Is our unfunded excess benefit plan subject to ERISA Part 1 (reporting

[Guest grafals]

I need a consensus to resolve a debate I've been having with outside counsel. We have a SERP. It is unfunded, contributions are stated to come directly from the general assets of the company. And, the stated purpose is to provide excess benefits curtailed by 415 and 401(a)(17). The formula specifically states that the benefits are those that WOULD have been provided under the regular plan but for the curtailment, net of benefits actually provided under the regular plan due to 415 and 401(a)(17) limits.

My understanding is that an unfunded excess benfit plan meeting the test that it's purpose is limited to making up for 415 and 401(a)(17) curtailments is not subject to ERISA AT ALL (ERISA 4(B)(5)). But that a funded excess benefit plan is subject to Title I except for participation, vesting and funding requirements.

However, our outside counsel maintains that our unfunded excess benefit plan is subject to Part 1, reporting and disclosure requirements. He states that this is because it is, "intended to be a top hat plan."

He thinks it is subject to Part 1 for the very same reasons I think it is not.

What's the right answer? Am I way off base in my thinking here, or am I missing something that he has failed to articulate?

[mbozek]

An excess benefit plan exempt from ERISA provides benefits soley in excess of the IRC 415 limits. ERISA 3(36). Providing benefits in excess of the a17 requirements negates the exemption and makes the program a top hat plan.

[Guest grafals]

But what about, [Petkus v. Chicago Rawhide Mfg. Co, (1991, DC IL) 763 F Supp 357] which held that if the SERP provides benefits where they are limited under the regular plan by limits on includible compensation, then the SERP may still be considered an excess benefit plan?

[jpod]

I am not familiar with the case, but the relevant section of the statute could not be more clear: an excess benefit plan is one that provides benefits over the 415 limit. It may be a glich or an oversight that ERISA has not been amended to reflect the addition of 401(a)(17) to the Code, but c'est la vie.

[four01kman]

I'm not sure this is a big deal. As I recall, the reporting and disclosure requirements for a top hat plan is to give each participant particular information about the plan. I think the earlier requirement to send DOL stuff was removed.

[jpod]

1. There still is a requirement to file a top hat notice in order to be exempt from filing Forms 5500 and other reporting and disclosure requirements. If no timely top hat notice was filed, DFVC is available.

2. But, there's more to this than just filing a top hat notice. Just because someone earns more than the 401(a)(17) threshold does not necessarily mean that he is a legitimate "top hat" group member. If the plan does not satisfy the requirements for a top hat plan, you have to contend with the funding, vesting, joint and survivor annuity, etc., requirements of Title I of ERISA. You may have more of a can of ERISA worms here than you anticipated.

[mbozek]

now that the a17 limit is at 200k and salaries are depressed I dont think there will be a problem with a top hat plan limited to ees who earn over that amount. Anyway the DOL has never issued any regs on what the top hat group is- so DOL enforcement is impossible. In the 90s there were many corporations who used the old super TH limit of 90 k as the cut off.

[jpod]

Granted, DOL enforcement is probably not something to worry about.

But if there is something to be gained by an aggrieved participant or beneficiary alleging that the plan does not qualify as a top hat plan, the issue can hit the fan in the context of a private lawsuit. One must assess the risks with reference to all of the various Title I requirements that arguably could be violated, and then make an informed decision as to how to proceed.

[Mike Preston]

I think the OP's question was answered by jpod's earlier post about the filing of the notice. No notice? Subject to reporting and disclosure. Notice? Lawyer appears to be incorrect.

However, even if no notice, DVFC can be used.

[mbozek]

No employee who makes over 200k should be allowed to leave without receiving some form of severance pay in return for signing a waiver of rights under ERISA, ADEA, Title VII, wage hour, etc, plus non compete and confideniality. Thats what clients should do to protect themselves from lawsuits. Actually it should apply to any employee who makes 100k or more.

[jpod]

Huh?

[QDROphile]

This discussion is not distracting enough, so here's another distraction. Top-hat plans have to comply with ERISA claims procedures. The claims procedures regulation has disclosure requirements that refer to a summary plan description. The SPD regulations allow top hat plans to avoid SPD distrribution. Hmmm.

[jpod]

Don't the regs. say that you CAN satisfy the claims procedure requirements through the SPD (the implication being that if you don't have to have an SPD, you can satisfy it some other way)?

[QDROphile]

Look at ERISA Reg section 2560.503-1(B)(2). A description must be included in the SPD. Is this similar to dividing by zero?

[mbozek]

Because a top hat plan is exempted from the SPD requirements, top hat plans do not publish an SPD. However, the better drafted plan documents contain a reference to the claims procedure provisions of ERISA which would be provided to a particpant in the event of a dispute over benefits. Well drafted plan documents can minimize or eliminate employer risk by including defensive plan provisions but clients usually prefer canned documents. (How many plans have a mandatory arbitration provision for benefit disputes?)

[QDROphile]

mbozek

I completely agree with your conclusion. The top hat plan needs claims procedures and can disclose them as needed. But if you try to trace through the terms of the regulations, you run into contradictions. The SPD regulations and the new claims procedure regulations, taken together, don't fit with top hat plans. I was merely pointing out that curiosity, and that curiosity may create some doubt about timing and form of disclosure of claims procedures.

[mbozek]

Q I agree with your analysis but what is the consequence of the failure to provide a claims procedure to a participant in a top hat plan which is exempt from the SPD requirement?

[QDROphile]

Possibly a claim that the claims procedure is defective or was not properly followed, with a shortcut to court and no deference to the findings and conclusions of the administrator.

I think such a claim would fail and there are other reasons to lose the deference advantage.

Mostly I just like to observe bad drafting in the regulations.

[mbozek]

Fed cts routinely dismiss claims for benefits if the claims appeal has not be completed. The judges are not interested in increasing their case load.