Family Law and Top-Hat Plans, Excess Benefit Plans, and Bonus Plans
Bonus plans and unfunded excess benefit plans must generally follow domestic relations orders, i.e., those state orders relating to child support, alimony payments or marital property rights. Top-Hat Plans are unfunded pension plans maintained primarily to provide a select group of management or highly compensated employees with deferred compensation. These plans, other than unfunded excess benefit plans, generally need not follow state domestic relations orders unless the plan terms require such deference. However, under certain circumstances Top-Hat Plans may have to follow spousal disclaimers in such orders and those orders that “satisfy the requirements” of a Qualified Domestic Relations Order (a “QDRO”).
Sponsors of Top-Hat Plans, other than unfunded excess benefit plans, generally decide the degree, if any, of plan deference to state domestic relations orders. Sponsors of a Top-Hat Plan (including unfunded excess benefit plans) or of a bonus plan decide the extent, if any, to which a domestic relations order, that does not address such plan’s benefits, affects the plan’s benefits, such as the effectiveness of a participant’s death benefit designation of a former spouse.
Administrators of Top-Hat Plans (other than unfunded excess benefit plans) who make benefit payments contrary to the plan terms (which may require deference to a QDRO or to a disclaimer in a domestic relations order) may, like all ERISA plan administrators, be liable to make double payments – the one to the wrong person and the one to the correct person – and possibly have to pay the attorney fees of the person entitled to such payment.