WILLIAM G. YOUNG, District Judge.
William Kelly ("Kelly") retired from his position as Senior Vice President and Chief Technical Officer at Stanadyne Corporation ("Stanadyne" or the "Company") in 2009. Am. Compl. ¶ 5, ECF No. 74-2. Based on his compensation at Stanadyne, Kelly qualified for retirement benefits distributed under the Company's Benefit Equalization Plan ("BEP") and Supplemental Retirement Plan ("SERP") (collectively, the "Non-Qualified Plans"), in addition to the retirement benefits payable under the Company's pension plan (the "Pension Plan").
In 2007, Kelly complained to Stanadyne management about the exclusion of the Option Proceeds and the AIP Bonus from the computation of his retirement benefits under the Non-Qualified Plans. R., Ex. 23, ECF 32-23. In April 2008, Kelly submitted his official claim for benefits to the Stanadyne Pension Committee (the "Pension Committee" or the "Committee"). R., Ex. 25, RE: William Kelly-Retirement Benefits ("Claim Letter"), ECF No. 32-25. The Committee denied Kelly's claim both in the first instance and following an internal appeal. Kelly then filed suit against Stanadyne in 2011 in the United States District Court for the District of Connecticut. Compl., ECF No. 1. The complaint was brought under Section 502 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461, against the Committee. It contains three counts, but Count II was dropped.
In late 2012, the parties made cross motions for summary judgment supported by memoranda and opposed each other's motions. Pl.'s Mem. Supp. His Mot. Summ. J. ("Pl.'s SJ Mem. 2012"), ECF No. 31; Mem. Law Opp'n Pl.'s Mot. Summ. J. ("Def.'s Opp'n 2012"), ECF No. 44; Mem. Law Supp. Def.'s Mot. Summ. J. ("Def.'s SJ 2012"), ECF No. 35-1; Pl.'s Reply Mem. ("Pl.'s Opp'n 2012"), ECF No. 42; Mem. Law Reply Pl.'s Reply Mem. Opp'n Def.'s Mot. Summ. J. ("Def.'s Reply 2012"), ECF No. 46. On January 10, 2013, the case was transferred to this session. Order Transfer, ECF No. 52. At a case-stated hearing held on July 25, 2013,
Following an agreement by the parties to again proceed on a case-stated basis (for the remaining issues), October 2, 2013 Order, ECF No. 69, the Court issued an order on June 16, 2014, in which it held that BEP was an unfunded benefit plan not subject to ERISA. Order ("Order"), ECF No. 70. The Court also invited both parties to submit briefing on the state law applicable to Kelly's BEP-related claims.
On February 18, 2015, the Court revised its July 25, 2013 ruling, holding this time that Stanadyne was
On March 10, 2015, Kelly filed an Amended Complaint, naming the Committee as defendant in this ERISA action. Am. Compl., ECF No. 74-2; Mem. Supp. Mot. Am., ECF No. 74-1. In the Amended Complaint, Kelly realleges Count I of his initial Complaint as well as Count III (renumbered Count II after Kelly withdrew his claim for breach of fiduciary duty). Am. Compl. ¶¶ 49-55. On July 31, 2015, the Committee filed a motion for summary judgment, a District of Connecticut Local Rule 56(a)(1) statement and a supporting memorandum of law. Def.'s Mot. Summ. J., ECF 82; Local Rule 56(a)(1) Statement, ECF No. 82-1; Mem. Law Supp. Mot. Summ. J. ("Def.'s Mot."), ECF No. 82-2. Kelly filed his opposition to the Committee's motion for summary judgment on September 3, 2015. Pl.'s William Kelly's Opp'n Def.'s Mot. Summ. J. ("Pl.'s Opp'n"), ECF No. 83. Two weeks later, the Committee filed a memorandum replying to Kelly's opposition. Mem. Law Reply Pl.'s Opp'n Def.'s Mot. Summ. J., ECF No. 85. Following the October 7, 2015 case stated hearing, Minute Entry, ECF No. 88, the Court now makes its findings of fact and rulings of law.
