After my series of recent blogs on top hat plan litigation, inquiring minds want to know* (and have written to ask), with all this case law, just what the heck is the standard for determining whether a plan qualifies for the top hat exemption from ERISA.

The answer is that it depends on where the company is located; that is, in which federal circuit. However, the informal list of key factors for determining whether the plan limits coverage to a select group, which I have collected over the years based on case law, Department of Labor (DOL) views, and experience with clients, is as follows:

  1. The percentage of total workforce covered by the plan (not the percentage of eligible employees actually participating).
  2. The number of employees covered by the plan (generally, all of those employees who are eligible).
  3. The compensation of lowest level(s) of employees covered by the plan and the location of the employees covered by the plan (i.e., $100,000 annual compensation means something different in Manhattan, NY than it does in Manhattan, Kansas).
  4. The title and responsibilities of covered employees.
  5. The extent to which the employees were “selected” by the Board or management—as opposed to being covered because they fall within a general plan definition. (Note that the latter situation can be countered by evidence showing the selection process preceded the definition.)
  6. The extent to which covered employees have a say in management or any other ability to influence management decisions. (This one is pushed by the DOL, but not accepted by the courts. However, it could be useful as a tiebreaker to an employer evaluating plan coverage.)