5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The U.S. Court of Appeals in San Francisco (CA-9) in Sluimer v. Verity, Inc. has affirmed without comment a district court's ruling that a plan administrator abused his discretion by denying severance benefits to an employee who experienced a "constructive termination" under the terms of the plan.
Heightened abuse of discretion standard
The district court first determined it was appropriate to review the plan administrator's benefits denial under a heightened abuse of discretion standard. The plan administrator responsible for determining eligibility under the plan also served as a high-level executive of the entity that provided the funding of any potential benefits under the plan. This is the type of conflict of interest the heightened abuse of discretion standard of review is intended to address.
The plan defined "constructive termination" as the offer of a different position that would result in a substantial reduction in the employee's duties or responsibilities. In the new job offered to the employee, he would supervise 15 employees and be responsible for $5 million in annual revenues, while in his old position he supervised over 100 employees and was responsible for over $100 million in revenue. Given these facts, the court explained, the administrator's denial of benefits was unreasonable and contrary to the uncontroverted evidence.
Waiver of claims
The court also rejected the administrator's contention that the employee was required to waive all claims against the company and sign a confidentiality agreement before he could even be considered for severance benefits. Again, that's a misreading of the plan, the district court explained. Signing the waiver of claims and confidentiality agreement are conditions precedent only to the receipt of benefits, not eligibility for benefits.
Effect of foreign litigation
The court noted that the employee's Dutch lawsuit regarding the amount of the cash severance payment he was entitled to under Dutch labor laws did not preclude him from signing the required waiver. The parties had understood from the beginning that the employee's only claims under the severance plan were to stock options and continued health insurance, and not to any cash award.
Visit our News Library to read more news stories.