The Court first discusses the terms of the Stanadyne pension plans, followed by a chronological discussion of the relevant facts preceding Kelly's claim and of Kelly's claim and his internal appeal. The Court also makes a separate finding of fact regarding the Committee's past inclusion of the Option Proceeds in its computation of pension benefits for other employees.
The Non-Qualified Plans in question are designed to provide benefits that bypass limitations imposed by two provisions of the Internal Revenue Code, Sections 415 and 401(a)(17), with which a qualified plan such as the Pension Plan need otherwise comply. 26 U.S.C. §§ 415, 401(a)(17);
The BEP is "intended to be an excess benefit plan in excess of the limitations imposed by Section 415 of the Internal Revenue Code of 198 6, as amended, upon benefits of employees" of Stanadyne participating in the Pension Plan.
Meanwhile, the SERP "provide[s] retirement income benefits in excess of those permitted from time to time under Code Section 401(a) for qualified retirement plans" for "a select group of management or highly compensated employees[.]" SERP §§ 2.1, 2.2. The benefit under SERP is computed as the difference between "the benefit . . . under the applicable provisions of the Pension Plan . . . without regard to any limitation on such benefit imposed under said Pension Plan on account of the limitations of [Internal Revenue] Code Sections 401(a) or 415" and the sum of the benefit under the Pension Plan and the benefit under the BEP. SERP § 4.1.
For salaried Stanadyne employees such as Kelly, the formula for computing benefits under the Pension Plan resides in Appendix D-l. Pension Plan, Appendix D-l, ECF No. 32-4 6. The Pension Plan benefit is a function of an employee's "Average Monthly Earnings," which is, in turn, a function of an employee's total "Earnings" over a period of time.
As administrator of the Pension Plan, the Committee has "the exclusive right to interpret the [Pension] Plan in its sole discretion." Pension Plan § 9.5. The Committee's powers with respect to the administration of the Non-Qualified Plans are even more expansive, as laid out in both the SERP and BEP:
SERP § 5.3; BEP § 5.3.
These powers are subject to the following limitations:
SERP § 6.3; BEP § 6.4 (henceforth the "SERP anti-cutback provision").
Kelly was employed by Stanadyne for approximately 27 years before retiring in 2009 from his position as Senior Vice President and Chief Technical Officer. Local Rule 56(a)(1) Statement ¶¶ 1-2. Kelly is a participant in Stanadyne's Pension Plan as well as its Non-Qualified Plans, which were adopted in 1992.
Kelly is currently retired and is receiving benefits under all three plans. Local Rule 56(a) (1) Statement ¶ 5. Kelly was also a participant in Stanadyne's Management Stock Option Plan ("Option Plan"), a program that was amended in 1998 to allow for immediate vesting upon a change of control event. R., Ex. 31, Amendment Stanadyne Automotive Holding Corp. Management Stock Option Plan ("Option Plan Amendment"), ECF No. 32-32.
In 1997, Stanadyne was acquired by American Industrial Partners ("AIP"). R., Ex. 34, Re: Appeal Benefit Claim Behalf William Kelly ("Appeal Response") 4, ECF No. 32-40. In connection with that acquisition, Kelly received payments reported on his W-2 under the 1997 Equity Participation Plan ("1997 Equity Plan").
In 2004, the private equity firm Kohlberg & Company ("Kohlberg") acquired Stanadyne from AIP. Local Rule 56(a)(1) Statement ¶ 13. In August 2004, in relation to this acquisition, Kelly received a cash payout of stock options under the Option Plan, the Option Proceeds, and a sale bonus from AIP (again, the "AIP Bonus") for a total of $2,517,140. R., Ex. 31, Re: Stanadyne Automotive Holding Corp. ¶ Outstanding Stock Options ("Option Pay-Out Letter"); R., Ex. 31, William Kelly Earnings Statement. These payments were reported as ordinary income on Kelly's 2004 W-2. R., Ex. 31 (cont'd), 2004 Kelly 2, ECF No. 32-32. These payments were in addition to Kelly's salary for 2004, which exceeded $250,000. R., Ex. 31 (cont'd), William W. Kelly Earning Statement ("2004 Earning Statement"), ECF No. 32-32.
