A method of deferring compensation for executives is the use of a rabbi trust. The instrument was named - rabbit trust - because it was first used to provide deferred compensation for a rabbi. Generally, the Internal Revenue Service (IRS) requires that the funds in a rabbi trust must be subject to the claims of the employer's creditors.
This information is current as of December, 2007, but is subject to change if tax laws or IRS regulations change. Current tax laws should be consulted at the time of the preparation of such a trust.
Connecticut Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a type of financial arrangement established by employers to provide key executives with additional compensation beyond their regular salary and benefits. This trust is specific to the state of Connecticut and is governed by the state's laws. A Rabbi Trust, named after the first case which established its legitimacy, is a popular type of nonqualified deferred compensation plan that offers employers flexibility in funding executive benefits. It ensures that the funds set aside for executives' future compensation remain separate from the employer's assets until they are actually paid out. Key features of the Connecticut Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust include: 1. Compensation Deferral: Executives voluntarily choose to defer a portion of their salary or bonus to a future date, typically after retirement, allowing them to potentially benefit from tax advantages and asset growth over time. 2. Tax Advantages: Contributions made by executives to the trust are not tax-deductible at the time of contribution, but they do grow on a tax-deferred basis until distributed. This can potentially lower the executive's immediate tax liability while providing long-term tax advantages. 3. Separate Assets: Funds contributed to the trust are legally separated from the employer's assets, providing executives with more security in case of bankruptcy or financial instability of the employer. 4. Vesting and Payout: The trust may have vesting requirements, specifying the period of service an executive must complete before becoming eligible to receive the deferred compensation. Payouts can occur at retirement, termination, disability, or other designated events. Different types of Connecticut Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees might include: 1. Salary Deferral Plans: Executives choose to defer a portion of their salary into the trust, with distributions typically scheduled for retirement or specific milestones. 2. Bonus Deferral Plans: Executives choose to defer a percentage of their bonuses into the trust, allowing for potential tax advantages and asset growth. 3. Supplemental Executive Retirement Plans (SERPs): These plans provide additional retirement benefits beyond what is provided by traditional pension plans, helping executives accumulate additional wealth for retirement. 4. Equity-Based Plans: Executives can defer compensation in the form of company stocks or stock options, allowing them to benefit from potential future growth and align their interests with those of the company. In conclusion, the Connecticut Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specialized financial arrangement aimed at providing key executives with added compensation and potential tax advantages. Its various types allow for flexibility in deferring salary, bonuses, or equity-based compensation until a future date.
