The Value of Top Hat Plans

Top Hat Plans are non-qualified deferred compensation plans offered to a select group of management or highly compensated employees. These plans are a powerful tool for both executive retention and long-term wealth accumulation. For financial professionals, understanding their value provides a strategic edge in serving corporate clients and high-income earners.

Unlike qualified plans, Top Hat Plans are exempt from many of ERISA’s funding and nondiscrimination rules, allowing for greater flexibility in contribution amounts and plan design. This makes them ideal for executives who have maxed out traditional retirement contributions but still seek tax-deferred growth and supplemental retirement income.

From an employer’s perspective, Top Hat Plans serve as a key incentive and retention mechanism, aligning leadership performance with long-term organizational goals. From an employee’s view, these plans help bridge the retirement income gap, offering deferral of large bonuses or compensation while deferring taxes until distribution—typically at retirement, when income and tax brackets may be lower.

Life insurance is often used as a funding vehicle within these plans, providing tax-efficient growth, built-in death benefits, and liquidity. Financial professionals who understand how to structure, fund, and manage Top Hat Plans can deliver high-impact solutions that address executive benefit planning and corporate strategy simultaneously.