## Facts

- Extebank maintained a deferred compensation plan (“Plan B”) allowing eligible employees to defer up to 25% of salary, with a higher credited return if employed until retirement age and a lower return if employment ended earlier.
- Plan B was limited to senior officers and other key employees; the average compensation of participants exceeded twice the average compensation of Extebank’s overall workforce.
- About 15.34% of employees were eligible to participate; roughly 7–10% participated.
- Extebank partially matched deferrals and purchased life insurance policies on participants, with proceeds placed in a designated account.
- Plan documents stated benefits would be paid from Extebank’s general assets, that participants were unsecured general creditors, and that any insurance or related accounts remained the employer’s property subject to general creditors’ claims.
- During negotiations and completion of Extebank’s sale to a successor bank, the plaintiffs (Plan B participants) left employment before reaching retirement age and received only the plan’s lower credited return.
- Plaintiffs sued under ERISA seeking additional benefits and arguing Plan B was not a top hat plan because it was “funded” and not limited to a “select group.”

## Issues

1. Whether Plan B was “funded” for ERISA purposes because the employer used life insurance and a designated account, defeating top hat status.
2. Whether Plan B was maintained for a “select group of management or highly compensated employees” given the size of the eligible group and variation in salaries.
3. Whether Plan B qualified as a top hat plan exempt from most substantive ERISA requirements.

## Decision

- The court affirmed summary judgment for defendants.
- Plan B was “unfunded” because benefits were payable from general assets and participants held no rights beyond those of unsecured general creditors, notwithstanding employer-owned insurance and a separate account.
- Plan B covered a “select group of management or highly compensated employees” based on participants’ roles in the corporate hierarchy and compensation levels relative to the workforce.
- Because Plan B was an unfunded plan for a select group, it qualified as an ERISA top hat plan and was exempt from most substantive ERISA provisions.

## Legal Principles

- A deferred compensation plan is “unfunded” for top hat purposes when participants’ claims are no more secure than general unsecured creditors and any related assets remain the employer’s property subject to creditors’ claims.
- An employer’s internal financing mechanisms (including insurance or segregated accounts) do not, by themselves, make a plan “funded” absent a transfer of beneficial ownership or security interests to participants.
- Whether a plan covers a “select group of management or highly compensated employees” is a fact-specific inquiry considering both the group’s relative size and qualitative indicators such as job responsibilities and compensation compared to the workforce; no fixed percentage controls.
- A plan that is unfunded and maintained for a select group of management or highly compensated employees qualifies as a top hat plan and is exempt from ERISA’s substantive funding, vesting, participation, and fiduciary rules, while remaining subject to ERISA’s enforcement framework.

## Conclusion

The Second Circuit held that Plan B’s terms left participants as unsecured creditors and restricted participation to comparatively highly paid managerial/key employees, so the plan was an unfunded top hat plan exempt from most substantive ERISA requirements, defeating the plaintiffs’ claims for additional benefits.


Demery v. Extebank Deferred Compensation Plan (B), 216 F.3d 283 (2d Cir. 2000)