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 Georgia Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a legal arrangement commonly used by companies to provide retirement benefits to their high-level executive employees. This trust is designed to comply with the rules and regulations set forth by the Internal Revenue Service (IRS) regarding nonqualified deferred compensation plans. The Georgia Nonqualified Deferred Compensation Trust operates as a separate legal entity from the company itself, ensuring that the deferred compensation is held and managed independently for the benefit of the executive employees. The trust is administered by a trustee, who is responsible for safeguarding the assets and ensuring that they are distributed according to the terms of the trust agreement. This type of trust offers several key advantages for executive employees. Firstly, it allows them to defer a portion of their compensation beyond their normal paycheck, enabling them to defer taxes on that income until a later date, typically upon retirement. Secondly, a Rabbi Trust provides protection for the deferred funds in the event of corporate financial difficulties or bankruptcy since the assets are held separate from the company's general funds. There are different types of Georgia Nonqualified Deferred Compensation Trusts for the Benefit of Executive Employees — a Rabbi Trust, which can be customized to meet the specific needs and goals of both the company and its executive employees. Some variations include: 1. Supplemental Executive Retirement Plans (SERPs): These plans are designed to provide additional retirement benefits to executives beyond what is offered through traditional retirement plans like 401(k)s or pensions. 2. Deferred Bonus Plans: This type of trust allows executives to defer receiving their annual bonuses, instead opting to have those funds placed into the trust, where they can grow tax-deferred until a designated payout time. 3. Stock Appreciation Rights (SARS) Plans: This plan structure allows executives to receive compensation based on the increase in the company's stock price over a predetermined period. The gains are deferred and accumulate within the trust until distribution. 4. Top Hat Plans: These plans are specifically designed for a select group of highly compensated executives and are exempt from many of the restrictive requirements of ERICA regulations. This exemption enables more flexibility in plan design and funding mechanisms. In conclusion, a Georgia Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust, is a valuable tool for companies seeking to attract and retain top talent by offering additional retirement benefits. It provides executive employees with the ability to defer income, enjoy tax advantages, and gain asset protection, while the company can design customized plans to suit their unique objectives.