On September 1, 2015, the Committee, composed of Gurley, Langin, McCarthy, and Stevens, met to discuss the issues raised by McCarthy. R., Ex. PP1, Minutes SC Pension Committee Meeting mdash; September 1, 2005 ("September 2005 Minutes"), ECF No. 32-50. According to the minutes, the Committee concluded that the Option Proceeds and the AIP Bonus, although distributed to select employees as ordinary income, were not classified as "Earnings," "[i]n accordance with the intent of senior management[.]"
Following instructions from the Committee to reach out to external counsel for advice on "a course of action to ensure that the [Option Proceeds and AIP Bonus] may properly be excluded from Eligible Earnings for Pension[,]"
and asking Welsh to
R., Ex. 8 ("Stevens Email Welsh"), ECF No. 32-8 (emphasis added).
In a subsequent email to the other members of the Committee, McCarthy expressed concern about Stevens' mandate to Welsh, which she characterized as one of improperly asking the attorney to "find a way" to insure that the Option Proceeds and the AIP Bonus were not categorized as "Earnings," instead of making a more direct inquiry as to whether, based on the language of the relevant documents, the payments should be included in "Earnings." R., Ex. 12 ("McCarthy Sept. 21, 2005 email"), ECF No. 32-12. The record in this case (the "Record") contains no information on whether McCarthy's email received a response.
The next chronological entry in the Record is an October 2005 meeting of the full Committee: the meeting minutes again reiterate senior management's intent to exclude the Option Proceeds and AIP Bonus from "Earnings" while adding that the absence of exclusionary language in the payments documentation is "clearly an oversight, an omission, resulting from the substantial number of events occurring during the period when the payouts occurred" and that Shipman & Goodwin was to advise the Committee "on how to remedy the deficiency." R., Ex. PP2, Minutes SC Pension Plan Committee Meeting — October 27, 2005 ("October 2005 Minutes"), ECF No. 32-51.
At the Committee's following meeting on December 19, 2005, Shipman & Goodwin, via Welsh, provided the requested advice. Record, Ex. PP3, Minutes Retirement Plan Committee Meeting — December 19, 2005 ("December 2005 Minutes"), ECF No. 32-27. Welsh advised the Committee to continue to treat the Option Proceeds as "Earnings" under the Pension Plan because "inadvertent errors or omissions [were] difficult to correct under [Stanadyne's] Pension Plan."
Following Welsh's advice, Langin submitted an amendment to the SERP, "excluding from compensation (i) cash payments made in 2004 in return for the cancellation of in-the-money rights under outstanding stock options in the Company, and (ii) any equity-based payments to a Participant on or after January 1, 2006." R., Ex. PP3, Stanadyne Automotive Corp. Supplemental Retirement Plan Amendment No. 1 (2005-1
In a March 2006 email, Langin contacted Ropes & Gray to provide a second opinion on the 2005 Amendment and the Option Proceeds. R., Ex. 13 ("Langin email Ropes & Gray"), ECF No. 32-13. In a later email, McCarthy raises the issue of a potential conflict of interest in choosing Ropes & Gray to conduct the second review, given the firm's role as counsel to Kohlberg during the acquisition of Stanadyne. R., Ex. 18 ("McCarthy email Langin, May 10, 2006"), ECF No. 32-18.
The Record does not include a copy of the legal opinion that Ropes & Gray provided on the issue; it does, however, include a series of emails between Stephen Rodgers, Stanadayne's new Treasurer, Local Rule 56(a)(1) Statement ¶ 38, and Langin discussing an April 2006 meeting between Welsh and Jonathan Zorn from Ropes & Gray and the lawyers' differing opinions. R., Exs. 14-16 ("Emails between Rodgers and Langin"), ECF Nos. 32-14, 32-15, 32-16. At the meeting, Zorn argued that the term "total compensation" was ambiguous given that Stanadyne already excluded some taxable items but not others from "total compensation." R., Ex. 16. According to Zorn, this created ambiguity in the term "pensionable earnings," allowing the Committee to exercise its discretion to define "compensation" in line with its definition in Section 415 of the Internal Revenue Code ("IRC"), which excludes non-qualified stock options such as the Option Proceeds.
