Top Hat Plan refers to the retirement plan and compensation plan that refers to specific executives in an organization. They are usually for high end management in an organization and not available for all the individuals. In this the employer only choose the employees that should be included in this plan and the benefits amount to be given. But Top Hat plans require proper disclosure and reporting. Top hat plans are more lenient and exempt certain requirements of the Employee Retirement Income Security Act (ERISA). But the administration and provisions are just like the Employee Retirement Income Security Act.
These are not like other plans that are to be set aside every year to benefit the employees so this remains an asset for the employee until the employee don’t leave the organization. In this employee can contribute whatever amount they want unlike the other plans where a limit is set. There are two kinds of plans in these one for the deferred compensation plans that allows the employee to participate also to fund the plan and thus he can also invest limited amount every year while the second plan involves retirement plan for which only employer can fund. For retirement plan the employee just have unsecured promise that they receive this much amount when they retire from the organization. The amount can vary from individual to individual in the same post as well.
There are certain rules regarding Top Hat Plan that it can only be given to 5% - 10% of the total workforce. The individual should be considered management that can be according to job position, title and responsibilities. Top Hat employees can also be determined by the compensation they receive and it should be part of top compensation in the organization.
But this Top Hat Plan is exempted from various regulations from the government and it is not stable thus the interest rate is higher in this than other plans.