In Post #84 on my Pension Justice 4 You Facebook Page, www.facebook.com/PensionJustice4You, I explained the pension risks of signing a separation agreement that includes a broad release of claims against the employer or related persons or entities. A recent case involving $1.3 million in vested pension benefits illustrates the problem. Buster v. Comp. Comm. of Bd. Of Dirs. Of Mechs. Bank, No. C 16-101146 WHA (N.D. Ca. July 14, 2017).
Steven Buster worked as president and chief executive officer for Mechanics Bank until 2012 when he was terminated. Prior to his separation from the Bank, Buster participated in the Bank's 401(k) plan, pension plan, Executive Retirement Plan (ERP), and Supplemental Executive Retirement Plan (SERP). A few months before his departure, Buster met with Bank officials to negotiate his separation package. The separation agreement Buster subsequently signed stated that he would receive severance pay, ERP benefits, and $1 million in retirement benefits "to ensure an amicable and smooth transition." The separation agreement did not mention Buster's pension, 401(k), or SERP benefits (valued at $1.3 million).
The separation agreement also contained a broad release of claims, including claims arising under the Employee Retirement Income Security Act (ERISA), against the Bank and related entities. The release did not mention Buster's SERP benefits, but emails between Bank officials indicated that everyone at the Bank understood that Buster had not released any claim for those benefits.
In 2015, Buster inquired to the Bank's Human Resources department about his SERP benefits, but was told that he waived his claim to those benefits via the release. Buster's attorney then asserted a formal claim for the SERP benefits with the Bank's compensation committee (Committee), which denied the claim. Buster's attorney appealed, arguing that the emails between Bank officials proved that Buster had not released his claim. The Committee denied the appeal; so Buster sued in federal district court.
In the district court's view, the issue was whether Buster had knowingly and voluntarily waived any claim for the SERP benefits when he signed the release. After conducting a three-day bench trial, the district court held that Buster had not, and that the Committee's reasons for denying his claim were "inscrutable."
As an initial matter, the Committee had relied on a covenant not to sue in the release, but Buster's administrative claim before the Committee was not a lawsuit and Buster's ability to sue or not had nothing to do with whether he knowingly and voluntarily waived his claim for the SERP benefits when he signed the release. The Committed had also reasoned that the separation agreement did not expressly state that Buster would receive his SERP benefits. However, Buster received his pension and 401(k) benefits even though the separation agreement did not mention those benefits either. Therefore, the fact that the separation agreement was silent as to whether Buster would receive his SERP benefits was immaterial to determining whether he knowingly and voluntarily waived any claim to those benefits. Finally, the district court found highly persuasive the emails between bank officials indicating that everyone at the Bank thought Buster had not released his claim to the SERP benefits.
Although Buster ultimately prevailed on his claim, he expended two years and untold legal fees fighting to obtain this favorable ruling. Buster might have been able to avoid this time, effort, and expense had he hired an attorney at the outset to review the separation agreement and release and make any necessary changes to those documents so that is was crystal clear Buster was not releasing any claim for the SERP benefits. The court's opinion suggests that Buster did not consult with an attorney before he signed the separation agreement and release.
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