Colonial Bank employees' plan asset ownership reconsideration denied

By Caroline Salls

Pittsburgh, July 21 - A motion from a group of Colonial Bank employees asking the U.S. Bankruptcy Court for the Middle District of Alabama to reconsider an order granting ownership of roughly $1.9 million in deferred compensation plan assets to The Colonial BancGroup, Inc. was denied Wednesday by the court.

As previously reported, judge Dwight H. Williams Jr. said the deferred compensation plan qualified as a "top hat" plan, and, as a result, the assets are property of Colonial BancGroup's estate.

However, the plan participants said Colonial Bank and Colonial BancGroup are separate corporations, and all of the employees, except one, worked for the corporation known as Colonial Bank.

In addition, the employees said almost all of the funds in this case came to the trust in question from the assets and proceeds of Colonial Bank.

The employees said the funds were also paid on the bank for disbursement, not to the parent company.

As a result, the employees said the court must apply a constructive trust in this case.

According to the order granting ownership, a top hat plan is an unfunded plan that is maintained by an employer to provide preferred compensation "for a select group of management or highly compensated employees."

These plans are often excluded from individual Employee Retirement Income Security Act of 1974 provisions, because the covered employees are "in a strong bargaining position" and therefore do not need the same protections given to other employees.

In Wednesday's ruling, Williams said "whether the bank theoretically qualifies as an employer is irrelevant to whether the bank is, in fact, the employer for purposes of the plan."

"For purposes of the plan, the employer is the debtor," the judge said. "Likewise, the provisions of the plan also make clear that the plan assets are the general assets of the debtor and subject to the claims of the debtor's creditors."

The plan assets totaled $1.9 million when the company filed for bankruptcy in August 2009.

Colonial BancGroup is the Montgomery, Ala.-based holding company for Colonial Bank. The company filed for bankruptcy on Aug. 25, 2009. Its Chapter 11 case number is 09-32303.

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