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.
North Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is a specialized financial tool designed to provide supplementary compensation to executive employees. This trust falls under the regulatory framework established by the Internal Revenue Code section 409A and is customized to specific requirements of North Dakota state law. A Nonqualified Deferred Compensation Trust is a mechanism used by companies to set aside funds on behalf of their executive employees, allowing them to defer a portion of their compensation until a later date, usually retirement. By deferring compensation, executives can potentially benefit from tax advantages, as the funds are not subject to income tax until they are distributed. The North Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust is governed by specific provisions outlined in the state's legislation. This type of trust safeguards the deferred compensation from the financial claims of the employer's creditors, ensuring its availability to executive employees even in the event of bankruptcy or insolvency. Different types or variations of the North Dakota Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust may include: 1. Defined Contribution Rabbi Trust: This type of trust specifies a fixed contribution to be made by the employer, and the ultimate payout to the executive employee is based on the investment performance of the contributed funds. 2. Defined Benefit Rabbi Trust: In this variant, the employer promises a specific benefit or payout upon retirement or termination, regardless of the investment performance of the trust. The employer bears the investment risk, and the trust safeguards the promised payments. 3. Supplemental Executive Retirement Plan (SERP) Rabbi Trust: As a subset of a deferred compensation trust, a SERP Rabbi Trust is established to provide additional retirement benefits specifically for executive employees. It is often used to bridge the gap between regular retirement plans and the desired lifestyle in retirement. Each of these types of trusts is designed to cater to the unique needs and objectives of executive employees, providing them with additional financial security and flexibility for their retirement. Companies and executives should collaborate with legal and financial professionals who specialize in these trusts to ensure compliance with all relevant regulations, including North Dakota state law and the broader Internal Revenue Code.
