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Correcting a Failure to File the DOL Top Hat Exemption Letter

Mar 30, 2017

Top hat retirement plans (unfunded arrangements that benefit a “select group of management or highly compensated employees” and more commonly known as “nonqualified deferred compensation plans”) are exempt from most of the requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including the obligation to file annual information returns with the IRS on Form 5500.

Unlike most of the top hat exemptions from ERISA, the exemption from annual reporting obligations requires the sponsor to take action within 120 days of sponsoring a nonqualified plan by filing a one page statement with the Department of Labor identifying the plans covered by the exemption and the sponsor of the plans (“DOL Filing”).

Sponsors may inadvertently fail to make the filing for a variety of reasons. They may not be aware that the plan falls under the ERISA top hat exemption or that additional steps are necessary to qualify for the reporting exemption. An employer may become a sponsor of a nonqualified plans through acquisitions of organizations that sponsored such programs. A subsidiary that is spun off from a parent or sold may become the direct sponsor of the portion of the nonqualified plan that applies to the subsidiary’s employees that was previously covered under the parent’s DOL Filing but which is not covered by a DOL Filing after the spinoff or sale.

The consequences of a failure to file annual reports can be significant, including IRS penalties of $25 per day up to $15,000 and DOL penalties of $1,100 per day with no limit.

Failures to file are easily corrected by submitting the DOL Filing and completing a submission under the Department of Labor’s Delinquent Filer Voluntary Compliance Program (DFVCP).

Correcting Electronically

1. Submit the top hat exemption statement at https://www.askebsa.dol.gov/efile/Home/tophat
Instructions can be found at https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/e-file/tophat-plan-filing-instructions

2. Submit the DFVCP filing electronically at https://www.askebsa.dol.gov/dfvcepay/calculator

A. Click “yes” in response to the question Are you a Top Hat and/or Apprenticeship Training Program? Click “no” on the remaining questions.
B. Plan number is 888
C. Skip the reporting year section
D. Click “Enter/Calculate”
E. Click “Continue”
F. Complete the plan and sponsor information. All delinquent plans for a sponsor can be added in a single filing. Primary sponsor generally may file on behalf of  affiliates See Adv. Op. 2008-08A
G. Type of filing: Top Hat
H. Continue to payment section. Fee $750 per filing (covers all plans submitted)

Correcting Through Paper Submission

1. Submit the top hat exemption statement to the Department of Labor:

A. U.S. Department of Labor
    Employee Benefits Security Administration
    Top Hat Plan Exemption
    200 Constitution Avenue, NW, N-1515 Washington, DC 20210

2. Submit the DFVCP filing to the Department of Labor:
A. U.S. Department of Labor
    P.O. Box 71361
    Philadelphia, PA 19176-1361
B. Check payable to U.S. Department of Labor in the amount of $750.
C. Complete the most current Form 5500 Annual Return/Report (without schedules or attachments), items 1a–1b, 2a–2c, 3a– 3c, and use plan number 888 for all the top hat plans covered by the top hat plan filing. The Form 5500 serves to identify the sponsor and the plans covered by the DFVCP filing. There is no need to complete a Form 5500 for prior years when the one page statement had not been on file with the Department of Labor.

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