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Adverse Tax Impact Not Remediable under ERISA

Adverse Tax Impact Not Remediable under ERISA

Taylor v. NCR Corp., 2015 WL 5603040 (N.D. Ga. Sept. 23, 2015)

ERISA and Life Insurance News
(April, 2016)

Taylor, a former employee of NCR Corporation ("NCR"), brought suit under ERISA after the company terminated a top hat retirement plan in which he participated. The plan provided that it could be terminated, but that "no such action shall adversely affect any Participant's ... accrued benefits prior to such action under the Plan or the benefits payable [thereunder]." 

Taylor received a lump sum payment that was reduced by federal and state income taxes. He maintained that the lump sum payment "adversely affected" his benefits because of the tax consequences. In addition to a claim for benefits under Section 502(a)(1)(B), Taylor sought an administrative penalty because the administrator allegedly failed to provide certain plan documents upon his request.

Addressing the penalty claim first, the court determined that the claim was subject to dismissal because top hat plans are exempt by regulation from ERISA's disclosure requirements. Instead, U.S. Department of Labor ("DOL") regulations allow the administrator of a top hat plan to "satisfy the reporting and disclosure provisions ... by (1) Filing a statement with the Secretary of Labor ... [and] (2) Providing plan documents ... to the Secretary upon request."  29 C.F.R. § 2520.104-23(b). Here, NCR had complied by making the required filing with DOL.

The court then dismissed Taylor's benefit claim based upon the adverse tax consequences of the lump sum payout. First, the court held, "Plan sponsors have a right under ERISA to terminate or amend plans where that right is reserved in plan documents." Moreover, the "power to terminate a plan necessarily implies the power to pay out the benefit in a lump sum upon termination." 

More fundamentally, the court concluded that "tax losses do not fall within the relief available to redress a violation of ERISA." Courts have uniformly so concluded, the court noted. Moreover, the Eleventh Circuit has held that "extra-contractual" damages are not available under ERISA. The court agreed that "an adverse tax impact is not a basis for an ERISA remedy under Section 502(a)(1)(B)."

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