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Registered Nurses In a Top Hat Plan
As the healthcare industry is emerging from the pandemic they are looking for ways to reward, retain and recruit a very important segment of its people — Registered Nurses. As an alternative to deferred compensation, employers are looking for ways to provide current benefit in an economically efficient fashion that does not create an immediate and punitive tax on the participant. The proposed increase in taxes also is a consideration in the tools available to employers.
Recent government pronouncements have also provided a bright-line test to provide a permissibly selective alternative to deferred compensation with minimal impact to the participants.
A Bona Fide Death Benefit Plan as described in §409A(d)1 and §457(e) 11 is deemed a "top hat" plan for DOL e filing. While these programs are not considered deferred compensation (OCC INFO 2003-0082), we want to be assured that all applicable rules are followed. A Bona Fide Death Benefit plan is available solely to management or highly compensated professionals and independent contractors. IRS Examination Guidelines 4.72-19. IRC 457 Examination Guidelines (Top Hat Plan) Nonqualified deferred compensation plans are intended to be exempt from the substantive provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) (Pub. L. 93-406, 88 Stat. 829, enacted Sept. 2, 1974, codified in part at 29 U.S.C. Ch. 18). The most commonly used exemption from ERISA for nonqualified plans is a top hat plan exemption. A top hat plan is defined in Sections 201(2) of Part 2, 301(a)(3) of Part 3, and 401(a)(1) of Part 4 of Title I of ERISA as an "unfunded" plan that is "maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees." If a plan satisfies this definition, the plan is exempt from the participation, vesting, funding and fiduciary responsibility rules of ERISA. A top hat plan is subject only to Part 1 of Title I of ERISA, the reporting and disclosure rules, which are satisfied by filing a registration statement with the Department of Labor. The guidance issued by the Department of Labor, the Department of Treasury, and the courts suggests that the eligibility requirements for participation in a nonqualified deferred compensation plan that is intended to satisfy the definition of a top hat plan should be narrowly applied so that the number of employees who are eligible to participate is limited to a "select group" of high-level employees whose average compensation is significantly greater than the average compensation of all other employees. The guidance regarding eligibility to participate in a top hat plan issued by the Department of Labor is limited. In DOL Advisory Opinion 90-14A (May 8, 1990), the Department stated:
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