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.
The North Carolina Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a legal arrangement that allows employers to provide supplemental retirement benefits to their key executives. This trust is specifically designed to enhance the compensation package of high-level employees and retain their services. The North Carolina Nonqualified Deferred Compensation Trust functions by setting aside funds for executive employees, which are not subject to immediate taxation. Instead, these funds are held in the trust until the employee chooses to withdraw them, typically during retirement. This arrangement allows executives to defer their compensation, potentially resulting in significant tax benefits. The trustee of the Rabbi Trust is responsible for managing and investing the funds contributed by the employer. The employer's contributions to the trust are placed in a separate account and held to benefit the executive employees. This separation ensures that the funds remain protected and can only be accessed by the executives, subject to specific conditions and terms defined by the trust agreement. Employers may establish different types of North Carolina Nonqualified Deferred Compensation Trusts, depending on their specific needs and goals. Some variations of these trusts include: 1. Defined Contribution Rabbi Trust: In this type of trust, the employer contributes a fixed amount or a percentage of the executive's compensation. The funds are invested according to the executive's choice or a pre-determined investment strategy. 2. Defined Benefit Rabbi Trust: This trust promises a specific retirement benefit to be paid out to the executive at retirement age. The trust administrator oversees the investments and ensures that the pre-determined benefit is funded adequately. 3. Equity-Based Rabbi Trust: In this type of trust, the employer contributes company stocks or equity-based compensation instead of cash. The value of the executive's account is tied to the performance of these shares. 4. Voluntary Deferral Rabbi Trust: Some employers may offer a voluntary deferral option, allowing executives to defer a portion of their compensation into the trust. This enables executives to customize their retirement benefits to meet their individual financial requirements. Overall, the North Carolina Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a RabbThusus— - serves as an invaluable tool for employers seeking to attract and retain top-tier talent. By offering additional retirement benefits and potential tax advantages, this trust arrangement ensures that executives are adequately rewarded for their contributions to the organization's success.
