguerre @ 2:57 pm

ERISA's interest in protecting surviving spouses does not extend so far as to require that retirement plans ensure continued benefit payments to anyone whom a plan participant might marry after his retirement and after the death of his spouse.

Survivors benefits under a top hat retirement plan's joint and survivor annuity are not payable to a second spouse married after the death of the spouse to whom the employee had been married when benefit payments had commenced, according to an 11th Circuit decision affirming the district court's summary judgment for the employer. [Holloman v. Mail-Well Corp., No. 05-10850]

Upon retirement in 1991, the individual elected to receive reduced benefits under a joint and survivor annuity option from his employer's top hat plan maintained for its key executives. The plan in force at that time granted his employer authority to amend plan terms, as long as benefits were not reduced. In 1994, his spouse died, and he apparently continued receiving reduced annuity payments consistent with his joint and survivor election. In 1995 he remarried. After his former employer was acquired in 2000, the acquiring company decided to accelerate payments under the plan, basing the individual's ensuing lump sum payment on actuarial assumptions recommended by an outside consulting firm and a single life annuity based only on the individual's life expectancy, without taking into account his current spouse. After the individual's lawsuit was moved to federal court, summary judgment was granted in favor of the employer.

Although there remains uncertainty about the proper standard of review to apply to an administrator's benefit decisions under a top-hat plan, the court found it unnecessary to decide that issue here, observing that in this case the same conclusion would be reached under either a deferential or de novo standard of review. Since the plan included explicit language reserving the right to accelerate benefit payment, and since the plan trustee had not erred in concluding that the acquiring company's board inherited powers that had been reserved for the acquired employer's board, the court concluded that the decision to distribute the lump sum value of benefits did not violate terms of the plan. Since the individual provided no affirmative evidence to show that the lump sum payment was not fully equivalent to the value of the future benefits, the court rejected claims that the acceleration had violated plan terms against benefit reduction, noting that the individual's argument was "essentially saying that the value of any lump-sum payment had to exceed the value of the stream of future payments that it was meant to replace."

Turning to the survivor's benefit issue, the appellate court first distinguished Supreme Court precedent in Boggs v. Boggs (1997), finding that decision inapplicable to top hat plans, which are excluded from ERISA's participation and vesting rules. Moreover, even if qualified joint and survivor rules were to apply, survivor annuity benefits are only available to the spouse married to the individual at benefit commencement, not "to anyone whom a plan participant might marry after his retirement and after the death of his spouse." The court found plan terms defining a participant's surviving spouse as beneficiary irrelevant to the joint and survivor annuity distribution option.

The court further rejected the individual's claim of fiduciary violations, observing that "top hat plans are not subject to ERISA's fiduciary requirements." The appellate court also ruled that the district court had not abused its discretion in denial of motions regarding discovery. Finally, the individual's attorney's appeal to a sanctions order was denied, with the court instructing, "It is by now abundantly clear that a timely and properly filed notice of appeal is a mandatory prerequisite to appellate jurisdiction."

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