Labor & Employment Law Daily Wrap Up, PENSION AND BENEFIT PLANS—11th Cir.: Lump sum payments to participants in ‘Top Hat’ plans adversely affected accrued benefits, (Aug 27, 2025)

By Ronald Miller, J.D.

The question in this case was whether the precise lump-sum payments calculated by NCR and paid to the participants breached the language of the plans because they “adversely affect[ed]” the “accrued benefits” (i.e., the life annuities) of “any” participant.

In a case triggered by NCR’s termination of “Top Hat” benefits plans and making lump sum distributions to participants, the Eleventh Circuit affirmed the district court’s grant of summary judgment against NCR, finding it had “adversely affected” the “accrued benefit” of at least some participants in the plans and therefore breached the language of the plans. Accordingly, the appeals court held that under the plans the lump-sum payments “adversely affect[ed]” the “accrued benefits” of “any” participant if the lump sum led to a reduction in the amount of the life annuity of even a single participant (Hoak v. Ledford, No. 24-12148 (11th Cir. Aug. 26, 2025)).

“Top Hat” plans. A “top hat” plan is a benefit “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.” Such a plan is generally governed by ERISA, as a defined benefit plan.

NCR had five top hat plans. These plans were to provide for the payment of supplemental retirement, death, and disability benefits to senior executives in order to attract top talent. The retirement benefits promised under each of the plans were life annuities. NCR “was obligated under the [p]lans to pay [the participants] set monthly payments for life, regardless of how long any particular beneficiary lived.”

The five plans covered a total of 197 participants. Each of the plans had a provision stating that NCR had the “right... to terminate” the plan, “provided... that (a) no such action shall adversely affect any Participant’s, former Participant’s, or Eligible Spouse’s accrued benefits prior to such action under the Plan... and (b) no amendment may be made, to the extent that it would result in a material modification[.]”

Accruals frozen. In 2006, NCR froze all accruals of additional benefits under four of the plans. For the other plan, freezing benefits was not necessary because the participants’ employment with NCR had already ended. At the time of the freeze, each participant’s “accrued benefit” was the fixed life annuity already earned and owned by the participant under the terms of the plan in exchange for his or her years of service.

Pension liabilities. In 2011, NCR became concerned about its overall pension liabilities and hired a number of consultants to provide it with guidance. The consultants presented NCR various options concerning the top hat plans. First, NCR could issue a lump-sum payment to each participant on a basis chosen by the company. Second, NCR could purchase new annuities for the participants with a pre-tax monthly benefit equal to a participant’s monthly annuity but require the participants to pay the taxes on the premiums for the new annuities. Third, NCR could purchase new annuities for the participants, with NCR paying the taxes on the premiums, resulting in a lower monthly annuity amount for the participants. Fourth, NCR could create an irrevocable trust, place funds in that trust, and have the trust purchase equivalent annuities for the participants.

Lump-sum option. Ultimately, NCR decided that accrued benefits for the participants in the top hat plans would be disbursed through the lump-sum option. On February 25, 2013, NCR approved the termination of the plans. It also declared that the benefits owed to each of the participants would be settled by a lump-sum payment that was the “actuarial equivalent” of the accrued benefit using: (a) a 5% discount rate; and (b) certain mortality tables and actuarial calculations.

Class action. The participants filed a class-action complaint against NCR asserting a number of claims, including one for breach of contract, i.e., the denial of benefits under the plans. The participants asserted that they were entitled to replacement annuities or cash sufficient to purchase equivalent replacement annuities. The district court granted summary judgment in favor of the participants on the breach of contract claim. The district court required NCR to pay the participants “the difference between the lump sums they received and the cost of replacement annuities.” NCR appealed.

Administrator’s discretion. On appeal, NCR contended that because the plan administrator had discretion to interpret the terms of the plans, the district court erred in not reviewing the administrator’s interpretation for abuse of discretion. The Eleventh Circuit disagreed.

The appeals court observed that such deference was not warranted here given the clear language of the plans. The plans specified that the administrator’s interpretive discretion was limited. They provided that the administrator “shall have no power to add to, subtract from or modify any of the terms” of the plans, “or to change or add to any benefits” provided by the plans.

Termination of plans. When a plan is terminated, ERISA requires the plan administrator to distribute the assets of the plan. In doing so, the administrator “shall” either “purchase irrevocable commitments from an insurer to provide all benefit liabilities under the plan,” or “in accordance with the provisions of the plan and any applicable regulations, otherwise fully provide all benefit liabilities under the plan.”

Life annuities. The plans here did not expressly permit NCR to pay the participants its chosen actuarially equivalent lump sums (with or with-out a discount rate) upon termination as an alternative to their promised life annuities. The plans provided only that termination was permitted so long as “no such action shall adversely affect” the “accrued benefits” of “any” participant.

Language of plans. The question in this case was not whether the plans categorically prohibited a lump-sum payment (no matter how calculated) to the participants upon termination. Rather, it was whether the precise lump-sum payments calculated by NCR and paid to the participants breached the language of the plans because they “adversely affect[ed]” the “accrued benefits” (i.e., the life annuities) of “any” participant.

Based upon the ordinary meaning of the terms used, the appeals court agreed with the district court’s reading of the language in the plans. Accordingly, the appeals court held that under the plans the lump-sum payments “adversely affect[ed]” the “accrued benefits” of “any” participant if the lump sum led to a reduction in the amount of the life annuity of even a single participant.

In sum, NCR’s decision to pay the participants a lump sum based on mortality tables and actuarial calculations constituted a breach of the plans because the lump-sum payments “adversely affect[ed]” the “accrued benefits” (i.e., the life annuities) of at least some participants.

The case is No. 24-12148.

Judge: Jordan, A.

Attorneys: Michael E. Klenov (Korein Tillery) for Jon Hoak, Allan Quick and Anthony Fano. Paul Whitfield Hughes, III (McDermott Will & Schulte) for NCR Corp. and Plan Administrator of the Plans of NCR Corp.

Companies: NCR Corp.; Plan Administrator of the Plans of NCR Corp.

Cases: PensionBenefitPlans ClassActions CoverageLiability ContractClaims AlabamaNews FloridaNews GeorgiaNews