In a recent District Court decision, a court held that non-qualified deferred compensation benefits being paid to a participant under a “top hat” plan could be garnished by the participant’s creditor. Employers who sponsor plans covered by ERISA know that creditors cannot garnish a participant’s benefits under a qualified retirement plan. Any state laws that would allow for such a garnishment would be preempted by ERISA.
ERISA” top hat” plans are plans for a “select group of management or highly compensated employees.” Such plans are covered by ERISA, but exempt from many ERISA requirements, including the fiduciary requirements and the anti-assignment and alienation provisions of ERISA. The court concluded that because the anti-alienation provisions of ERISA did not apply to a top hat plan, benefits otherwise payable to a participant, could be assigned or alienated, in other words, garnished. Thus, a creditor was able to garnish payments under the plan and force the employer to pay over to the creditor a portion of the amounts that would otherwise have been paid to the participant.
Employers faced with a garnishment action on a nonqualified or top hat plan would want to check with counsel to determine whether and how to comply with such a garnishment.