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Sixth Circuit Win for State Street Bank in $200 Million Chrysler “Top Hat Plan” Class Action

Top hat plans” have many attractive features, but a new court decision is a reminder that top hat plan participants have limited protections under ERISA – and that assets held in a rabbi trust are not protected from the claims of creditors upon the employer’s bankruptcy or insolvency.

State Street Bank and Trust Company, served as the trustee of a top hat plan providing special retirement benefits for active and retired senior executives at Chrysler Automotive. When Chrysler was facing bankruptcy in 2008, $200 million in funds from the rabbi trust were used for company operations. Some 400 retired executives (including former chairman Lee Iacocca) were left with nothing in their accounts. After getting no relief in the Chrysler reorganization proceedings, the retirees filed a complaint against State Street and Chrysler’s parent company Daimler A.G. After considerable skirmishing in state and federal court, a federal judge ruled that the plaintiffs could not pursue state law claims of fraud and breach of trust about an ERISA benefits plan (because those claims were preempted by ERISA) – and that any breach of fiduciary duty claims under ERISA would be futile as the top hat plan did not protect retiree accounts in a bankruptcy. Those rulings were affirmed by the Sixth Circuit Court of Appeals.

Back in district court, the plaintiffs filed expanded ERISA claims about the rabbi trust and a new age discrimination claim, all of which were dismissed. In a second appeal, the Sixth Circuit Court of Appeals has ruled (again) that plaintiffs have no viable ERISA claims because the plan and trust operated as described in plan documents and ruled that the age discrimination claims were filed too late. In short, all of the claims have been defeated on pleading and procedural grounds without a trial on what happened during the Chrysler collapse.

This is the latest in a string of court victories for our trustee clients in class actions filed in Detroit and New York about auto industry benefit plans that were wiped out in the 2008 financial crisis, including those at Delphi Automotive, General Motors and now Chrysler.

© 2017 McDermott Will & Emery

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About this Author

Wilber Boies, Business Litigation, Attorney, McDermott Will, Law Firm
Partner

Bill Boies is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  He focuses his practice on business disputes counseling and business litigation throughout the country. Bill regularly represents benefit plan sponsors and fiduciaries in ERISA class action litigation concerning pension plan administration, fiduciary duty, responsibility for asset losses, and changes in welfare benefits.  Several health benefits class actions he has won resulted in court-approved savings to employers valued at more than $100 million.  He has defeated...

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Andrew C. Liazos is a partner in the law firm of McDermott Will & Emery LLP based in the Firm’s Boston office. Andrew heads the Firm's Executive Compensation Group and the Boston Employee Benefits Practice.

Andrew regularly represents Fortune 500 companies, public companies, large closely held businesses and compensation committees on all aspects of executive compensation, ERISA fiduciary matters, employee benefits in business transactions and bankruptcy, and employee stock ownership plans. He also counsels executives in employment agreement and joint venture negotiations.

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