Jottings By An Employer's Lawyer

Tuesday, April 05, 2005

Top Hat Plan = Zilch for Executives In Bankruptcy Scenario

Ever since I first came across the phrase "top-hat plan" I have had a curious image of what this benefit plan must mean. Couple it with a rabbi trust and I envision a cross between a British aristocrat in tails and an orthodox religious figure -- quite a vision. And so a story in today's Daily Labor Report about a top-hat pension plan (and ultimately a rabbi trust), caught my eye. I now know whatever else it means, according to the Bankruptcy Court of Delaware and now the District Court as well, it can mean very bad news for those executives who had hoped to have some of their compensation deferred. In re: the IT Group, Inc. (D.Del. 3/31/05). When their employer filed for bankruptcy, the executives were left with only an unsecured claim, which depending on the results of the bankruptcy often means -- not much.

I will leave it to the true benfefits lawyers for a more complete explanation, but the decision was clear enough to me to know that if I were the hopeful beneficiary of deferred compensation in a shaky company (and in today's world who really knows?) I would be remembering the old adage about the benefits of the bird in the hand.

Yup. I've seen this plenty of times before. What's even worse is when long term execs join a company that many years later becomes "less than stable." They've got their life savings tied up in a company that is going down the tubes. Another definition for nonqualified deferred comp plans.... "no protection."
Diane Pfadenhauer,
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