In July 2006, the Committee met again to discuss the lawyers' recommendations. R., Ex. PP4, Minutes Stanadyne Pension Committee Meeting — July 7, 2006 (July 2006 Minutes"), ECF No. 32-53. Three out of the four Committee members were present: David Jones ("Jones"),
The Court makes a separate finding that is crucial to the resolution of Kelly's claim. One of the April 2006 emails from Rodgers to Langin, while discussing Zorn's interpretation of the term "compensation" under the Pension Plan and his view that the exclusion of stock options from the Non-Qualified Plans' benefit computation must entail their exclusion from the Pension Plan benefit computation, also mentions that Stanadyne was paying two retirees under the Plan and Zorn's suggestion that the retirees' pensions be reduced going forward. Ex. 15 ("Rodgers email Langin April 12, 2006"), ECF No. 32-15.
In this context, the Court finds that Stanadyne included the Option Proceeds when computing at least some retirees' benefits under the Pension Plan.
In October 2007, Kelly wrote to Rodgers asserting that his benefits under the Non-Qualified Plans improperly excluded the Option Proceeds and the AIP Bonus. R., Ex. 23. Rodgers replied by listing reasons that the above payments were properly excluded: the Option Proceeds were similar to the excluded 1997 Equity Plan payments; the Option Proceeds had always been excluded from the computation of benefits; Section 415 of IRC excluded income from non-qualified stock options from compensation; and the Non-Qualified Plans had been amended by the 2005 Amendment.
The Committee officially denied Kelly's claim through a letter from Ropes & Gray attorney Loretta R. Richard ("Richard") on July 18, 2008. R., Ex. 27, Re: Benefit Claim Behalf William Kelly ("Denial Letter"), ECF No. 32-27. At the time of that decision, the members of the Committee were McCarthy, Langin, Jones, and Rodgers. Local Rule 56(a)(1) Statement ¶ 47. The Committee based its determination on: (1) the Committee's consistent interpretation of the "Earnings" definition in Appendix D-l of the Pension Plan to include regular pay such as wages and exclude "special pay" such as equity-based compensation; (2) guidance from Section 415 of the IRCs definition of "compensation" that excludes gain realized upon exercise of a stock option; (3) the AIP Bonus not being an amount paid by Stanadyne; (4) the Committee's power under the terms of the Non-Qualified Plans to make amendments to cure omissions and make clarifications; (5) the 2005 Amendment's being a mere clarification and not a violation of the Supplemental Plan's anti-cutback provision. Denial Letter 1-3.
On October 16, 2008, Kelly filed his appeal from the decision. R., Ex. 31, Re: William Kelly ¶ Retirement benefits ("Kelly's Appeal"), ECF No. 32-31. Kelly repeated the arguments made in his initial claim for benefits and rebutted the Committee's arguments in the Denial Letter, in particular arguing that the definition of "Earnings" and, by reference, that of "compensation" in the Pension Plan is not ambiguous and, thus, the Committee does not have discretion to interpret it.
According to Kelly, the relevant "compensation" could be excluded from "Earnings" only if its documentation contained language specifically excluding it, under Appendix D-l(b)(iv) of the Pension Plan.
The Record does include, however, minutes of a Committee meeting from October 24, 2008, discussing Kelly's appeal. R., Ex. 36 ("October 24, 2008 Committee Minutes"), ECF No. 32-42. In attendance were Langin, Rodgers, Jones, McCarthy, and Ropes & Gray attorneys Richard and Glaser.
On December 19, 2008, the Committee denied Kelly's appeal, expanding upon the reasoning offered in its initial denial. Re: Appeal Benefit Claim Behalf William Kelly ("Appeal Letter"), ECF No. 32-40. In its response to Kelly's appeal, the Committee first asserted that it had provided Kelly with all the relevant documents for his appeal.
