Is it a Top Hat Plan or Excess Benefit Plan?

[Alex Daisy]

A client is looking to start a Non Qualified Deferred Compensation Plan for 2009

They would like to give their key executives a 10% bonus on all compensation on excess of the IRS Section 401(a)(17) limit.

For example, a executive makes $500,000 in 2009. His company contribution would be $25,500 (10% * (500,000 - 245,000)).

Would this be considered a Top Hat Plan or Excess Benefit Plan or neither?

Any help you can give me would be greatly appreciated.

ALEX

[jpod]

Definitely not an excess plan (which can provide benefits only to the extent necessary to exceed 415 limits in a QP). Whether it qualifies as top-hat is facts and circumstances. Normally someone earning more than $245k should be safely viewed as a top-hat person, but not necessarily.

If the bonus is not by the terms of the plan or the surrounding circumstances deferred until termination of employment or beyond, then it's not subject to ERISA in the first place and you don't have to worry about qualifying as top hat.

[J Simmons]

I agree with jpod, and note that it is a facts and circumstances test as to whether any of the arrangement is an ERISA pension plan, i.e. it

(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.

ERISA § 3(2)(A)

So it might be advisable to get a legal opinion that an arrangement is not an ERISA pension plan before proceeding on the assumption that it is not.