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). Up to 10% of nondiscretionary bonuses or incentive payments (including commissions) paid annually can satisfy the salary test. The proposed rule would also raise the total annual compensation threshold for “highly-compensated employees” from $100,000 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.
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Through a powerful combination of independence and experience, Mullin Barens Sanford Financial and Insurance Services (MBS Financial) is a leading consulting firm that assists companies with 409A and other executive benefit needs.
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