Recent Settlement Highlights Risks Associated with Top Hat Plans


The WRMarketplace is created exclusively for AALU/GAMA members by experts at Troutman Pepper Hamilton Sanders LLP and the AALU/GAMA staff. WR Marketplace #20-16 was written by Jim Earle and Christopher Stock. The AALU/GAMA WR Newswire and WR Marketplace are published by AALU/GAMA as part of the Essential Wisdom Series, the trusted source of actionable technical…

“Top Hat” Plans — What are They and How Do You Know If You Have One


Nonqualified deferred compensation plans (NQDC), such as 401(k) restoration plans, other elective deferral plans, and supplemental retirement plans (SERPs), must limit their eligibility to a “top hat” group to avoid significant problems under ERISA and the Internal Revenue Code (IRC). ERISA defines this group as a “select group of management or highly compensated employees.” Department…

IRS Issues New 162(m) Rules Related to Grandfathered Benefits under Deferred Compensation Plans.

Topics: 162(m), COLI/BOLI, Congress, NQDC, Tax reform

Changes to 162(m) made by the Tax Act expand the $1 million deduction limit for covered employees at public companies. NQDC amounts accrued as of November 2, 2017 can escape these expanded deduction limits if the NQDC amounts meet certain grandfather requirements to remain covered by the pre-Tax Act 162(m) rules (“old 162(m)”). The Notice…

Recent Trends in Litigation over Director Compensation Highlight Risks and Suggest Actions to Mitigate those Risks

Topics: COLI/BOLI, Congress, NQDC, Tax reform

Decisions about levels of director compensation often do not receive the protection of the business judgment rule because directors are usually interested in decisions about their own compensation levels. Under Delaware case law, however, stockholders face significant legal barriers in challenging these director compensation decisions if the stockholders previously approved the director compensation levels. These…

Part 2 – To Fund or Not to Fund- Non-Qualified Deferred Compensation Plans – Funding Options.


Non-qualified deferred compensation (“NQDC”) plans are a promise by the sponsoring employer to pay part of an executive’s compensation to the executive at a later date (e.g., upon retirement or other termination of employment). In Part 1 of this series (see WRM No. 17-41), we discussed the tax and ERISA fundamentals of the two main…

Part 1 – The Fundamentals of Non-Qualified Deferred Compensation Plans


Because of restrictions and limitations in the tax and ERISA rules that apply to tax-qualified retirement plans, many employers have created non-qualified deferred compensation (“NQDC”) plans to provide additional compensation and retirement benefits to key executives. There are two main types of NQDC plans: (1) defined contribution and (2) defined benefit. A general understanding of…

Substantial Risk of Forfeiture – What Is It and What Does It Do?


Substantial risk of forfeiture is a concept relevant to the taxation of non- cash compensation under Internal Revenue Code (“Code”) §83 and to the taxation of deferred compensation under Code §§409A and 457(f). To create a substantial risk of forfeiture, an employer must generally impose a service- or performance-based restriction on the employee’s right to…

Executive Compensation Planning: What the Future May Hold & What Can Be Done Now.


While President Trump and the Republican-controlled Congress have promised major tax reform, little is known about the specifics that may affect executive compensation and retirement planning. Republican leaders face significant obstacles as they work to enact tax reform this year, however, based upon stated goals and prior legislative proposals, many expect changes to the taxation…

What Is the Pay Ratio Rule & Why Should You Care


Although the disclosure under the pay-­ratio rule for calendar-­year reporting companies likely will not be required until the spring of 2018 when such companies file their proxy statements in respect of 2017, in light of the complexity and anticipated implications associated with the disclosure, companies are advised to begin formulating their implementation approach now.