View From McDermott: Conflicting Review Standards in Executive Retirement Plan Benefit Claims—Is There Really a Difference?


Under the Employee Retirement Income Security Act, retirement plans generally come in two flavors – (i) retirement plans qualified under Section 401 of the Internal Revenue Code (the Code) and (ii) executive retirement plans, called ‘‘top hat’’ plans, which aren’t Code-qualified. What does that mean? While qualified retirement plans are subject to all of ERISA’s funding, participation and fiduciary provisions, top hat plans aren’t and may offer benefits exceeding those allowed under Code-qualified plans. Simply put, top hat plans are unique animals under ERISA.

ERISA defines a top hat plan as one ‘‘which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.’’ ERISA treats top hat plans differently in several ways. First, ERISA explicitly exempts top hat plans from its fiduciary requirements. In addition, ERISA doesn’t require top hat plans to satisfy participation, funding and vesting requirements that are applicable to other ERISA-governed retirement plans. Moreover, the Department of Labor allows top hat plans an exemption from disclosure requirements. So, in essence, top hat plans are only subject to ERISA’s civil enforcement remedies and administrative claims procedures. As a result, ERISA affords top hat plan participants and beneficiaries their sole remedies for recovering benefits or enforcing plan terms. Put another way, while top hat plan participants may not sue for breaches of fiduciary duty or illegal benefit cutbacks under ERISA, they may challenge benefit determinations, but must do so only under ERISA Section 502(a)(1)(B) and only after exhausting their administrative claim remedies.

Originally published in Pension & Benefits Daily on February 6, 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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