Tuesday, January 17, 2012

Do You Have a Top-Hat Plan?

Recently, the 6th Circuit Court of Appeals ruled in a top-hat plan case, Daft v Advest, Inc. This case adds to the litany of top-hat decisions rendered by different appeals courts. Most of them are similar in their conclusions. No two are the same.

The good news is that I have two potential remedies: 1) The US Supreme Court could hear one of these cases and give us a litmus test to live by in determining who is eligible to participate in a top-hat plan; or 2) More than 37 years later, the Department of Labor could write regulations on the topic.

We might not like either one, but at the very least, we would have some certainty. People making business decisions like certainty. As a consultant, and I'm sure it's the same for an attorney, it's not a good client relationship technique to tell a client that their eligibility criteria are probably okay, or that they seem to comport with the current law in the circuits in which they operate. Should be and seem to are horrible consulting words. Since I can't give a legal opinion, though, they may be the best I can do.

So, at least in the 6th Circuit (Kentucky, Michigan, Ohio, and Tennessee), Daft gives us a four-prong test (sort of):

  1. What percentage of the workforce is covered by the plan? 
  2. What is the nature of employment duties of the participants covered by the plan?
  3. What is the compensation disparity between members of the plan and non-members of the plan?
  4. What does the plan language say?
Unfortunately, or perhaps fortunately, Daft does not give us a bright-line test for any of 1, 2, 3, or 4. In fact, Daft doesn't even give us a hint. 

Think back to your school days. One of your friends is good enough to steal the test questions from the teacher (I do not condone this) and give them to you. The problem is that every question is subjective and you don't know the teacher's thoughts.

Alas ...

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