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3rd Cir. – Published – Top Hat Plan Participant Bargaining Power

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  • 3rd Cir. – Published – Top Hat Plan Participant Bargaining Power

    Here’s a new case out of the Third Circuit, Paul F. Sikora v. UPMC, et. al. The plaintiff is appealing the District Court’s decision that his plan was a top hat plan and argues that the defendant must proved that plan participants had bargaining power before concluding that it is a top hat plan. The court first finds that the plan meets the both quantitative and qualitative requirements.

    Turning first to the quantitative restriction, the Plan covers relatively few employees. During Sikora’s participation in the Plan, approximately 0.1% of the entire UPMC workforce was a participant in the Plan. See Pane, 868 F.2d at 637 (holding that a plan-participant group comprising less than one-tenth of one percent of the workforce was numerically select); see also Alexander v. Brigham & Women’s Physicians Org., Inc., 513 F.3d 37, 46 (1st Cir. 2008) (concluding that a plan’s participants comprising only 8.7% of entire workforce was select); Demery v. Extebank Deferred Comp. Plan (B), 216 F.3d 283, 289 (2d Cir. 2000) (stating that a plan’s participants comprising 15.34% of the relevant workforce was sufficiently select). The quantitative restriction of the “select group” element is met.

    As to the qualitative restriction, although the relevant statutory language only requires participants to be members of a select group of management or highly compensated employees, here the Plan covers high-level employees who are both a select group of management and highly compensated employees. 29 U.S.C. §§ 1101(a)(1), 1051(2), 1081(a)(3) (requiring “a select group of management or highly compensated employees” (emphasis added)). UPMC allowed only members of management to participate in the Plan. Sikora speculates that some Plan participants may have had duties rendering them “non-management,” but that assertion is without record support. Even if Sikora’s assertion is true, the Plan participants were also highly compensated. During Sikora’s participation in the Plan, the lowest paid Plan participant earned an annual salary of over $200,000. Between 2007 and 2011, the average annual salary of Plan participants hovered around $500,000, as compared to the average annual salary of all UPMC employees, which was around $55,000. See Alexander, 513 F.3d at 46 (observing that plan participants earned an average income of $440,000, “more than five times the average income” of the employer’s workforce and concluding that the question of whether plan participants were highly compensated was “open-and-shut” in “relative and absolute terms” and “nowhere near the gray area”); Demery, 216 F.3d at 289 (citing evidence that “the average salary of plan participants was more than double that of the average salary of all . . . employees” to conclude that plan participants were highly compensated). The Plan participants were indisputably select members of management, and were highly compensated employees. The qualitative restriction of the “select group” element is therefore satisfied. Given that both the quantitative and qualitative restrictions of the “select group” element have been satisfied, we hold that the Plan in question qualifies as a top-hat plan.
    The court then provides a good overview of the circuit split regarding the bargaining power of plan participants.

    Sikora cites to no text in ERISA nor to any legislative history to support his argument. Instead, he relies on a paragraph from a 1990 Department of Labor (“DOL”) opinion letter. The DOL opinion letter states in relevant part:

    It is the view of the Department that in providing relief for “top hat” plans from the broad remedial provisions of ERISA, Congress recognized that certain individuals, by virtue of their position or compensation level, have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan, taking into consideration any risks attendant thereto, and, therefore, would not need the substantive rights and protections of Title I.
    U.S. Dep’t of Labor, Pension & Welfare Benefit Programs, Opinion Letter 90-14A at 2 (May 8, 1990).

    In interpreting this opinion letter, three of our sister circuits have inquired into participants’ bargaining power before determining whether a particular plan qualifies as a top-hat plan. In Bakri v. Venture Mfg. Co., the Sixth Circuit favorably quoted a district court opinion highlighting the importance of participants engaging in “direct negotiations with the employer.” Bakri v. Venture Mfg. Co., 473 F.3d 677, 678-79 (6th Cir. 2007) (quoting Carrabba v. Randalls Food Markets, Inc., 38 F. Supp. 2d 468, 478 (N.D. Tex. 1999)). Quoting the district court’s opinion, the Bakri court noted that “the ‘select group’ test is whether the members of the group have positions with the employer of such influence that they can protect their retirement and deferred compensation expectations by direct negotiations with the employer.” Id. Writing that the plan in question “consisted of employees . . . who had no supervisory, policy making, or executive responsibility, and had little ability to negotiate pension, pay or bonus compensation” the Sixth Circuit concluded that the “select group” element had not been satisfied. Id. at 680.
    The Third Circuit concludes that bargaining power is not a substantive element of a top hat plan.

    We agree with the First Circuit’s approach. On its face, the opinion letter does not require that participants in a top-hat plan possess bargaining power. The opinion letter does, however, explain Congress’s intent for creating top-hat plans. On that point, the opinion letter is therefore entitled to persuasive deference under Skidmore v. Swift & Co, 323 U.S. 134 (1944). See Alexander, 513 F.3d at 47 (“We have no quarrel with the letter’s persuasiveness as a gloss on Congress’s intentions in enacting the top-hat provision.”); see also Parker v. NutriSystem, Inc., 620 F.3d 274, 278 (3d Cir. 2010) (stating that, under Skidmore, statutory interpretations in opinion letters are given deference to the extent they persuade).

    The opinion letter’s explanation undermines Sikora’s position. Rather than suggest that courts inquire into whether a particular participant wielded the requisite level of “bargaining power,” the opinion letter observes that participants in top-hat plans were deemed by Congress to possess bargaining power “by virtue of their position or compensation level.” In other words, Congress felt justified in including the top-hat plan provisions in ERISA, at least in part because individuals in positions such as Sikora’s “have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan.” In short, reading the DOL opinion letter in light of Skidmore does not support Sikora’s position.
    The opinion is attached below.
    Attached Files
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