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Home > Blog > Second Circuit Finds Board Abused Discretion in Denying Supplemental Pension Plan for Certain Management Employees (SERP) Benefits

Second Circuit Finds Board Abused Discretion in Denying Supplemental Pension Plan for Certain Management Employees (SERP) Benefits

In Wegmann v. Young Adult Inst., Inc., No. 20-1147, __F.App’x__, 2021 WL 3573753 (2d Cir. Aug. 13, 2021), the Second Circuit considered whether Defendants Young Adult Institute, Inc. (“YAI”) and Trustees of the Supplemental Pension Plan for Certain Management Employees of Young Adult Institute (the “Board”) abused their discretion in denying Karen Wegmann’s claim for benefits under its Supplemental Pension Plan for Certain Management Employees (the “SERP”), which is a “top hat” plan. The SERP “Eligibility” provision, Section 10.1.2, provides:

Each Management Employee who shall complete 15 years of service with [YAI] and whose compensation is not fully considered in the computation of Federal Social Security benefits, shall be eligible to participate in the Plan. Entry into the Plan as a Plan Participant shall be on the July 1 coincident with or next following the employee’s compliance with the Eligibility Requirements.

Wegmann met the above eligibility requirements because she was a Management Employee when she became CFO in 2006, completed 15 years of service, and had a salary above the maximum Social Security taxable wage. The Board argued that meeting the above requirements alone does not mean that employees automatically become SERP participants, rather, the SERP also requires Board approval to enter the SERP, and the Board has discretion to determine entitlement to benefits based on factors not contained in the SERP. The district court found that the Board’s denial of Wegmann’s benefits was arbitrary and capricious because it rested on an unreasonable interpretation of the SERP.

On the standard of review, while noting there is a circuit split, the Second Circuit declined to decide the proper standard of review in cases involving top hot plans because even applying the more lenient standard, the Board’s decision was arbitrary and capricious. The Board’s interpretation imposes a standard not required by the SERP and was inconsistent with the SERP’s plain words. The SERP does not state that Board approval is required for an employee’s entry into the SERP. Even though the “Board had a longstanding practice of selecting and voting to approve participants in the SERP,” Defendants failed to show the SERP was not integrated by its own terms. The Second Circuit affirmed the decision of the district court with respect to the ERISA claim.

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