A “top hat” plan is an employee benefits plan, frequently a retirement plan in which such plans are intended to be limited to a select group of highly compensated employees. However, a number of companies have created such plans that do not meet these requirements. The mislabeling of your retirement plan may have an impact on your rights to receive payment and the amount of income you receive in retirement.

If your plan is not limited to a small number of highly compensated employees, your plan may, in fact, be a pension plan fully-regulated by ERISA (the federal law regulating pension plans). If your “Top Hat Plan” or “Deferred Compensation Plan” (or other plan that provides payment in your retirement) is, in fact, a fully-regulated pension plan, ERISA may provide you with greater rights than currently provided under the terms of the plan. For example, a top hat plan might provide that your right to payment could be forfeited unless you have 10 years of service, while ERISA would require that such benefits could not be forfeited after a maximum of 7 years of service. Likewise, ERISA may require that the plan allow that you accrue – or earn – a specified level of benefits at a greater rate than currently provided under the terms of your plan. In addition, a “Top Hat” Plan may not be funded, but ERISA would require that the plan be funded. By requiring that a pension plan is funded, ERISA ensures that there is money set aside to pay your benefits from the plan when you retire (and prevents such monies from creditors of the company). Finally, ERISA has detailed rules protecting employees regarding the termination of pension plans, which protect your rights to receive your benefits when you retire.

Even if you are a participant in a plan that is properly designated as a top hat plan, you still have certain rights under ERISA. Those rights are largely a matter of contract law, but you likely have contractually protected rights under the plan, including, for example, rights to vesting, payment of benefits or payments as a result of a change of control. To the extent that your employer has made changes to your plan after your rights became fixed (e.g. at the end of your employment), those changes may be invalid as a matter of contract law.

If you are currently a participant in such a plan (or were a participant in such a plan at a prior employer), the following questions suggest that you might want to seek additional information about the status of your plan. If you answer “Yes” to the following questions, you may want to seek additional information about your plan and your rights:

1. Are you a participant in an unfunded retirement plan that promises to provide payments when you retire?

2. Are you employed by a private (i.e. non-governmental) employer?

3. Is your position not one of the highest levels of management (and/or does the plan include persons, such as mid-level managers, who are not high-level executives)?

4. Has there been an event that entitles you to payment or has your employer (or former employer) made changes to the plan that adversely impact your prior rights under the plan?