In concluding that it had "consistently and repeatedly" excluded "special pay," such as equity-based compensation, from "Earnings," the Committee relied on Stevens' communications from 2005, which suggested he too thought the AIP Bonus and Option Proceeds should be excluded from "Earnings."
After the exhaustion of his internal appeal process, Kelly filed the instant action, but no longer raises any claims with respect to the AIP Bonus. Kelly's claims are limited to the alleged ERISA violations resulting from the Committee's exclusion of the Option Proceeds from the calculation of Kelly's benefits under the Non-Qualified Plans.
Having found the preceding facts, the Court turns to Kelly's claims. Kelly's Amended Complaint raises two counts: Count I (ERISA violation) and. Count II (attorney's fees). Am. Compl. ¶¶ 49-55.
In Count I, Kelly alleges that the Committee violated ERISA by interpreting the Pension Plan in an arbitrary and capricious manner, amending the Non-Qualified Plans in a manner that violated the Non-Qualified Plans' internal "anti-cutback provision," and finally by excluding the value of the Option Proceeds from the calculation of his benefits under the Non-Qualified Plans, which violated both ERISA's anti-cutback provision, 29 U.S.C. § 1054(g)(1), and ERISA's notice provision, 29 U.S.C. § 1054(h).
A top-hat plan is, however, still subject to ERISA's enforcement provisions under Section 502(a)(1)(B). 29 U.S.C. § 502(a)(1)(B); 29 U.S.C. § 1132(a)(1)(B);
More specifically, this case boils down to reviewing the Committee's interpreting the term "total compensation" in Appendix D-l of the Pension Plan to exclude Option Proceeds, because this determination controls Kelly's SERP benefits, see SERP § 4.1. To complete this task, the Court first must determine the appropriate standard of review to apply to the Committee's interpretation of "total compensation," before applying that standard to the facts of this case.
Although Kelly is concerned with the extent of his benefits under SERP, he actually contests the Committee's discretionary actions taken vis-a-vis the Pension Plan, since benefits under SERP are a function of "total compensation" under the Pension Plan. SERP § 4.1. Thus, although the parties dispute the correct standard of review applicable to top-hat-plan claims,
"[A] denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a
Here, the language of the qualified Pension Plan clearly allows the Committee to interpret the plan "at its sole discretion." Pension Plan § 9.5. This means that the Court must review Kelly's benefit denial that results from the Committee's interpretation of the plan under the arbitrary-and-capricious standard.
Applying the arbitrary-and-capricious standard of review, the Court first outlines Kelly's arguments supporting his interpretation of the term "compensation," before discussing the Committee's arguments in defense of its decision to deny Kelly's claims, and finally undertaking its own review of the relevant documents.
Kelly argues that the Committee undertook a "revisionist history" in finding the Option Proceeds excluded from the computation of his benefits under SERP because there was never any evidence that the Committee had intended to exclude the Option Proceeds from pensionable earnings. Pl.'s Opp'n 3. It follows, according to Kelly, that: (1) the 2005 Amendment was a violation of SERP's anti-cutback provision; and (2) the term "compensation" in the Pension Plan was not ambiguous and could only be interpreted to refer to compensation reported on W-2s.
In contrast, the Committee's main argument rests on the premise that the term "compensation," which is not defined anywhere in the Pension Plan, is ambiguous and that the Committee has the discretion to interpret it according to its definition under Section 415 of the IRC. Def.'s Mot. 21-23. The Committee also relies on the similarity between the Option Proceeds and the 1997 Equity Plan payments, the latter having been excluded from pensionable earnings even though not containing language to that effect (as would be required by Kelly's interpretation of Appendix D-1).
As far as the 2005 Amendment is concerned, the Committee justifies the propriety of its interpretation of the term "compensation" by arguing that the amendment did not decrease the benefits under SERP since the Option Proceeds were never part of pensionable earnings and thus the amendment did not violate the SERP's anti-cutback provision.
When determining whether an ERISA administrator has properly interpreted the plan's terms, the Court must first decide whether the terms are "ambiguous."
Throughout its "reading [of the] ERISA plan" the Court applies "familiar rules of contract interpretation."
