On March 7, 2019, the United States Department of Labor (“USDOL”) issued its long-awaited proposed rule that would increase the minimum salary threshold to qualify for exemption from the overtime provisions of the Fair Labor Standards Act (“FLSA”) from their current level of $455 per week ($23,660 annually) to $679 per week ($35,308 annually). The proposed rule would also raise the threshold for “highly-compensated employees” from $100,000 annually to $147,414 per year. The proposed rule will be subject to a period of public comment and is anticipated to take effect in January 2020.
Application to Non-Qualified Deferred Compensation Plans?
The DOL’s recent proposal includes a strict and concrete definition for “highly compensated employees” (HCE) which amounts to receiving a salary of at least $147,414. This definition could be construed as a clarification of the definition across all DOL policies, including testing for Top Hat plans under ERISA. In practice, the test for exemption from the FSLA, which relies on this definition, is unrelated to ERISA’s test, which applies to “a select group of management or highly compensated employees” and is primarily focused on the level of influence and negotiating power of the covered participants. However, since the ERISA Top Hat exemption is a test based on subjective facts and circumstances, changes to the DOL’s general definition of highly compensated employees in other areas of the law (including the exemption from the FSLA) may ultimately influence how the concept is interpreted under ERISA in the future.
While the newly adopted definition of HCE under the FSLA should not be strictly adopted while determining eligibility for Top Hat plans, it does provide another reference point to be
incorporated into the equation. If you have questions about how to define the eligible group for your non-qualified deferred compensation plan, MBS Financial can help.
About Mullin Barens Sanford Financial
Mullin Barens Sanford Financial is a leading national firm that consults with companies regarding non-qualified executive benefits. We have more than 30 years of experience crafting and refining plans that balance employee retention with stakeholder interests by improving plan design, refining plan operations and compliance, reducing plan costs and providing third party administration (TPA) and Rabbi Trust search services. For more information about non-qualified deferred compensation plans and the latest news in the industry, visit our website at www.mbsfin.com.
Disclaimer: The materials are designed to convey accurate and authoritative information concerning the subject matter covered. However, they are provided with the understanding that Mullin Barens Sanford does not engage in the practice of law, or give tax, legal or accounting advice. For advice in these areas please consult your appropriate advisors.