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 Missouri Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees, also known as a Rabbi Trust, is a specific type of trust established in Missouri to provide nonqualified deferred compensation benefits to executive employees of an organization. This trust is designed to provide protection for the executive's deferred compensation by segregating it from the general assets of the employer, creating a separate fund solely for the benefit of the executive. This trust operates under the provisions of the Employee Retirement Income Security Act (ERICA) and the Internal Revenue Code (IRC) Section 409A. It enables employers to defer a portion of executive employees' compensation, such as salary, bonuses, or stock options, until a future date, typically retirement or termination of employment. The purpose of the Missouri Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees is to ensure that the promised compensation to executives is protected, even in the event of the employer's financial difficulties or change of ownership. By establishing a separate trust, the funds intended for the executive employees are held outside the reach of the employer's creditors or potential liquidation processes. Different types or variations of Missouri Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust may include: 1. Traditional Rabbi Trust: This is the most common form of trust established by employers where executive employees' deferred compensation is held in a separate account. The assets of the trust are managed by a trustee until the predetermined vesting or distribution date. 2. Rabbi Trust with Separate Funding: In this type of trust, the employer sets aside funds or assets specifically designated for deferred compensation. These assets are then transferred to the trustee to manage and safeguard until distribution. 3. Rabbi Trust with Investment Options: Certain variations of the trust may provide investment options to executive employees, allowing them to choose how their deferred compensation funds are invested. This provides the potential for growth or increased value of the deferred compensation over the deferral period. 4. Restricted Rabbi Trust: Sometimes, employers may impose certain restrictions on the deferred compensation funds held in the trust. For example, the agreed-upon payout schedule may be subject to specific performance goals or milestones, ensuring that the executive employees meet certain targets before receiving their deferred compensation. In summary, the Missouri Nonqualified Deferred Compensation Trust for the Benefit of Executive Employees — a Rabbi Trust, is a specialized trust arrangement designed to protect the deferred compensation of executive employees. It ensures that the promised benefits are segregated from the employer's general assets, providing additional security and peace of mind for executives.
