Is anyone aware of a SERP plan participant successfully asserting a cause of action as a result of a plan amendment where the only change was to the form of benefit? The plan currently provides for an actuarily adjusted, less 10%, lump-sum payment anytime after retirement. The plan administrator is considering amending the plan, as allowed under the plan provided the change does not adversely affect vested benefits, to remove that form of payment. Thoughts on the subject would be appreciated.

What does the plan say about the plan sponsor's ability to amend the plan?

Under the plan, the administrator has broad authority to amend or modify the plan (including benefits thereunder) provided the change does not adversely affect the vested benefits of plan participants. Part of the question is whether changing the form of benefits allowed adversely affects vested benefits. In theory, a participant could game the system somewhat in that, if they became aware of an imminent premature death, they could request their benefit be paid in an immediate lump sum payment.

This may be oversimplified, but the general rule is that a non-qualifed plan can be amended in any way desired by whoever is authorized to amend it, as long as such amendment does not violate the terms of the plan itself.

There may be state law issues with respect to contracts, implied contracts, etc. That is why you would have an experienced attorney help with the amendment, and, for that matter, with the production of the plan document in the first place. (I am not an attorney.)

It sounds like there are several issues that may be at work here as I’m struck by the comment that a participant could “game the system” if they knew they were going to die soon. Sounds like the plan provides a life only benefit, but, as was stated, the lump-sum is based on projected life expectancy. Hence, the design has an inconsistency. Most SERPs have a period certain to remove this inconsistency allowing the participant to feel relatively neutral with the 10% reduction for lump-sum being the only difference. Is this inconsistency driving the concern about removing the lump-sum, or inability to get paid-out if there are financial concerns?

It’s interesting that the administrator wants to eliminate the lump-sum provision. More and more companies are electing to pay a lump-sum to retiring individuals to eliminate the balance sheet liability and administrative hassle of paying/tracking someone for the next 25 years. If the plan has been appropriately informally funded this decision would be moot. Also, if the proposed regs in Washington go through this employee concern, removing the election for an “immediate” payment, becomes moot as well. Let Washington be the bad guy. Your administrator may want to wait and see what happens in Washington over the next 50 days.