DEFINITION of 'Top Hat Plan'
A form of retirement plan available only to selected company employees - usually key executives. Such plans are different from standard retirement plans in a number of ways:
1) They don't usually offer the same tax benefits of an opt-in plan.
2) Not everybody can participate - even those of equal company stature may have different plans.
Generally, there are two types of top hat plans: a nonqualified deferred compensation plan and a supplemental executive retirement plan. The former allows participants to defer income into the plan during each calendar year, while the latter is funded entirely by the employer.
BREAKING DOWN 'Top Hat Plan'
Unlike opt-in retirement plans, a top hat plan is often exempt from many government regulations. Hence, the interest rate associated with the plan is usually higher than that offered by traditional retirement plan.