On July 17, the United States Court of Appeals for the Sixth Circuit upheld the district court’s dismissal of claims brought by former manager-executives of Ruby Tuesday, Inc. (Ruby), seeking recovery of lost benefits from the trustee of the rabbi trust that held the assets of two top hat plans, Regions Bank (Regions), after Ruby filed for bankruptcy. Aldridge v. Regions Bank, No. 24-5603, 2025 WL 1983483 (6th Cir. 2025). The court affirmed that the plaintiff-executive’s state law claims for breach of fiduciary duty, breach of trust, breach of contract and negligence were preempted by ERISA, even though top hat plans are exempt from ERISA’s fiduciary duties.

Top Hat Plans. To be a top hat plan, the plan must be unfunded and primarily for providing benefits to a select group of management or highly compensated employees. Such plans are exempt from ERISA’s coverage, funding, and fiduciary duty rules. Since they must be unfunded, the benefits remain subject to the employer’s general creditors.

Rabbi Trusts. A rabbi trust is an irrevocable trust that holds the assets of a top hat plan where the trustee is directed to use such assets to pay the benefits under the plan when they are due. However, if the employer becomes insolvent, all distributions of benefits must stop and the assets are held for the general creditors of the employer. Because the assets are still subject to the employer’s general creditors in the event of insolvency, the trust is still considered unfunded. Rabbi trusts are a technique to ensure that the participants will be paid their benefits as long as the employer is solvent. They are called a “rabbi” trusts because the first IRS ruling approving the technique involved a plan for a rabbi.

Background. In 2017, Ruby was acquired by another entity. The rabbi trust contained a clause that if the employer experienced a change of control, the employer was required to fully fund the trust for all benefits owed under the plans and the trustee was empowered to take any and all legal action to enforce this obligation. Plaintiffs alleged that Ruby never fully funded the trust and Regions failed to enforce this provision of the trust. Ruby’s board of directors terminated the plans on March 1, 2019 and authorized lump sum distributions of participant account balances as soon as possible after March 1, 2020 but before March 1, 2021. This is a standard procedure for voluntary termination under Internal Revenue Code section 409A. Plaintiffs alleged that Regions failed to notify participants of their right to receive a lump sum, failed to prepare to distribute the lump sums, and failed to enforce Ruby’s obligation to distribute the lump sums. Plaintiffs further alleged that Ruby orally directed Regions to suspend payments scheduled on or after August 1, 2020 which violated the terms of the Plans. On September 2, Ruby notified Regions in writing that it was insolvent, pursuant to trust provisions, and it filed a Chapter 11 bankruptcy petition on October 7, 2020.

Once Ruby filed for bankruptcy, the court ordered that Ruby and Regions liquidate the rabbi trust and turn over the assets to the bankruptcy estate. The participants in the plans then settled with the bankruptcy estate to receive a portion of the trust assets. However, many of the participants then sued Regions for their remaining benefit. In addition to the state law claims, the Plaintiffs alleged one ERISA claim for equitable surcharge for the benefits they lost.

Preemption. The Sixth Circuit found that all the state law claims were expressly preempted by ERISA because the state laws were connected to employee benefit plans. It reasoned that allowing enforcement of such state law claims would contravene ERISA’s uniform regulatory scheme.

With respect to the fact that top hat plans are exempt from ERISA’s fiduciary duties, the court said “The statutory regime shows that Congress ‘deliberately omitted’ these duties because high-level employees can protect themselves through contract. . . The preemption provision thus continues to apply to these plans even though ERISA exempts them from many rules.” It further stated that Plaintiffs cannot “use state law to put back in what Congress has taken out.”

The court also rejected the Plaintiff’s argument that they weren’t seeking to only enforce preempted state law fiduciary duties but also non-preempted contractual fiduciary duties under the trust agreement. The court stated that the Plaintiffs “. . . mistakenly seek to enforce these alleged contractual duties through an ‘alternative enforcement’ vehicle (a state-law breach-of-contract suit) rather than the vehicle that ERISA provides: a suit to enforce the terms of a plan under section 1132(a)(1)(B).” The court stated it need not decide whether top hat plan participants could enforce contractually imposed fiduciary duties on plan administrators under ERISA section 1132(a)(1)(B).

Equitable Surcharge. The appellate court also upheld the district court’s dismissal of the Plaintiff’s ERISA claim for surcharge under ERISA’s authorization for “other appropriate equitable relief” in section 1132(a)(3). The Court found that what the Plaintiffs were seeking, recovery of their lost benefits, was compensatory damages which is a legal remedy not an equitable one. The court pointed out that the Plaintiffs were not seeking money from the plan assets, which were now held by the bankruptcy estate, but from Regions’ general assets. However, courts cannot grant a monetary award under ERISA section 1132(a)(3) to compensate a plan participant for losses caused by a fiduciary. The Sixth Circuit also refused to create a federal common law cause of action as requested by the plaintiffs. It reasoned that the Supreme Court has held that courts lack any federal common law power to revise the text of the ERISA statute by creating a cause of action that Congress did not provide for in ERISA section 1132(a).

Conclusion. This case is important as it shows that the trustees of a rabbi trust holding assets of a top hat plan that turns over the assets of the trust to the bankruptcy estate of a bankrupt employer cannot be sued for prior behavior that would violate state law. Nor can the trustee be sued for recovery of lost benefits from such prior behavior under ERISA’s other appropriate equitable relief clause. However, it leaves open the question of whether a top hat participant could sue a rabbi trustee to enforce violation of plan terms under the terms of the trust agreement under ERISA for behavior occurring prior to the employer’s bankruptcy.