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Rhodes v. Holden Engineering & Surveying, Inc.

United States District Court, D. New Hampshire

December 5, 2016

Donald Rhodes, Plaintiff
Holden Engineering & Surveying, Inc.; Holden Engineering & Surveying, Inc. Incentive Compensation Plan; and Peter Holden, as Plan Administrator, Defendants Opinion No. 2016 DNH 218


          Steven J. McAuliffe United States District Judge.

         Donald Rhodes was employed by Holden Engineering & Surveying, Inc., from 1984 until 1995. During four of those years, he participated in Holden Engineering's “Incentive Compensation Plan” - a deferred compensation plan administered for the benefit of Holden's highly compensated employees. This litigation arises out of the Plan Administrator's refusal to pay Plan benefits, in the amount of $60, 000, to which Rhodes says he is entitled under the plan.

         Pending before the court are the parties' cross motions for judgment on the administrative record. For the reasons discussed, Rhodes' motion is granted in part and denied in part. Holden Engineering's motion is denied.

         Before turning to the parties' arguments on the merits, a fundamental problem must be addressed. Rhodes has not sued either the Plan or the Plan Administrator. In a case involving ERISA benefits, the proper party defendant is the “party that controls administration of the plan.” Terry v. Bayer Corp., 145 F.3d 28, 36 (1st Cir. 1998). See also Barkin v. Patient Advocates, LLC, 493 F.Supp.2d 119, 122 (D. Me. 2007). Here, because the Plan is entirely funded by Holden Engineering, Inc., those entities share an identity of financial interests: Plan liability to pay benefits will be borne directly by Holden. Perhaps that explains why Holden has not addressed Rhodes' failure to name the Plan or the Plan Administrator as parties, or sought dismissal on that basis.[1]

         Given that circumstance, the court will presume that Rhodes intended to name the Plan and Plan Administrator as defendants. The court also presumes that Holden has no objection to deeming the Plan as well as Peter Holden, in his capacity as Plan Administrator, as named defendants in this litigation. If Holden (or the Plan or the Plan Administrator) does object, a written objection may be filed, stating in detail the basis for that objection, as provided below. Otherwise, the complaint will be deemed amended by agreement to name the Plan and Plan Administrator as defendants.

         Standard of Review

         The parties agree that Holden's deferred compensation plan, frequently known as a “top hat” plan, is governed by the provisions of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001 et seq. See also 29 U.S.C. § 1051(2). When, as here, an ERISA-governed plan reserves to the plan administrator the discretion to interpret the plan and determine benefits eligibility, a benefits decision under the plan will be upheld unless it was “arbitrary, capricious, or an abuse of discretion.” O'Shea v. UPS Retirement Plan, 837 F.3d 67, 73 (1st Cir. 2016) (citation omitted). Under that standard, a reviewing court “asks whether a plan administrator's determination is plausible in light of the record as a whole, or, put another way, whether the decision is supported by substantial evidence in the record.” Colby v. Union Sec. Ins. Co., 705 F.3d 58, 61 (1st Cir. 2013) (citation and internal quotation marks omitted). See also Niebauer v. Crane & Co., 783 F.3d 914, 922-23 (1st Cir. 2015) (applying the court's “typical deferential standard of review” to an ERISA-governed “top hat” plan). See generally McCarthy v. Commerce Group, Inc., 831 F.Supp.2d 459, 480 (D. Mass. 2011) (noting that even if benefits eligibility decisions under a top hat plan are subject to de novo review, when the plan administrator is vested with discretion, the court need only determine whether it exercised that discretion reasonably and in good faith; hence, the court's review is deferential and “the debate over the standard of review is much ado about not much”).


