Demery v. Extebank Deferred Compensation Plan (B), 216 F.3d 283 (2^nd Cir. 2000)-This court affirmed that a plan offered by Extebank to certain employees was a "top hat" plan, and therefore exempt from many provisions of ERISA.  A "top hat" plan is "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees." 29 U.S.C. §§ 1051(2), 1081(a)(3), 1101(a)(1).

Plaintiffs, a group of former bank officers of Extebank and participants in its deferred compensation plan, argued that "Plan B," set up in addition to the company's regular pension plan, did not meet the criteria for a "top hat" plan because (1) it was funded, (2) it was offered to more than a "select group," and (3) the participants did not have the ability to negotiate the terms of the plan. Additionally, they asserted (4) that Extebank violated ERISA's disclosure and notice requirements.

On the first point, the fact that the Extebank purchased, and was the beneficiary of, life insurance contracts on its employees to help pay for its obligations under the Plan, did not make the Plan "funded." A plan is considered "unfunded" when "benefits thereunder will be paid solely from the general assets of the employer" and beneficiaries have no particular interest in any specific set of funds or assets of the Employer. See Gallione v. Flaherty, 70 F.3d 724, 725 (2^nd Cir. 1995) and Miller v. Heller, 915 F. Supp. 651 (S.D.N.Y. 1996). Here, the Plan's explicit provisions satisfied this test.

Next, this court observed there is no determinative percentage of employees over which a plan will no longer be considered "select."  Although Plan B extended offers to 15% of its employees, all participants were selected officers of the bank, were in management positions, and were highly compensated in comparison to bank employees at large. The test is a fact-specific inquiry, analyzing the quantitative and qualitative factors in conjunction.

Third, on the question of opportunity to negotiate plan terms, this court stated that although this is an important factor (since executives are assumed to need less legal protection in pension decisions), the plaintiffs failed to produce sufficient evidence on the issue.

Finally, Extebank did not violate the reporting and disclosure requirements of ERISA (furnishing of a summary plan description and annual reports to plan beneficiaries) since top hat plans need only file a short statement with the Secretary of Labor and provide plan documents to the Secretary upon request.