Source: https://www.mesirowfinancial.com/markets/corporations/cebs/news/nonqualified-plan-eligibility-guidelines/
Timestamp: 2019-04-21 14:55:08+00:00

Document:
The following is intended as guidance for the review and determination of employee eligibility for participation in a nonqualified deferred compensation plan.
Nonqualified deferred compensation plans are generally excluded from the funding, vesting and fiduciary requirements of ERISA as long as the plan is unfunded and is maintained by an employer "primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees."
Participation eligibility should be limited to a relatively small percentage (for example, less than 15%) of your total workforce.
Most, if not all, of your eligible employees should have executive or management authority.
Average compensation of your eligible employees should be significantly higher than that of ineligible employees.
Your plan documents should explicitly state that participation is limited to a select group of management or highly compensated employees.
Typically, once a participant is made eligible for the plan, he/she remains eligible. This is an important consideration for firms where participants receive a significant portion of income from commissions, as they may fluctuate from one year to another.
Employees who were promoted or hired during the year can be enrolled at a time other than the annual open enrollment period. However, IRC §409A requires that enrollment occur within 30 days of becoming eligible. Please refer to your plan document for more information.
1. Relevant case law includes: Darden v. Nationwide Mutual Insurance Company, 717 F. Supp. 388 (E.D.N.C. 1989). Demery v. Extebank Deferred Compensation Plan (B), 216 F.3d 283 (2d Cir. 2000). Bakri v. Venture, 473 F. 3d 677 (6th Cir. 2007) Cramer v. Appalachian Regional Healthcare, Inc., No. 5:11-49-KKC (E.D. Ky. Oct. 29, 2012). Daft v. Advest, Inc., 658 F. 3d 583 (6th Cir. 2011).
Compensation and Executive Benefit Strategies, a division of Mesirow Financial, Inc., is a third-party administrator of nonqualified plans and does not give advice in the areas of accounting, tax, investment, law or regulatory compliance. Participants and plan sponsors should seek their own counsel for advice in these areas. The information above does not supersede the Plan Document, which governs the plan and its operation. Mesirow Financial refers to Mesirow Financial Holdings, Inc. and its divisions, subsidiaries and affiliates. The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc. © 2018, Mesirow Financial Holdings, Inc. All rights reserved.

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