Many companies maintain ‘top hat’ plans to provide supplemental pension benefits to their top-paid employees. Taxand USA looks into this.
A top hat plan is a pension plan that, according to the statutory definition, is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.
Such plans are exempt from many of the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) that are intended to protect the rights of plan participants.
Companies sponsoring top hat plans should be aware of the DOL’s position regarding those who are permitted to participate in such plans. To the extent that the plan includes any participants who might not qualify as ‘management or highly compensated’, companies should analyse whether the risk of a finding that the plan does not qualify as a top hat plan warrants a change in the plan or its administration to narrow the class of employees allowed to participate.