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Federal Court Upholds Forfeiture Provision In "Top-Hat" Pension Plan -- High Paid Exec's May Lose Supplemental Payments If They Join the Competition Says Willkie Farr & Gallagher, Defendant's Counsel.

Business Editors & Legal Writers

NEW YORK--(BUSINESS WIRE)--July 10, 2001

In a decision filed on June 29, 2001, the United States District Court for the Eastern District of Pennsylvania held that a company can enforce a forfeiture provision contained in its Executive Supplemental Pension Plan and terminate a former executive's supplemental pension benefits once the former employee engages in competitive business. In Bryan v. The Pep Boys - Manny, Moe and Jack, U.S. District Judge Herbert J. Hutton held that the forfeiture clause in The Pep Boys' "Top Hat" Pension Plan is valid and enforceable, dismissing plaintiff's ERISA, contract and estoppel claims. The defendant, The Pep Boys, was represented by Joseph Baio of Willkie Farr & Gallagher and Richard Bazelon of Bazelon, Less & Feldman, P.C.

In 1991, The Pep Boys hired plaintiff, James Bryan, for an executive position. Although he signed a term sheet acknowledging that he understood the terms of the company's Executive Supplemental Pension Plan, Bryan claimed that, at the time of his hiring, he was not informed of the forfeiture provision in the Plan. Bryan said that only upon his retirement, seven years later, was he informed that his benefits would terminate were he to consult for, or work with, a competing business. Bryan elected to accept early retirement benefits under the Plan and received monthly payments from March 1998 until June 1999, at which time he accepted a consulting position with Midas, a competitor of The Pep Boys. Upon learning of Bryan's new position, The Pep Boys enforced the forfeiture clause in the Plan and terminated all Top Hat benefit payments to Bryan. Bryan initiated an internal administrative appeal which was turned down by the Plan Administrator.

In rejecting plaintiff's claim that his payments should continue because he was unaware of the forfeiture provision at the time he was hired, Judge Hutton wrote: "Because plaintiff has accepted certain provisions of defendant's supplemental executive benefits plan, the court finds that plaintiff cannot now renounce other provisions of defendant's plan." Additionally, Judge Hutton held that The Pep Boys had acted in accordance with ERISA disclosure requirements for Top Hat plans by timely filing a statement with the U.S. Department of Labor delineating the terms of its plan. The company was therefore under no legal obligation to offer a summary of the Plan to participants as would be required under ERISA for broadly-based pension plans.

The court also ruled that the forfeiture provision did not run afoul of federal public policy, nor was it unenforceable because it was unlimited in scope and time. The court noted that Top Hat plans are exempt from many of ERISA's provisions, including those providing "nonforfeitability protection." Judge Hutton found that this exemption for Top Hat plans was created deliberately "to let executives use their positions of power to negotiate such protection for their plans on their own." Accordingly, the court refused to "rewrite the federal statute" and granted The Pep Boys summary judgment on all counts.

If you would like a copy of the court's decision, please contact Joseph Baio, a member of Willkie's Litigation Department, or Frank Daniele, a member of the firm's Employee Benefits and Employee Relations Department. Mr. Baio can be reached at 212.728.8203 and by e-mail at jbaio@willkie.com. Mr. Daniele's phone number is 212.728.8616 and his e-mail address is fdaniele@willkie.com.

Willkie Farr & Gallagher is an international law firm of over 500 attorneys with offices in New York, Washington DC, Paris, London, Milan, Rome and Frankfurt. Willkie Farr & Gallagher is headquartered in New York City at 787 Seventh Avenue; Tel: 212.728.8000.
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Publication:Business Wire
Date:Jul 10, 2001
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