Directors in NQDC Plan

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I have always advised against including non-employees in any ERISA plan, including nonqualified plans. Yet I often see NQDC plans that include outside directors. Any opinions on this?

Thanks.

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[QDROphile]

Since you asked for opinions, here is mine. I think you ought to try to understand the reasons for the advice you give. Then when you encounter a particular situation, you can decide if the advice applies to that situation.

If my opinion is mistaken, then I offer the observation that most NQDC plans are not subject to most ERISA provisions and do not operate under tax statutues that relate to employment status, such as 105(e) and 401(a).

[Just Me]

I have given the same advice myself...and I know why: The level of compensation that is paid to outside directors is covered by the corporate “entire fairness test,” which is considered a higher standard than the “business judgment rule” applicable to employees. By covering both outside directors and employees in one plan, a company may be exposed to a higher standard in a fairness of compensation dispute involving the Plan.

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QDROjerk-

I don't believe I said I didn't know why I advised against it. As I'm sure you know, the preemption rules of ERISA DO apply to NQDC plans. And, perhaps in an overabundance of caution, I do not want to taint an ERISA plan, which is by definition for employees, with non-employee particiants.

Take your condescension elsewhere. Or maybe enter into practice with G Burns.

[jpod]

QDROjerk-

I don't believe I said I didn't know why I advised against it. As I'm sure you know, the preemption rules of ERISA DO apply to NQDC plans. And, perhaps in an overabundance of caution, I do not want to taint an ERISA plan, which is by definition for employees, with non-employee particiants.

Take your condescension elsewhere. Or maybe enter into practice with G Burns.

Bravo card!!

I have always wondered whether including non-employee directors in a top-hat NQDCP might knock you out of "top-hat" status. This seems dumb, but I wouldn't want to give an ERISA plaintiff's lawyer any ammunition to challenge the NQDCP's exemption from Parts 1-4 of Title I (particularly the vesting requirement).

[Guest TCW]

I have given the same advice myself...and I know why: The level of compensation that is paid to outside directors is covered by the corporate “entire fairness test,” which is considered a higher standard than the “business judgment rule” applicable to employees. By covering both outside directors and employees in one plan, a company may be exposed to a higher standard in a fairness of compensation dispute involving the Plan.

Pray tell, just what is the application of enhanced judical scrutiny for Director's conduct in hostile acqusition transactions doing in an analysis of whether to adopt a NQDC for Directors?