"Language is ambiguous when it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement."
In Appendix D-l of the Pension Plan, "Earnings" is defined as the sum of "the total compensation paid. . . . for personal services" including some pre-tax contributions, excluding some "compensation received . . . through an insured program" and excluding "the amount of any payments made. . . . under a management incentive program or agreement with the Employer which by its own terms excludes payments therefrom from the definition of Earnings under the Plan." Pension Plan, Appendix D-l. The term "total compensation" of Appendix D-l is not defined.
In the absence of a contractual definition, the Court looks first to the ordinary and common meaning of the term "compensation." Dictionaries provide a reliable source.
The various definitions of "compensation" the Court encountered in its research
Kelly argues, however, that the presence of the exclusion clause in Appendix D-l is sufficient to make it unambiguous that management incentive program payments, such as the Option Proceeds, are included in "total compensation" and "Earnings" unless their documents include language specifically excluding them. Pl.'s SJ. Mem. 2012 22. As opposed to clauses in defined benefit plans that mandate
Although the Second Circuit has not adopted a list of factors to consider when reviewing a plan administrator's interpretation of an ERISA plan under the arbitrary-and-capricious standard, other Circuits provide useful guidance: courts should defer more if an administrator's interpretation is consistent with the goal and purposes of the plan,
As a preliminary matter, interpreting the term "compensation" in line with its definition in Section 415 of the IRC is not per se unreasonable and does not, as Kelly argues, Pl.'s Opp'n 4, "stretch . . . the words beyond what they can reasonably be interpreted to mean."
The Committee's choice of definition founders, however, when analyzed for consistency with previous plan interpretations. The Committee, in its denial letters to Kelly, stated that its excluding the Option Proceeds from "total compensation" is supported by its prior exclusion of the 1997 Equity Plan payouts from pensionable earnings, including Kelly's, because the payouts also lacked any specifically exclusionary language. Appeal Letter 4. The Committee noted other types of payments (such as special awards, relocation and moving expenses, severance, and employee referrals) that were excluded in the past from pensionable earnings, despite being reported on the employee's W-2, but did not offer any evidence of whether specifically exclusionary language was included in these documents.
Both in first instance and on appeal, the Committee fails to mention that it had paid some of its retirees benefits under the Pension Plan that were calculated on a basis that included the Option Proceeds. This information was known to at least two of the Committee members, Rodgers and Langin, before Kelly filed his first complaint with the Committee.
In its Appeal Letter, the Committee states only obliquely that a review of the record showed that it had computed benefits under the Non-Qualified Plans consistent with the interpretation that the Option Proceeds were excluded from pensionable earnings. Appeal Letter 6. Given that pensionable earnings under the Non-Qualified Plans are a function of pensionable earnings under the Pension Plan,
The Committee's utter failure to explain why at least some retirees received Pension Plan benefits based on the Option Proceeds bars it from relying on the consistency of its interpretation of the Pension Plan, and renders immaterial other, more remote, examples of payments, such as the 1997 Equity Plan payouts.
Similarly, the Committee points to the fact that "reporting officers" Gurley and Kelly, whose pension benefits were made public in filings with the SEC on an annual basis, received benefits under the Non-Qualified Plans exclusive of Option Proceeds without objecting, until 2007 when Kelly raised the issue with the Committee. Appeal Letter 5. Again, the Committee fails to account for McCarthy's inquiries since 2005, focusing only on evidence that serves its chosen theory that officers of Stanadyne tacitly acquiesced in the exclusion of the Option Proceeds from pensionable earnings.
The other evidence relied on by the Committee to show the consistency of its prior interpretations is the 2005 Amendment to the SERP. Specifically, presumably referring to Stevens' emails in the Record that relate to the adoption of the 2005 Amendment, the Committee states that Stevens was "of the view that [the AIP Bonus and Option Proceeds] were excluded" from pensionable earnings. Appeal Letter 5. The Committee also states that the adoption of the 2005 Amendment was a clarification of the Committee's interpretation that the Option Proceeds were excluded from SERP pensionable earnings.
