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 New York Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a financial vehicle available to organizations operating in New York for the purpose of providing supplemental executive retirement benefits. This trust is structured in a way that helps employers retain key executives by offering an additional means of compensation beyond traditional retirement plans. A Rabbi Trust allows executives to defer a portion of their income, typically in the form of bonuses, stock options, or other incentive-based compensation, into a trust specifically created for their benefit. These funds are held in the trust until a predetermined future date, which is often retirement. The key advantage for executives is that they can reduce their current taxable income by deferring compensation and potentially enjoy tax-deferred growth on the funds while they remain in the trust. In New York, there are different types of Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees, including: 1. Rabbi Trust with a Salary Deferral Feature: This type of trust allows executives to defer a portion of their salary into the trust, in addition to the supplemental compensation mentioned above. It provides a more comprehensive approach to deferred compensation by giving executives the flexibility to defer a percentage of their regular salary. 2. Rabbi Trust with a Performance-Based Compensation Feature: This type of trust focuses on deferring performance-based compensation, such as bonuses, commissions, or stock grants. It allows executives to defer a portion of their variable compensation and potentially benefit from tax advantages and compounded growth over time. 3. Reverend Trust: While not specific to New York, the Reverend Trust is a similar concept to the Rabbi Trust. It serves the same purpose of deferring compensation for executives, but it operates under different legal provisions and regulations. It is important to consult with legal and financial professionals to determine the most suitable type of trust for an organization and its executives. The creation of a Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust should comply with the legal requirements of the jurisdiction where the trust is established, as well as federal laws governing deferred compensation and taxation. By utilizing a New York Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust, organizations can attract and retain top-level talent by providing additional retirement benefits and potential tax advantages. This arrangement offers a win-win situation for both the employer and the executive, fostering loyalty and incentivizing long-term commitment.
