Jump to content

Who can be a participant in a top hat plan?

Guest LDH1

Recommended Posts

Can 2 key employees of a non-controlled group entity be included in a top hat plan sponsored by the entity owning 50% of the non-control group entity?

Link to comment
Share on other sites

  • 1 month later...
Guest EAKarno


Nonqualified plans may cover employees as well as nonemployees. Whether the two "key employees" are actually employed by the plan sponsor is not relevant to whether they can participate. If the arrangement is funded with a rabbi trust, however, some tax issues MAY arise.

Link to comment
Share on other sites

One thing to keep in mind is that you don't need the "top hat" plan exemption if you don't have an ERISA Title I Plan. One approach would be to clone a separate plan for the nonemployees of the sponsoring employer's controlled group. A plan in which no employees participate is not an employee benefit plan in the first place and is not covered by ERISA. On the other hand, if the concentration of nonemployees as a percentage of total partcipants is very small, this would probably be overkill. Nonetheless, in theory, allowing nonemployees to participate in the same plan with the employees creates a tension with the exemption requirement that the plan be "primarily for the purpose of providing deferred compensation for a select group of management and highly compensated employees." While the DOL hasn't issued much guidance in this area, you'll want to watch the nonemployee concentration percentage as a measure of whether the plan is "primarily for" the select group of employees.

Phil Koehler

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Create New...