Appellate Law

CA1: rich doctor?s deferred compensation plan was indeed a top-hat plan

By S. COTUS

Alexander v. Brigham & Women's Hospital, No. 07-1443.  This is an ERISA issue.  This means that you either 1) care; or 2) really, really, don?t care.  The plaintiff is a surgeon that claims that his plan was *not* a valid ?top-hat? plan under 29 U.S.C. § 1051(2).  Top hat plans cater to the kind of people we like ? rich people, or ?highly compensated employees? they earned, on average, a little less than a half-million each.  Or, in the words of Judge Seyla, ?The origins of the top-hat provision lie in Congress's insight that high-echelon employees, unlike their rank-and-file counterparts, are capable of protecting their own pension interests.?  (I should note that surgeons are oppressed by evil ?trial lawyers? and many of them suffer from malnutrition.)    In this case, the surgeons felt oppressed by Harvard?s salary caps, and so they devised a way around them in the form of a deferred compensation plan.   These plans were mandatory, but the plaintiff, like all of the surgeons was a voting member of the group that provided them.  Selya explains that ?While such corporate structures are not equivalent to direct employee democracy, they are nonetheless meaningful.?

Read the heck on!

Eventually the plaintiff?s employment was terminated.  Then they told him that he owed money ? $400,000 ?  to the plan.  The plaintiff sued claiming that the plans violated ?ERISA's vesting and fiduciary duty requirements? and the defendants said that these were not covered under ERISA.  (Yet, ERISA pre-empted them, but the state law claims were not appealed.)   

There is some discussion as to whether the surgeons were highly compensated, but Selya figures that they were highly compensated in bother ?relative and absolute? terms.  As to whether he had bargaining power, the First explains the role of a Department of Labor opinion letter, but concludes that what really matters is that these plans were available to a select-group of highly compensated individuals, rather than whether a single employee was capable of bargaining on his  own or via whatever corporate democracy was in existence.  However, Selya ?expresses his doubts? about whether collective bargaining is a pre-requisite for a top-hat plan.

The First holds that since the plans were maintained for a select group of surgeons (those that were eligible and actually contributed), which came to 8.7% rather than 30% of the workforce.  In practice, the First holds, ?After all, a substantial precondition ? the accumulation of [net practice income] in excess of the salary cap ? must be satisfied before any surgeon can squirrel away money in either of the plans.?  So, because he had the ability to make so much money, the plan was really just ?maintained? for him and similar rich people, rather than a more general statutory definition of ?participant.?  Then, the First explains why other courts agree with it.

Full post as published by Appellate Law and Practice on January 23, 2008 (boomark / email).