Benefits Byte

October 27, 2020

ERISA Advisory Council Hears Testimony on Top Hat Plans, Diminished Capacity; Council Testifies

The ERISA Advisory Council (EAC) held virtual hearings on October 22 and 23, discussing their previously selected 2019 topics: Considerations for Recognizing and Addressing Participants with Diminished Capacity and Examining Top Hat Plan Participation and Reporting.

The EAC is a group of benefits experts established by Congress and appointed by the Department of Labor (DOL) to identify emerging benefits issues and advise the Secretary of Labor on health and retirement issues. The chair for the EAC’s 2020 term is Glenn Butash, managing counsel of U.S compensation and benefits at Nokia Corporation, a longtime member organization on the Council’s Policy Board of Directors. The vice chair for the 2020 term is David Kritz, assistant deputy general counsel for Norfolk Southern Corporation, also representing employers. Kritz has also served on the Council’s policy board of directors for many years.

Participants Exhibiting Diminished Capacity

Jan Jacobson, the Council’s senior counsel, retirement policy, testified before the panel on the topic of participants exhibiting diminished capacity, noting at the outset employer retirement plan sponsors share the widespread concern about participants or beneficiaries with diminished capacity and the desire not to make a distribution when it would not be in their best interest – either because they no longer have the capacity to make good financial decisions or they are being victimized.

Jacobson’s testimony centered on the results of a brief survey the Council conducted of its membership on this subject. One the key findings was that while 32 percent of respondents had encountered participants exhibiting signs of diminished capacity, and another 41 percent were not sure it they had countered such participants, 61 percent did not have set policies, guidelines or procedures for interacting and handling participants who exhibit diminished capacity. 

Jacobson concluded by recommending that DOL issue guidance including best practices relating to (1) identifying and taking steps to address participants that exhibit signs of diminished capacity or financial exploitation, (2) supporting the use of trusted contacts and powers of attorney and (3) educational training opportunities.  It is also important for the DOL to provide liability relief for putting reasonable restrictions on participant plan accounts temporarily preventing the distribution of assets where participants exhibit signs of diminished capacity or financial exploitation.

Appearing alongside Jacobson was Christine Hanna, senior legal counsel for Fidelity Investments, whose testimony focused on Fidelity’s processes and procedures for addressing diminished capacity and included many of the same themes, calling for DOL guidance to assist plan sponsors.

In the subsequent discussion of this topic, EAC panelists considered how these issues intersect with plan fiduciary responsibilities and the various types of guidance DOL could provide, including tips and frequently asked questions. It remains possible that such guidance and education could be applied to health and welfare arrangements as well as retirement plans.

Top Hat Plans

A “top hat” plan is a type of unfunded, employer-sponsored retirement plan designed to offer deferred compensation to an eligible employee) and how they are reported and administered. After the EAC heard testimony from stakeholders – including Council board member organization Principal Financial Group and former board member Mark Poerio, now with The Wagner Law Group – the panel discussed the lack of clear eligibility criteria for top hat plans and whether a safe harbor is warranted. Given the apparent lack of clear agreement from EAC members, it is possible that they recommend the development of a regulatory project without providing detailed suggestions for what it should include.

The EAC will have additional conference call discussions of the two issues, followed by a formal presentation of its recommendations to the DOL and a written report, likely to be released in early 2021. For more information on the EAC hearings, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.