United States

Governmental filing requirements for executive retirement plans

Electronic submission now required by Department of Labor

INSIGHT ARTICLE  | 

On June 17, 2019, the Department of Labor (DOL) issued a regulation which requires electronic filing of registration statements for top hat plans starting Aug. 16, 2019. Top hat plans are retirement plans for company executives. A registration statement is to be filed with the DOL when a top hat plan is first established. 

Background

Nonqualified retirement plans, also called deferred compensation plans or top hat plans, are designed to provide pension benefits to a select group of management or highly compensated employees. A pension or retirement plan under ERISA is any plan, fund, or program that provides retirement income to employees, or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond. Since deferred compensation plans for executives typically are designed to defer a portion of their income until termination of employment, they are considered pension or retirement plans by the DOL. Both taxable and tax-exempt employers can offer their executives deferred compensation plans.

Nonqualified retirement plans typically are unfunded and thus pay benefits from the company’s general assets. Sometimes an employer will maintain a fund earmarked for paying nonqualified retirement plan benefits such as a rabbi trust, but the plan is still considered unfunded if the fund is an asset of the employer and subject to the claims of the employer’s creditors. Alternatively, many employers use corporate-owned life insurance contracts as a way of setting aside assets to provide nonqualified retirement plan benefits.

Registration statement

Federal law imposes an annual Form 5500 filing requirement on all pension plans. However, top hat plans are exempt from the annual Form 5500 filing requirement if they are (1) unfunded or insured, (2) cover a select group of management or highly compensated employees, (3) file a registration statement with the DOL, and (4) provide plan documents upon the DOL’s request. The registration statement identifies the employer, the number of plans and the number of employees covered by each plan. The registration statement is filed only once for a plan or group of plans.

Employers must file the registration statement within 120 days after the plan becomes subject to ERISA, which generally is the later of the date of adoption or the effective date of the plan. Starting Aug. 16, 2019, registration statements must be filed electronically with the DOL rather than on paper.

If the registration statement is not timely filed, the plan becomes subject to the annual Form 5500 filing requirements, and the government could assess penalties on the employer for failing to file Forms 5500.

Employers often fail to file the registration statement in the following situations:

  • New plan established. There are several ways an employer can miss the filing requirement when establishing a new plan. First, an employer may adopt a new nonqualified plan, but not be aware of the filing requirement. Alternatively, an employer with an existing top hat plan who filed the registration statement might add a new class of participants via adopting a second plan rather than amending the prior plan, and fail to file the registration statement for the second plan.

In addition, employers often fail to recognize that they may have created an ERISA pension benefit plan when they include a retirement benefit in an executive’s employment contract. Consequently, employers can fail to file the registration statement because they failed to realize that they had created a plan via an employment contract.

  • Acquisitions and spins-offs. Sometimes an employer becomes the sponsor of a nonqualified plan through acquisition of another company that had the plan, and fails to file the registration statement. In other situations an employer may be spun off or sold from a parent company that had a plan, and the employer becomes the direct sponsor of the portion of the plan that applied to the employees acquired by the employer, but fails to file the registration statement.

Since an inadvertent failure to file the registration statement can create penalty exposure, the DOL has established a special late-filer program for employers that did not timely file their registration statements.

Late-filer program

The DOL’s late-filer program allows an employer to file the registration statement late, but pay a reduced penalty. This program is called the Delinquent Filer Voluntary Compliance Program (DFVCP). The penalty is a flat $750 regardless of how many plans the employer maintains or how many employees are covered by the plans. All top hat plans sponsored by an employer can be reported on one registration statement by indicating how many plans are maintained.

Before using the DFVCP, employers should determine the number and type of nonqualified deferred compensation plans they sponsor, the number of employees covered by each plan, and whether the plans are eligible for the DOL’s late-filer program.

Employers should then confirm the status of the registration statement. Many employers may not know whether they filed a registration statement when a plan was first implemented. To determine whether a statement has already been filed, employers can contact the DOL’s Public Disclosure Room. If a registration statement was filed for the plan, no further action is required.

If a registration statement was not filed previously, the employer should file it under the DFVCP, thus eliminating any past or future Form 5500 filing requirements. Both the filing and the payment of the penalty can be done electronically. For more information about the DFVCP, review the FAQs and the general instructions published by the DOL. 

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