If you are one of the many people in Chicago fortunate enough to have been provided with a supplemental retirement plan at work, that retirement plan may be worth less than you think. These supplemental plans, called “top hat” plans, are retirement plans typically offered to management or executives in addition to any 401(k) or other plan the employer may have. Top hat plans are limited in to whom the employer can provide them.
The good part is that as an employee-participant in a top hat plan, you can defer more of your compensation than typically allowed by other tax-qualified plans. The trade-off, however, is that such plans do not receive all the typical protections of a retirement plan covered by ERISA (e.g., minimum funding, fiduciary responsibilities, etc.). These plans do not have trusts, are typically payable out of the general funds of the employer, and are subject to claims by the employer’s creditors. In a troubled economy, these top hat plans carry significantly more risk than they once did. Some participants in Rand McNally & Company’s supplemental retirement plan recently learned this the hard way.
The United States Court of Appeals for the Seventh Circuit upheld a dismissal of a lawsuit brought by participants in Rand McNally’s supplemental retirement plan. Rand McNally entered into an asset purchase agreement, selling all its assets to RM Acquisition, LLC–a company created by a private equity firm. Feinberg v. RM Acquisition, LLC, 2011 U.S. App. LEXIS 249, at *2 (7th Cir. Jan. 6, 2011). The asset purchase agreement specifically excluded the top hat plan as one of the liabilities RM Acquisition would assume, leaving plan participants with only an empty shell corporation of Rand McNally from whom to pursue their benefits.
The court held that because RM Acquisition did not assume the liability, and did not consent to succeeding as the plan’s administrator, it was not liable for the pension benefits under ERISA. Id. at *3-4. Successor liability might have attached if the acquisition company “connived” with the selling company to deprive participants, or if the successor was a “mere continuation” of the selling company. Id. at *6. The Seventh Circuit held, however, that the participants had not successfully demonstrated either of these situations. If you have a supplemental retirement plan and are in doubt about your employer’s financial strength, talk to an experienced ERISA lawyer today.
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