Denial of severance benefits upheld, despite executive’s claim he was forced out

A top hat plan administrator did not act arbitrarily and capriciously when it denied severance benefits to an executive where the administrator’s determination that the executive retired voluntarily was supported by substantial evidence and was procedurally proper, according to the U.S. Court of Appeals in Boston (CA-1). However, the district court erred when it dismissed the executive’s claim that the employer had interfered with his rights to benefits under ERISA §510.


The employer’s executive severance plan provides severance benefits to designated employees who are involuntarily terminated. Those who leave voluntarily are entitled to benefits only if they leave for “good reason” (which can include job relocation) as determined by the plan administrator, which has “full discretionary power and authority” to interpret the plan.
The executive and the company’s new CEO scheduled a conference call to continue discussions as to whether the executive would agree to relocate temporarily in order to help mend the company’s frayed relationship with an important customer. The parties hotly disputed what was said during the call: the CEO stated the executive conveyed he had decided to retire, while the executive claimed he was terminated involuntarily in an effort to avoid paying severance benefits.

The company’s compensation committee (the plan administrator) subsequently denied the executive’s claim for severance benefits, concluding his departure was voluntary. The executive filed suit in district court alleging, among other things, a wrongful denial of benefits under ERISA §502(a)(1)(B) and interference with protected rights under ERISA §510. The district court granted the employer’s motion for summary judgment.

Note: On appeal, the court first concluded the district court correctly used the arbitrary and capricious standard of review. While the court noted that the Third and Eighth Circuits have held that de novo review applies to decisions made under top hat plans, the First Circuit declined to rule on that question, given that in this situation the plan granted the administrator discretion to interpret the plan.

Denial upheld

The court rejected the assertion that the administrator’s decision was procedurally unsound because it relied upon an incomplete factual record. It was appropriate for the administrator to rely primarily on materials submitted to it by the employer’s general counsel; indeed, the plan contemplates that eligibility determinations are to be made “on the basis of information supplied to it by the employer.”

Further, the denial of benefits was reasonable based on the record reviewed by the administrator. Despite the executive’s claim that he never expressed to the CEO an intent to retire, the administrator had before it ample evidence that the executive announced his retirement to various parties around that time.

ERISA Sec. 510 claim

In a partial victory for the executive, the appellate court, concluding the district court used the wrong standard of review to evaluate the interference claim, vacated and remanded that ruling back to the district court.

Source: Niebauer v. Crane & Co., Inc. (CA-1).

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