The above recitation, however, misrepresents the Record. Up until the involvement of Ropes & Gray in the discussion about the Option Proceeds, Committee members (including Stevens and Gurley) had made clear in the Committee minutes, in communication with counsel Welsh, as well as in internal communications following McCarthy's inquiry, that the Option Proceeds issue was one of, at most, "oversight." September 2005 Minutes; Stevens email Welsh; McCarthy Sept. 21, 2005 email; October 2005 Minutes. As evidenced by the minutes, this oversight was the Committee's failure explicitly to exclude the Option Proceeds from pensionable earnings, although Appendix D-l so required for management incentive payments; what the Committee was looking for was a solution to remediate their failure to exclude.
It follows that, although the record suggests that the Committee intended to exclude Option Proceeds from pensionable earnings, it does not suggest that the Committee considered the Option Proceeds as excluded from "total compensation." The Committee went to Welsh for advice on its failure to exclude the Option Proceeds in the relevant documents (as required by Appendix D-l), not for advice on the meaning of "total compensation." Since it precedes Ropes & Gray's suggested interpretation of the Plan, the Committee's inquiry is more compelling evidence of the Committee's actual intent.
The Court concludes that the Committee's denial of Kelly's claim, despite ostensibly relying on multiple reasons, in fact is premised only on its interpretation of the term "total compensation, which, the Court holds, is not supported by evidence of the Committee's intent in the Record.
In support of its contention that the evidence shows that it had consistently interpreted the Non-Qualified Plans, the Committee points to other cases, where consistent exclusion of other items from pensionable earnings supported a conclusion that the payment in question was also excludable. Def.'s Mot. 25 (citing
At this point, the Court could consider the potential conflicts of interest resulting from the dual role of the Committee's members as officers of Stanadyne concerned with the firm's finances and as administrator of the pension plans.
Kelly requests attorneys' fees.
Five factors guide such awards: "(1) the degree of the offending party's culpability or bad faith, (2) the ability of the offending party to satisfy an award of attorney's fees, (3) whether an award of fees would deter other persons from acting similarly under like circumstances, (4) the relative merits of the parties' positions, and (5) whether the action conferred a common benefit on a group of pension plan participants."
In the current action, after originally suing the wrong party, Kelly ultimately prevailed on his central claim after abandoning some of his less persuasive claims.
The Court does not find that the Committee acted in bad faith, because the key language was ambiguous and the Committee's contentions are not devoid of merit. At the same time, however, the Committee failed to consider all the evidence. It also failed to explain why it did not consider certain evidence, in particular evidence that would have undermined its justification for interpreting the Plan the way it did; the Committee also recharacterized evidence to fit its theory of intent.
Stanadyne has not disputed that it could pay attorneys' fees. Kelly has also prevailed on his SERP claim, which could influence the benefits of other plan participants. An award of fees could deter the Committee from future unbalanced reviews of plan participant benefits. This Court, having properly declared the law, however, adds no suggestion that the Committee will not follow it in the future. Should it not, there will be time enough for attorneys' fees. Here, upon the entire Record, the Court decides not to award Kelly attorneys' fees.
For the foregoing reasons, the Court enters judgment in favor of Kelly in his 29 U.S.C. § 1132(a) (1) (B) claim that the Committee was arbitrary and capricious in denying his benefits under the SERP. The Court enters judgment in favor of the Committee on Kelly's BEP-related claims and on his claims that the ERISA's anti-cutback provision, 29 U.S.C. § 1054(g)(1) as well as ERISA's notice provision, 29 U.S.C. § 1054(h) were violated by the Committee. The Court also enters judgment for the Committee on Count II, denying attorney's fees to Kelly.
Because top-hat plans are only partly subject to ERISA, a number of Circuits have concluded that, notwithstanding the discretion afforded to the plan's administrators, the de novo standard applies to top-hat plan reviews.
In practice, the only standard of review that courts in the Second Circuit have applied consistently to reviews of rights under top-hat plans has been the arbitrary and capricious one.
The Court also notes that choosing one standard of review over another in the case of a plan that affords discretion to its administrator, might make no difference in practice.