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:
- The percentage of total workforce covered by the plan (not the percentage of eligible employees actually participating).
- The number of employees covered by the plan (generally, all of those employees who are eligible).
- 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).
- The title and responsibilities of covered employees.
- 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.)
- 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.)