Question

3. Are rabbi trusts subject to provisions of the Department of Labor? If so, how would those provisions affect the structure of the trust?

Answer 1

Rabbi Trusts

It is a non qualified compensation arrangement for the benefit of the employee for retirement benefits, which is irrevocable.

Department of Labor has indicated that the top hat group consists of those individuals that have the ability to influence the design and operation of compensation plan.

1. The consideration may affect the structure of arrangement are the current and future income needs of the employee, the desired tax treatment of deferred amount, and the desire for assurance that deferred amount will infact be paid.

2. As long as the trust is structured in occordance with IRS guidance and is administred accurately, the tax benefit will flow from the structure.

3. There must be a risk of forfeiture upon the failure by payee to fullfill the agreed conditions, the rabbi trust to be succesfully applied.

4. The term of trust or fund provide that the assets are subject to the claim of the employer's creditors in the event of the insolvency of the employer.

5. In the department view, warrants to purchase employer securities generally would not constitute "qualifying employer securities" since they are neither stock nor marketable obligations.