Non qualified plan for non key executives

[Guest meggie]

Can a nonqualified plan be set up to cover non-key executives for the sole purpose of deferring compensation in excess of the maximum 401(k) employee deferral rate (i.e. 10,500)?

I understand that a top hat plan limits participation to a select group of management or highly compensated employees. Would this group meet this definition?

If it doesn't fit the "top hat" definition, can it be an excess plan, with the select group mentioned above?

[Alf]

You can set up a nonqualified plan for any reason, but the answer depends on what you consider a "non-key" group. The determination of whether a nonqualified plan benefits a select group of management or highly compensated group is based on the facts and circumstances of each case and the DOL rulings and caselaw are all over the map as far as what type of employees qualify, but your characterization of these people as non-key makes it sound like they won't qualify. You should gather the compensation and job responsibility information of all of your employees and talk with your tax lawyer to find out for sure.

An excess benefit plan can only be used for amounts that exceed section 415, not the 402 limit of $10,500, so it won't work either.

[Guest meggie]

If the qualified plan has no employer match, then could an excess benefit plan related to excess 402(g) deferrals work? Aren't 402(g) deferrals considered "employer" contributions which in turn are subject to 415©'s 25% max on compensation?

[card]

While deferrals are considered employer contributions, the consequence of this for section 415 purposes is that the deferrals count as annual additions. However, section 415 is not violated unless the annual additions exceed the lesser of 25% of pay, or $30,000.

Some companies have set up "mirror 401(k) plans" and structure them so that there is no deferral to retirement. I.e., the deferrals will all be to a fixed future date, generally 5 or 10 years. Since there are no deferrals to retirement/termination of employment the argument is that the plan is not an ERISA "pension plan" and is therefore not subject to ERISA's requirements or limitations. Anyone can be covered.

I think this had been discussed before on this board.

card

[Guest wmacdonald]

I don't think you could, or should cover this non-key employee, and you wouldn't have too many arguments supporting it, since you classified the person as "non-key employee".As you know, neither ERISA nor the regulations have define the phrase "select group of management or highly compensated employee", however we know there have been several DOL rulings and court cases interpreting each and ever word, including "primarily" and "select group".

If it doesn't fit the "top hat" definition, can it be an excess plan, with the select group mentioned above? [/b]

[Guest EAKarno]

One solution, assuming we are not talking about a top-hat group, would be to offer a deferral plan that only allows for a 10 year maximum deferral period. There is a good deal of authority to suggest that such a plan would not be a retirement plan and thus not subject to ERISA at all.

[acm_acm]

Late answer, but you can have a non-top hat, nonqualifed plan, but it means you have to file 5500s for them and many other ERISA requirements, including PBGC coverage, may apply.

[Lou S.]

On 6/14/2021 at 11:54 AM, acm_acm said:

Late answer, but you can have a non-top hat, nonqualifed plan, but it means you have to file 5500s for them and many other ERISA requirements, including PBGC coverage, may apply.

20 years late it looks like.

[BG5150]

14 hours ago, Lou S. said:

20 years late it looks like.

ha ha ha