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.
A Wisconsin Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, commonly referred to as a Rabbi Trust, is a type of trust established by employers for the purpose of providing nonqualified deferred compensation benefits to their executive employees. This trust is governed by the laws of Wisconsin and can be utilized by businesses and organizations operating within the state. The primary objective of a Wisconsin Nonqualified Deferred Compensation Trust is to allow employers to set aside funds specifically designated for the benefit of their executive employees. These funds are invested and held in the trust until a later date, typically retirement, when they are distributed to the executive employee according to the terms and conditions set forth in the trust agreement. By establishing a Wisconsin Nonqualified Deferred Compensation Trust, employers can offer their executive employees an additional retirement benefit beyond what is typically provided by qualified retirement plans, such as 401(k) plans or pension plans. This allows employers to attract and retain top talent by creating an incentive for executives to remain with the company long-term. There are various types of Wisconsin Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees, including: 1. Defined Contribution Trust: Under this type of trust, the employer makes contributions to the trust based on a predetermined formula or fixed percentage of the executive employee's compensation. The funds in the trust are typically invested, and the ultimate benefit received by the executive employee is based on the performance of the investments. 2. Defined Benefit Trust: In contrast to a defined contribution trust, a defined benefit trust guarantees a specific benefit amount to the executive employee upon retirement. The employer is responsible for funding the trust with sufficient assets to meet the predetermined benefit obligation. 3. Supplemental Executive Retirement Plan (SERP): A SERP is a type of nonqualified deferred compensation plan that utilizes a Wisconsin Nonqualified Deferred Compensation Trust. It provides additional retirement benefits to executive employees beyond what is provided by qualified retirement plans. 4. Salary Continuation Plan: This type of trust allows employers to continue paying a portion of an executive employee's salary or bonus into the trust during their retirement years. The funds accumulated in the trust are then distributed to the executive as supplemental income during retirement. It is important to note that the establishment and administration of a Wisconsin Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees are subject to strict rules and regulations imposed by the Internal Revenue Service (IRS). Employers must navigate these guidelines carefully to ensure compliance and to effectively provide the desired benefits to their executive employees. Consulting with legal and financial professionals experienced in executive compensation and trusts is advisable when establishing and managing such a trust.
