Henkel's Failure to Withhold FICA Taxes Violated Terms of Top-Hat Plan, Court Finds

Henkel Corp. violated the terms of its deferred compensation and supplemental retirement plan by failing to withhold taxes owed under the Federal Insurance Contributions Act on the value of benefits under the plan, a federal judge in Michigan has ruled (Davidson v. Henkel Corp., 2015 BL 1384, E.D. Mich., No. 4:12-cv-14103-GAD-DRG, 1/6/15).
In a Jan. 6 opinion, Judge Gershwin A. Drain of the U.S. District Court for the Eastern District of Michigan granted a motion for partial summary judgment by a class of Henkel retirees, finding that the company's failure to withhold FICA tax from the deferred compensation payable under its top-hat plan within the time period required under the tax code violated the terms of the plan. This failure resulted in a reduction in the retirees' vested benefits.
The court emphasized that the retirees' claims weren't a disguised effort to obtain a FICA tax refund or even a challenge to the method by which Henkel addressed the nonpayment of those taxes after it was discovered. Instead, the court found that the retirees had proven that Henkel violated the plan and thus was liable under the Employee Retirement Income Security Act for its initial failure to withhold the taxes.
FICA Tax Dispute
The basis of the claims come from Henkel's handling of FICA tax withholding in its nonqualified deferred compensation plan benefits.
The class of retirees, led by John B. Davidson, a former Henkel employee who retired and began drawing benefits from the plan in 2003, all received notice from the corporation in 2011 that the FICA taxes on their benefits hadn't been withheld properly and that they would be subject to those taxes on a “pay as you go” basis for 2008 and beyond, reducing their vested benefits by the amount of taxes due.
Davidson filed suit in 2012, alleging that Henkel “acted with gross negligence and recklessness in failing to properly determine the FICA taxes that may have been payable at the time of his retirement.”
According to Davidson, Henkel should have withheld FICA taxes on the present value of his benefits in 2003 as required by the tax code. Davidson contended that had that happened, he would have owed “no additional FICA in 2003 or in any subsequent year.”
Excerpted from a story that ran in Pension & Benefits Daily (01/07/2015).

For More Information: Text of the opinion is at http://www.bloomberglaw.com/public/document/Davidson_v_Henkel_Corp_No_12cv14103_2015_BL_1384_ED_Mich_Jan_06_2.

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