Giving Plan Admin discretion in 457(b) plans

Top-hat plans, gotta love em.

I came across this https://www.thompsoncoburn.com/insights/publications/item/2018-11-07/a-top-hat-plan-checklist-for-employers and within they suggest something I had not seen before. 

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Give your plan administrator the power to issue binding determinations

In the Firestone case, the U.S. Supreme Court held that, if a plan administrator has been given the discretion to interpret and apply the provisions of a plan subject to ERISA, then judicial review of a benefits denial by the plan administrator will be conducted applying an arbitrary and capricious standard of review. 

There is a split in the federal Circuits regarding the standard of review that should be applied in cases involving top hat plans. The Seventh and Ninth Circuits have applied the arbitrary and capricious standard if the plan administrator has been granted the requisite discretion required under Firestone.[3] In contrast, the Third and Eighth Circuits have held that a de novo standard applies since plan administrators of top hat plans are not subject to the ERISA fiduciary rules.[4]

Notwithstanding the split in the Circuits on this issue, a top hat plan document should grant to the plan administrator the discretion to determine eligibility for benefits and to make all other determinations necessary for the administration of the plan. In addition, the plan should provide that all determinations by the plan administrator are binding unless determined to be arbitrary and capricious by a court having jurisdiction. Even if a court holds that ERISA rules relating to the applicable standard of review do not apply, it may decide to enforce such plan provisions as a matter of contract law.

Has anyone done this in practice? Our document allows for additional eligibility requirements such as " in order to become an eligible employee, the employee must be approved by the CEO of the plan sponsor". In the past I have just clearly labeled the employee classes that would be eligible (usually officers and a certain level of management). thoughts on this?

I don't think the excerpt is limited to which categories of employees are eligible, but in my experience 457(b) top hat documents routinely have this language in a section on plan administration.

As far as discretion to choose eligible employees, I have seen it both ways - stated categories (e.g., "VPs or above," etc.) and, particularly for smaller organizations, completely discretionary (e.g., "the employees designated as eligible by the plan administrator in its discretion" or "the individuals designated by the plan administrator and listed on Schedule A," provided they are in a management/highly paid group). 

I thought 457(b) plans are reserved for state and local governments.

Nope, non-profits can have them too.