Executive Summary ERISA Sections 201, 301 and 401 provide exclusions from ERISA's substantive protections for "top hat" plans, which are unfunded plans maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly-compensated employees. Two recent decisions address a frequent strategy by participants denied benefits under such plans: claiming that the plan fails to meet the top hat exemption, thus making it subject to ERISA and all of its protections. Both of the following decisions reject such claims, but are notable mainly for the courts’ lack of interest in addressing informal guidance from the Department of Labor.

In Sikora v. UPMC (W.D.Pa. Dec. 22, 2015), a former longtime employee of UPMC asserted that he was entitled to a benefit from UPMC's top hat plan, while UPMC countered that he had forfeited his rights and benefits when he failed to enter into a written separation agreement. Sikora argued that the top hat exemption did not apply and that the plan was covered by ERISA and its vesting and nonforfeiture protections. In deciding cross-motions for summary judgment, the District Court reiterated the traditional definition of a top hat plan: that it "cover[s] relatively few employees [and] only high level employees." Referencing the small number of participants (68, approximately 0.2% of the workforce) and their average compensation (approximately $500,000), the Court concluded that the UPMC plan was sufficiently exclusive both in quantity and quality to be a top hat plan. Sikora, however, attempted to argue that the court should consider a third element: the "bargaining power" of top hat plan participants, based on language from a 1990 Department of Labor opinion letter which stated that top hat plan participants had, by virtue of their position and compensation, power to influence their benefits and thus did not require ERISA's protections. The court rejected this additional element, noting that an expanded test for the elements of a top hat plan had been rejected in every other circuit that addressed the issue and is not included in the statutory language. While the Western District Court's decision that a top hat plan is defined by the elements in the statute is not revolutionary, it signals the Court's disinterest in expanding ERISA protections to participants in plans specifically designed not to be subject to ERISA.

A subsequent unpublished case from the Fourth Circuit is notable primarily for that court’s failure to consider the Department of Labor's 1990 letter and the DOL's amicus brief defending the letter. In Bond v. Marriott (4th Cir. Jan. 29, 2016), Bond, a former Marriott employee, attempted to argue that Marriott's Deferred Stock Incentive Plan never formally denied him benefits pursuant to ERISA requirements and, thus, a statute of limitations never began to run against his claim that he was entitled to plan benefits. The court determined that a formal denial isn’t always required to commence the running of the statute of limitations even with an ERISA plan and, thus, Maryland's three-year statute of limitations for contract actions began running as early as 1978, when Bond received a prospectus which stated that the plan was designed to be exempt from ERISA vesting requirements. Bond wanted the court to require formal denial to trigger the statute of limitations, thus permitting him to argue that the plan should not be exempt from ERISA vesting requirements; however, the Fourth Circuit did not reach the question of whether the plan was a top hat plan under ERISA because it held that a formal denial would not be required even if the plan were subject to ERISA. Thus, it rejected Bond's attempts to bring in the Department of Labor's letter and made its decision on other grounds. Although it did not address the DOL's guidance, this case provides yet another example of a challenge to the validity of a top hat plan.