Newsletter

Suit on ERISA Claim Allowed After 20 Years

Posted on April 10, 2014

In a recent Federal district court decision, a Federal judge refused to dismiss a 20-year old claim involving a stock award plan sponsored by Marriott International, Inc. (“Marriott”) .

Between 1963 and 1990, Marriott offered deferred stock awards to management employees. The awards vested the shares in pro-rata annual installments from the date they were awarded until the recipient reached age 65, or upon death, disability, or approved early retirement. Vested shares were paid out in ten annual installments beginning upon retirement, disability, or age 65.

The plan benefited only a very small number of managers when adopted in 1963, but over the years was expanded and involved several thousand Marriott employees.

Marriott contended that the plan was a “top hat plan” that was limited to a select group of highly compensated or management employees.  As such it was exempt from most of the substantive requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including ERISA’s vesting rules. The vesting rules described above did not comply with ERISA’s mandated vesting rules. However, after a Department of Labor pronouncement concerning the application of the top hat rule Marriott replaced this stock award plan with another plan whose eligibility was much more restrictive.

In 2010, two former stock award recipients filed a class action lawsuit on behalf of all award recipients to force Marriot to reform the plan’s vesting provisions to comply with ERISA. Both recipients were partially vested under the plan and were paid their vested benefit, one in 1991 and the other in 2006. One of the recipients signed a release of all claims against Marriott.

This opinion dealt with the application of the statue of limitations to the claims at hand and did not decide whether or not the Marriott award plan was or was not a top-hat plan.

ERISA does not provide a specific statute of limitations for benefit claims. Courts therefore apply the most closely analogous state statute of limitations. In this case it was agreed that the Maryland 3-year statute of limitations for contract actions applied. The issue, however, was when the statute began to run in this case.

ERISA requires that plans provide a claims procedure and participants are generally required to exhaust their administrative remedies before bringing suit. Thus the court held the statute of limitations would not begin to run until a claim for benefits was presented and denied. Because the award plan did not contain a claims procedure and the plaintiffs were never notified of their right to file and seek review of the claim to benefits, the statute of limitations never began to run. Thus, even though the plaintiffs’ claim would have accrued in 1990 and 1991 when they terminated employment if the ERISA vesting schedules applied, their lawsuit filed in 2010 was allowed to proceed.

The court’s decision was influenced by the facts that plaintiffs did not understand how ERISA applied to the plan or how their benefits might have been effected if the ERISA vesting rules applied.  The Court also chose to ignore the one plaintiff’s previously signed release of claims because it spoke in general terms of the release of all claims pertaining to his employment or termination of employment, and did not specifically refer to the waiver of his rights under ERISA.

While this decision may not hold up under appeal, clients with non-qualified top-hat plans would be well advised to assure the plan contains an ERISA-compliant claims procedure and that the procedure is followed in all cases.

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