It's a Top Hat Plan? Prove It

Posted By Stephen D. Rosenberg In Top Hat Plans
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This is a great article in PlanAdvisor on the recent decision in Tolbert v. RBC. Tolbert is a truly fascinating, and wonderfully instructive, district court decision on one of my favorite topics, and actually favorite things to do (I know it’s a strange interest, so sue me) – which is the litigation of top hat cases. What’s instructive about the decision is that it lays out, quite clearly for anyone to understand, what are the elements of a top hat plan and what must be proven in litigation to establish that a plan is actually a top hat plan. What’s fascinating about the decision, in turn, is that it finds that at least three aspects of that test need factual development at trial: whether the plan was primarily for the purpose of providing retirement income/deferred compensation; whether that was provided only to a select group of highly compensated individuals; and whether the participants who would benefit from the top hat plan had the workplace power to substantially influence the top hat plan’s terms. Of great interest is the Court’s discussion of that last factor, and its recognition that the courts have not firmly established one way or the other whether it actually is a factor in determining whether a particular deferred compensation arrangement is, in fact, a top hat plan. Other than that last element, there is nothing in particular unique about the Court’s determination of the factors that need to be considered to decide if a particular deferred compensation arrangement qualifies as a top hat plan, but even with regard to those elements, the decision is fascinating, and here’s why: the decision finds that the existence of the relevant elements of a top hat plan were not established on summary judgment and must instead be determined at trial. I have litigated top hat plan cases before, and counseled parties on them outside of litigation, and the fascinating thing about them is that employers often think of them as straight forward and as not really open to dispute over whether the deferred compensation being offered is a top hat plan for purposes of ERISA. In reality though, it is not always that clear once a dispute arises whether the requirements of a top hat plan were met, because the elements noted above can require serious factual investigation to determine whether they can be proven in court. To some extent, the problem is that there is a clash between the “if it looks like a duck and walks like a duck, then it’s a duck” approach to top hat plans and the rigorous standards of proof often applied by courts. When employers offer deferred compensation plans to a small group of top of the scale employees to try to tie them more firmly to the company, they know they are offering deferred compensation to a select group of top tier employees, and thus feel quite certain that the plan involved is a top hat plan. To them, it looks like a top hat plan, walks like a top hat plan and quacks like a top hat plan, so it is a top hat plan. That, though, is not enough, as Tolbert shows, for a court applying rigorous standards of proof: instead, the elements are going to have to be proven by testimony, data comparing the recipients to the employee pool as a whole, and the like.