Is this an ERISA top hat plan or a bonus arrangement?

[Guest Penelope]

A 501©(3) employer adopts a plan that described itself as a SERP. The document has boilerplate language about ERISA top-hat status. Like a normal SERP, the benefit is calculated with reference to the employer's qualified retirement plans. However, the "SERP" benefit is vested and paid out annually, based on the amount accrued in the preceding year.

Is this an ERISA pension plan that is subject to the top-hat reporting rules? It does not provide for retirement income or for deferral of income past termination of employment, which are requirements for being a "pension plan" under ERISA. This looks to me more like a bonus plan that would not need to file a top hat report to avoid ERISA annual reporting requirements since it would not be subject to those requirements in the first place. Would there be any reason not to do the top-hat filing just to be on the safe side?

[J Simmons]

The 1-time top-hat filing would give the DoL info about the arrangement, and then it could someday be pulled for audit. That, however, seems minor compared to the penalties that could apply for failing to report annually an ERISA plan if you are second-guessed years later and it is determined to somehow be an ERISA plan.

Have you run down, analytically, the IRC 409A implications? The arrangement might not provide for retirement income or for deferral of income past termination of employment, but depending on other factors not mentioned it might defer income to a year later than when the employee's right to it is earned.

[jpod]

If it is as you described, it is not a plan subject to ERISA. There is no point in filing the TH notice, although I suppose the only downside is that it's a waste of a stamp. Disputes (if any) relating to the plan will be governed by pertinent state contract and employment law. Also, the employer should understand that any advantages it perceives from ERISA (such as the requirement that a claimant exhaust administrative remedies, federal court jurisdiction, or the deference given a plan administrator's interpretations if the document is drafted correctly), will not be available if there ever is a dispute that goes to court.

You didn't ask about 409A or tax issues, so I'm not commenting on J. Simmons' observations.

[Guest Kabert]

Based on the facts presented, I agree that this sounds like a (very) short-term savings plan rather than an ERISA retirement plan that is a top-hat plan. There are 7-9 DOL advisory opinions and as many federal court cases that do a good job setting forth the boundaries of what is a top hat plan (a retirement plan) and what is a short-term savings plan. As for whether you are subject to 409A and the constructive receipt tax rules, I don't think we have enough facts about how the deferral election occurs and when the subsequent year payout occurs (and if it's automatic and if a second push-off election is permitted).