Former CEO's Claims Against Bank Are ERISA-Preempted

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

March 8 — ERISA preempts state law breach-of-contract claims brought by the former president and chief executive officer of Community First Bank, the U.S. District Court of South Carolina ruled.

In her March 7 opinion, Judge Mary G. Lewis denied the executive's motion to remand, holding that the plan at issue wasn't an “excess benefit plan” designed solely to avoid the contribution limits of tax code Section 415. She found that the plan was a benefit plan, subject to the Employee Retirement Income Security Act, that was created for a high-value employee—the bank president and CEO—to encourage him to remain in his job.

An “excess benefit plan” is a plan maintained by an employer solely to provide benefits for certain employees in excess of the limitations on contributions and benefits imposed by Section 415. This type of plan is exempted from ERISA provisions.

According to court documents, Frederick D. Shepherd Jr. worked as Community First's president and CEO until his retirement in December 2014. During his employment, Shepherd executed a salary continuation agreement that would provide him with supplemental retirement benefits.

The agreement provided that he would receive an annual payment of $210,000 in monthly installments to commence after his 71st birthday and to continue for 20 years. Shepherd started receiving these monthly payments in December 2011. In May 2015, the bank stopped making payments under the plan.

ERISA-Governed Plan

Shepherd sued the bank in state court alleging breach of contract and other violations of state laws. The bank removed the case to federal court, arguing that Shepherd's state law claims were preempted by ERISA. The bank moved to dismiss. Shepherd filed a motion to remand, arguing that his claims weren't governed by ERISA because the plan was an excess benefit plan as defined by the statute.

For a plan to qualify as an excess benefit plan, it must specifically refer to Section 415, the court said. “An employee benefit plan cannot serve the purpose of providing benefits in excess of these limitations without expressly referring either” to Section 415 “or its substantive provisions,” the court said.

In addition, the court noted that some courts engage in an analysis of the stated purpose of the plan as determined by its plain language to determine whether it qualifies as an excess benefit plan. A stated purpose in general doesn't suffice, there must be a specific reference to Section 415 in the plan's language for the plan to be exempted from ERISA, the court noted.

In this case, the plan didn't make any reference to either Section 415 or its substantive provisions, and it was clear that the purpose was to encourage the executive to remain an employee of the bank, the court concluded. Thus the plan at issue was covered by ERISA's enforcement provisions.

Finally, the court declined to grant the bank's motion to dismiss, allowing Shepherd to amend his complaint to conform it to ERISA remedies.

Covington Patrick Hagins Stern and Lewis represent Shepherd. Brooks Pierce McLendon Humphrey and Leonard and the David R. Price Jr. Law Office represent the bank.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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