What is a Top Hat Plan?
Top Hat plans are exempt from ERISA rules regarding funding, participation, vesting, and fiduciary duties. Top Hat plans are unfunded plans maintained by employers primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Employers use the Top Hat exemptions to construct generous compensation packages to attract and retain key employees and executives. Top hat plans do not file reports annually. Typically, the only information available on the plans is – sponsor, city and ZIP, number of plans, participants, and date filed.
Top hat plans are a form of retirement plans that are not offered to the general employee force of a corporation. Instead, this nonqualified retirement plan is offered only to a limited number of persons within the larger group of employees. Generally, a plan of this type is reserved for key executives of the firm and occasionally a select few other employees, depending on the structure of the plan. A top hat plan is different from a standard retirement plan in several ways. First, plans of this type do not enjoy the tax-qualified status that national revenue agencies routinely extend to the opt-in retirement plans that are offered to all employees of a company. Second, the ability to participate in the plan is not necessarily automatic for all people holding a similar level of responsibility within a company. For example, being an executive may not be enough to receive an invitation to participate. Depending on the limits of the top hat plan, there may be additional provisions to meet
A top hat plan is an unfunded plan that is maintained primarily to provide deferred compensation for a select group of management or highly compensated employees. Employers often use these plans to attract and retain employees for top management positions. The Department of Labor has held that to be a top hat plan, a plan must constitute either an employee welfare benefit plan or an employee pension benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA defines an “employee pension benefit plan” as any plan, fund or program maintained by the employer for the purpose of providing retirement income to its employees. Therefore, top hat plans typically provide benefits upon reaching retirement age. Additionally, ERISA defines an “employee welfare benefit plan” as any plan, fund or program maintained by the employer for the purpose of providing its employees welfare benefits (e.g., medical, disability, etc.). As a result, a top hat plan may provide for health
