A recent Eleventh Circuit decision is worth noting for employers that sponsor SERPS and other “top hat” plans that provide annuity and lump sum payment options.  Hoak v. Ledford, et al., 2025WL 2450919(11th Cir. Aug. 26, 2025).  Affirming a district court decision, the appeals court ruled on summary judgment that a plan amendment to cash out participants on plan termination “adversely affected” the life annuities of some participants, and was therefore unlawful under the plans and  ERISA.  

Each of the five nonqualified plans in question permitted a plan termination, so long as “no such action shall adversely affect” the accrued benefits of “any” participant. The facts summarized in the opinion indicate that NCR carefully reviewed its options for terminating its nonqualified plans with outside counsel and concluded that paying lump sums based on a 5% discount rate and other actuarial calculations was reasonable and would not “adversely affect” any person’s accrued benefit payable as a life annuity.  The court did not address the issue of whether the plan administrator’s interpretation of a top-hat plan should be given deference under ERISA by finding the plan language unambiguous.  In so finding, the court applied dictionary definitions that the quoted phrase was breached if “any” participant would experience a “reduction in the amount of the life annuity.”  The court also rejected the defendant’s challenge to the remedy granted by the district court, which required the employer to pay the participants “the difference between the lump sums they received and the cost of replacement annuities using PBGC assumptions as of the termination date."  In this regard, the appeals court declined to find an “abuse of discretion” on this chosen remedy.

A key takeaway from this case is that nonqualified plan drafters should carefully craft any language restricting a plan sponsor’s authority to amend or terminate the plan.

Note that the plan sponsor has filed a petition for rehearing by the panel or the full Eleventh Circuit, so stay tuned for future developments.