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Labor & Employment – Retirement – Top Hat Plan – Crediting Rate Amendment – Volatility

Plotnick v. Computer Sciences Corp. Deferred Compensation Plan for Key Executives (Lawyers Weekly No. 001-195-17, 21 pp.) (Allyson Duncan, J.) 16-1606; Nov. 8, 2017; USDC at Alexandria, Va. (T. S. Ellis III, S.J.) 4th Cir.

Holding: An ERISA top hat plan, which allowed highly compensated executives to defer compensation until retirement, provided that it could be amended so long as the amendment did not decrease the amount of any participant’s account as of the effective date of the amendment. Therefore, the plan could be amended to give participants more control over the crediting rate to which their accounts were pegged. The fact that this allowed for more volatility in annual payments does not change this result.

We affirm summary judgment for defendants.

Although there is a split among the circuits as to what standard of review applies in top hat cases, the court need not decide which standard it will apply. Defendants were entitled to summary judgment regardless of the standard of review.

The plan made no promises about the levels of risk or volatility in the crediting rate. Therefore, the amendment could not render any such promise illusory.

The plan directs that, if a participant elects to receive annual payments (as opposed to a lump sum payment), the payments are to be made in “approximately equal annual installments.” Before the 2012 amendment, these “approximately equal” installments happened to be actually equal – at least until the last “true-up” payment, which accounted for volatility in the crediting rate over the account’s payment term and thus was different in amount from the other annual payments.

However, this predictable payment schedule was merely a derivative effect of the application of a crediting rate that pegged earnings in participants’ notational accounts to a crediting rate associated with a valuation fund featuring very low volatility. By tracking a single, low-volatility valuation fund, the pre-2012 crediting rate smoothed out market fluctuations and accordingly allowed defendants to predict with greater accuracy what future payments would be due to participants.

Because the new crediting rate introduced the potential for more market volatility into participants’ notational accounts, defendants developed a process of dividing the amount in a retired participant’s notational account in a given year by the number of years remaining under the plan. By doing so, defendants achieve “approximately equal” annual payments to eligible participants.

Even if defendants attempted to predict future performance of a particular valuation fund, they still could not predict how a participant’s allocation decisions across funds might influence future credited earnings or losses. The new system cannot deliver more than “approximately equal” annual payments, yet this is all that the plan requires.


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