         Rhodes worked at Holden Engineering from 1984 to 1995. During four of those years, he participated in Holden's “Incentive Compensation Plan” - an ERISA-governed, deferred compensation plan administered for the benefit of Holden's highly compensated employees. See Complaint, Exhibit 1 (document no. 1-1), “Holden Engineering & Surveying, Inc. Incentive Compensation Plan” (the “Plan”). Rhodes claims that under the terms of the Plan, he was entitled to $15, 000 in deferred compensation for each of those four years, to be distributed to him upon one of the Plan's four “Events of Distribution.” Under the Plan, one of those events of distribution was triggered when Rhodes turned sixty-five, on December 13, 2014.[2]

         About a week after he turned 65, Rhodes wrote to Holden asking that the Plan Administrator distribute $60, 000 in benefits to which he was entitled, along with any accrued interest. He also requested an accounting of his deferred compensation account. In response, Peter Holden, President of Holden Engineering and administrator of the Plan, denied Plan benefits. But, the reasons articulated for that denial seemed completely untethered to any benefits eligibility criteria described in the Plan. Peter Holden (presumably speaking as the Plan Administrator) stated that the Incentive Compensation Plan was intended to serve as a means by which to encourage employee retention; it was not designed to be a “retirement plan.” Moreover, he added, Rhodes' rights under the plan “terminated” when he left the company's employ. Finally, Holden stated that “[t]his is a position that I am more than willing to defend.” Letter dated May 15, 2015, from Peter Holden (document no. 1-6) (the “Denial Letter”). The Plan Administrator plainly took the position that Rhodes was entitled to nothing under the Plan. This litigation ensued.

         One can only assume that upon receiving notice of Rhodes' suit, Holden consulted with an attorney who quickly realized the factual and legal errors in the Plan Administrator's Denial Letter. Indeed, in its Answer to the Complaint (document no. 8), Holden offered an entirely different interpretation of the Plan than described in the letter to Rhodes. Holden now acknowledges that Rhodes' rights under the deferred compensation plan did not “terminate” when he left Holden's employ, and it concedes that Rhodes is entitled to benefit payments under the Plan.

         The only significant point of contention remaining is whether Rhodes is entitled to the full $60, 000 in deferred compensation as a lump sum, or whether the Plan Administrator may distribute at least a portion of that money to him in equal payments, on an annual basis. Also at issue is Rhodes' assertion that he is entitled to interest earned on the $60, 000 in benefits over roughly 30 years, as well as the parties' cross-motions for an award of reasonable attorney's fees.


         A. The Plan Provisions.

         Holden established the Plan in 1988, but it was made retroactively effective as of August 1, 1986. Generally speaking, the Plan provided that each year the Plan Administrator could designate an eligible employee as a “Participant” in the Plan for that year. The Plan, at section 2.3. The Plan Administrator would also set the amount of deferred compensation to which the participating employee was entitled. In essence, the Plan allowed Holden to award annual bonuses to select employees, while offering those employees the option of either taking that bonus “immediately” at the end of the current year, or deferring it until a later date (when, presumably, the Participant would be in a lower federal tax bracket). But, because the Plan was established in 1988, it provided that participants could not elect an immediate payout for the years 1986 and 1987. Those years had already passed and one might infer that Holden did not want to allocate the cash necessary to make “retroactive” payouts of year-end bonuses for those earlier years.[3]

         Consequently, under the Plan's terms, deferred compensation payments for 1986 and 1987 could only be taken upon an “Event of Distribution” (though, critically, the Plan is silent as to whether those payments may be taken as a lump sum, or whether they must be taken in annual installments over some indeterminate period of time). The relevant section of the Plan provides as follows:

For any Plan Year with the exception of the 1986 and 1987 Plan Years, any Participant may elect to receive as an immediate cash payment rather than as a deferred future benefit all or any part of the amount which may thereafter be allocated to him for such Plan Year; provided, however, that such election shall be made by the Participant by completing Part II of the Notice and delivering the same to the Plan Administrator prior to the commencement of such Plan Year.

         Plan, at section 4.1 (emphasis supplied). The “Notice” referenced in the Plan was provided to Rhodes in April of 1988. It, too, had an exception for ...

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