The First Circuit recently applied an abuse of discretion standard of review to a claim for top hat plan benefits. Plaintiff Robert Niebauer, a former executive of Crane, brought a claim for executive severance plan benefits and a claim under ERISA section 510 for interference with his rights to benefits. The district court granted summary judgment in favor of Crane on both claims, finding that the denial was not arbitrary or capricious, and there was no adverse employment action to support his interference claim.
Plan administrators charged with administering Employee Retirement Income Security Act-governed severance plans are often confronted with the question of whether they should conduct an independent investigation into the reasons the employer-plan sponsor terminated an individual’s employment before deciding whether to grant or deny the individual’s claim for severance benefits. The decision to conduct such an investigation, and, the breadth of such an investigation, may have consequences in the event of litigation.
This article provides some guidance to plan fiduciaries in evaluating claims for severance benefits.
Many severance plans provide that an employee is ineligible for benefits if terminated “for cause” and define cause as, among other things: neglect in performing one’s duties, misconduct, or unsatisfactory performance. A threshold question for those charged with the responsibility for deciding severance benefit claims and appeals is thus whether the employee was in fact terminated “for cause.” Whether and, if so, how “for cause” is defined is controlled by the terms of the plan. What is required of plan fiduciaries under these circumstances? May they accept the employer’s stated reason for the employee’s discharge? Must they conduct an independent investigation into the reasons for the employee’s discharge? Somewhat surprisingly, there are relatively few reported decisions addressing whether a plan fiduciary has an obligation to conduct an independent investigation into an employer’s reasons for discharging an employee.
On March 25, 2014, in a decision highly anticipated by employers, the U.S. Supreme Court held unanimously that certain severance payments paid to employees who were involuntarily terminated were taxable wages for purposes of the Federal Insurance Contributions Act (FICA). United States v. Quality Stores, Inc., et al., No. 12-1408 (U.S. Mar. 25, 2014). The holding reversed a Sixth Circuit Court of Appeals’ decision and was a blow to employers’ hopes that the Court would exempt severance payments from FICA and open the floodgates for refund claims, the backlog of which was estimated to be in excess of $1 billion. The decision leaves open whether the Internal Revenue Service (IRS) can and will adhere to its long-held position on supplemental unemployment plans that, unlike the plans at issue in the case, are not paid in a lump sum and are tied to eligibility for state unemployment benefits. The IRS position on these plans has been that payments thereunder are not FICA “wages.” The decision specifically did not address such plans.
In Carr v. Anheuser Busch Co., No. 12–1224, 2012 WL 6685323 (8th Cir. Dec. 21, 2012), the Eighth Circuit affirmed summary judgment dismissing an ERISA Section 502(a)(1)(B) claim for severance benefits, finding that the plaintiff was terminated for misconduct, thereby disqualifying him from receiving benefits under the terms of the plan. Plaintiff was terminated…