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 Oregon Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a specific type of trust that offers a means for employers to provide nonqualified deferred compensation plans for their executive employees. This arrangement allows executives to defer a portion of their salary or bonuses until a specified future date, usually after retirement. A Rabbi Trust, first created in 1964 and named after the first case involving such a trust (Rabbi v. Commissioner), is a granter trust. In this trust, the assets are held by a trustee on behalf of the beneficiaries (executive employees). It is designed to provide a level of protection for plan participants, ensuring that their deferred compensation remains secure in the event of an employer's bankruptcy or change in ownership. There are various types of Oregon Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees — a Rabbi Trust: 1. Defined Contribution Rabbi Trust: This type of trust is funded with contributions made by the employer. The contributions are typically invested and accumulate earnings over time until the employee's retirement or another specified date. The ultimate benefit received by the executive employee is based on the value of the trust account at the time of distribution. 2. Supplemental Executive Retirement Plan (SERP) Trust: Some companies establish a SERP Trust within the overall Oregon Nonqualified Deferred Compensation Trust structure. A SERP Trust is specifically designed to provide supplemental retirement benefits to executive employees above and beyond what they receive from qualified pension plans like 401(k) or pension plans. 3. Rabbi Trust with Distributions in Installments: This type of trust allows employees to receive their deferred compensation in scheduled installments over a predetermined period instead of receiving a lump sum at once. This structure can provide a steady income stream to executives during their retirement years. 4. Rabbi Trust with Vesting Schedule: A vesting schedule is often used to encourage employee retention by rewarding longer-term commitment. In this case, the Oregon Nonqualified Deferred Compensation Trust may include a vesting schedule, which determines when and to what extent the employee becomes entitled to the deferred compensation over time. Overall, the Oregon Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust provides both employers and executive employees with a flexible and secure option for deferring compensation. It helps employers attract and retain top talent while allowing executives to accumulate additional funds for retirement, all with the added protection and oversight offered by the trust structure.
