On July 2, 2026, the Northern District of Georgia granted preliminary approval of a $47.7 million class action settlement in Hoak v. Plan Administrator of Plans of NCR Corp., resolving claims brought by approximately 189 former NCR executives and their beneficiaries. The settlement ends more than a decade of litigation, arising from NCR’s 2012–2013 termination of five nonqualified “top hat” plans and its unilateral conversion of participants’ promised lifetime annuities into discounted lump sum payments. 717 F. Supp. 3d 1280 (N.D. GA. 2024), aff’d 153 F. 4th 1148 (11th Cir. 2025).
Although the dispute unfolded against the backdrop of Code Section 409A’s plan termination rules, the bottom line for plan sponsors is this: top hat plans are unilateral contracts that employees accept through performance, and once accepted, the express terms of the plan document govern. While compliance with Section 409A’s termination and liquidation exception is required to avoid significant adverse tax consequences, a termination that satisfies the regulations can still be a breach of contract if the plan document does not clearly permit the lump sum and valuation of the payout. Careful drafting of termination, distribution, and valuation provisions is the key takeaway for plan sponsors and their advisers.
Case Background
NCR sponsored five nonqualified top hat plans (two SERPs, an Excess Plan, a Mid-Career Plan, and an AT&T transfer plan) that promised participants fixed life annuities. Accruals were frozen in 2006, so each participant’s accrued benefit was a locked-in monthly amount for life. In 2012 and 2013, facing balance-sheet pressure, NCR terminated all five plans (“Project Omaha”) and, without participant consent, cashed everyone out via lump sums it characterized as actuarially equivalent to the annuities. The lump sums were calculated using mortality tables and a 5% discount rate – a rate the Committee selected based in part on NCR’s own default risk. Notably, NCR’s own consultants had presented alternatives (purchasing replacement annuities, rabbi trust structures, or giving participants an annuity/lump-sum election) that would have preserved the annuity stream. Each plan’s termination provision permitted termination at any time, but no such action could adversely affect any of the participants or their beneficiaries accrued benefits.
Section 409A Compliance is not Enough
Generally, Code Section 409A provides that a plan may not permit accelerated payment of a deferred amount after the deadline for making an initial deferral election has passed. One relevant exception permitting acceleration of payments is plan termination and liquidation.
An employer may decide to terminate and liquidate all amounts deferred under a plan in only one of three ways: (1) in connection with the employer’s insolvency, (2) in connection with a change in control of the employer, or (3) in accordance with the general plan termination rule. The restrictions surrounding the plan termination rules are onerous and depend on what type of termination applies, but notably, these rules are not required to be written into the plan document.
More importantly, employers should read the decision in Hoak as a continuation of the established precedent that “top hat” plans are treated as unilateral contracts which are accepted by employees continued performance. Insofar as these plans are treated as unilateral contracts, the principles of contractual interpretation are applied to disputes over the terms of a plan document – especially where the terms of the relevant unilateral contract are clear from the written plan document. Under Hoak, the emphasis was placed on what the plain terms of plans permitted and required, and where a plan term is ambiguous, the plan is construed against the drafter. Further, silence surrounding matters of plan termination or valuation of annuity benefits exposes employers to interpretive pitfalls. The defendants in Hoak were disallowed from using “actuarial equivalence” as a valuation metric for accelerated payments because no mention of such a standard appeared in the plan documents. Indeed, the plans provided that termination was permitted as long as “no such action … adversely affect[ed]” the “accrued benefits” of “any” participant.
Takeaways
Plan terminations often arise in the context of merger and acquisition transactions. Pursuant to Treasury Regulations, accelerated payments are permissible in connection with a change in control event (CIC) and more permissive than the general plan termination requirements. But even though a nonqualified plan may be terminated in connection with a CIC event without triggering adverse tax consequences under Section 409A, the holding in Hoak emphasizes the need for employers to pay close attention to plan’s contractual terms when considering a plan termination.
Hoak is a reminder that Section 409A compliance is a floor, not a ceiling. The termination in Hoak was permissible under Section 409A, and the defendants argued that the regulatory requirement that terminated plans be paid out within 24 months justified reading the plan to permit lump sums. The court was unpersuaded, holding that the plan document remains a contract construed under ordinary contract principles, and a statutory payout window does not rewrite the form of payment a plan promises. For employers, the concern is twofold, (1) in an ordinary termination, the four corners of the plan document remain the governing authority, and (2) terminations arising out of mergers demand particular care, because deal pressure to wind down plans quickly is precisely where contractual disputes take root.
Employers still have a path to de-risking. A sponsor may offer lump sums that participants and beneficiaries accept voluntarily, moving plan liabilities off the balance sheet without inviting litigation. But because a 409A termination must apply to all participants, the sponsor cannot control who accepts – anyone who declines remains entitled to payment in the form the plan document specifies, and the sponsor should price that risk into the decision to terminate.
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