Summary
This Eighth Circuit opinion addresses whether a non-qualified "top hat" pension plan properly excluded retention bonuses from an employee's final average compensation calculation upon retirement. The court applied a de novo standard of review, treating the top-hat plan as a unilateral contract subject to ordinary contract principles rather than deferring to the administrator's discretion. Finding the plan's definition of compensation unambiguous, the court held that the administrator lacked the authority to redefine the term to exclude bonuses paid by a non-adopting affiliate. The district court's grant of summary judgment in favor of the employee was affirmed.
Topics
Practice areas
Questions Presented
- Whether a top-hat pension plan's benefit determination should be reviewed de novo or for abuse of discretion.
- Whether the Plan's contractual grant of interpretive discretion permitted it to exclude Craig's retention bonuses from the defined term "Compensation."
- Whether the Plan abused its discretion or acted unreasonably by excluding the two retention bonuses from the calculation of Craig's final average compensation.
Holdings
- Benefit determinations under a top-hat plan are reviewed de novo, even when the plan grants its administrator interpretive discretion.
- A plan administrator's contractual discretion must be exercised in good faith and reasonably; the grant of discretion does not authorize the administrator to redefine unambiguous contractual terms.
- The Plan was required to include Craig's two 2001 retention bonuses in calculating his pension benefits because the Plan and summary plan description defined compensation to include bonuses.
Key quotations
“top hat plans should be treated as unilateral contracts” (¶ 15)
“Thus, ultimately, we must determine whether the Plan's decision was reasonable. We conclude it was not.” (¶ 16)
“The Plan did not have discretion to redefine "Compensation" in a way that would undermine Craig's justified expectations” (¶ 34)
Factual background
Craig worked for Pillsbury and participated in its top-hat pension plan. In 2001, he was transferred to Guinness, a non-adopting Diageo affiliate, and retired later that year. Guinness reported $345,723 in pensionable compensation but excluded two retention bonuses totaling $166,204; the Plan used Guinness's figure and excluded the bonuses from Craig's final average compensation. Including the bonuses would have increased Craig's monthly pension benefit.
Procedural history
Craig challenged the Plan's refusal to include two 2001 retention bonuses in calculating his final average compensation. The parties filed cross-motions for summary judgment, which were referred to a magistrate judge. The magistrate judge recommended judgment for Craig, the district court adopted the recommendation, and the Plan timely appealed.