Are rabbi trusts subject to Erisa?

Are rabbi trusts subject to Erisa?

A rabbi trust is exempt from most of the Employee Retirement Income Security Act of 1974 (ERISA) as long as it is a “top hat” plan, which, according to section 201 of ERISA, is an unfunded plan maintained by an employer to provide deferred compensation to a select group of management or highly compensated employees.

Does a rabbi trust have to file a tax return?

A rabbi trust is considered a grantor trust for income tax purposes, resulting in trust income taxed to the employer. The trustee is required to file a fiduciary tax return. Contributions to the trust are not tax deductible by the employer.

Is a rabbi trust revocable?

The rabbi trust is usually irrevocable, although it can be designed to be revocable until the happening of certain events such as a change in control.

Who owns a rabbi trust?

grantor trust
Rabbi trust is a grantor trust Because the assets of a rabbi trust are subject to an employer’s creditors, the trust will be treated as a “grantor trust.”[6] This means that the assets of the trust are treated as assets of the employer for tax purposes.

Can you rollover a rabbi trust?

Distribution rules for Rabbi Trust accounts are not as flexible as the rules for 403(b) accounts. You can’t take early withdrawals, including a loan or hardship, and distributions from the Rabbi Trust can’t be rolled over to another qualified retirement account such as an IRA.

How safe is a rabbi trust?

As long as the employer’s financial position is sound, the money in a Rabbi Trust is considered to be relatively safe. However, if an employer files for bankruptcy protection, the money may be subject to the claims made by that employer’s general unsecured creditors.

What is the benefit of a rabbi trust?

Rabbi trusts allow employees’ assets to grow without them having to pay tax on any gains until they withdraw their money. In this sense, a rabbi trust is similar to a qualified retirement plan. A rabbi trust does not provide any tax benefits for companies that make its use limited compared to other types of trusts.

Is a rabbi trust protected from creditors?

A significant drawback of rabbi trusts is that they don’t protect against creditors. If a company becomes insolvent or goes bankrupt, both the beneficiaries and the company’s creditors have access to the trust’s assets.

Is a rabbi trust a non qualified deferred compensation?

Capturing all of your employer contributions The Rabbi Trust is a non-qualified deferred compensation plan in which funds are invested in an irrevocable trust and held for the benefit of employees for retirement purposes.

What is a rabbi trust account?

A rabbi trust is a trust created to support the non-qualified benefit obligations of employers to their employees. A rabbi and his congregation first used this type of trust after an Internal Revenue Service (IRS) private letter ruling approved its use; it has been referred to as a rabbi trust ever since.

What is the point of a rabbi trust?

Is a rabbi trust a non-qualified deferred compensation?

What do you need to know about a rabbi trust?

A rabbi trust is a grantor trust (typically with an independent financial institution serving as trustee) that is used by employers in order to accumulate assets to defray benefit obligations under a non-qualified plan.

What makes a rabbi trust exempt from ERISA?

A rabbi trust is exempt from most of the Employee Retirement Income Security Act of 1974 (ERISA) as long as it is a “top hat” plan, which, according to section 201 of ERISA, is an unfunded plan maintained by an employer to provide deferred compensation to a select group of management or highly compensated employees.

How are Rabbi trusts taxed under IRC section 671?

As a grantor trust under IRC section 671, a rabbi trust’s income is taxed to the employer-settlor, not the employee. Although trust assets may be used only to pay benefits promised to the employees, generally the assets are not distributed until retirement, death, or termination of employment (without cause).

Is the rabbi trust irrevocable or revocable?

The rabbi trust is usually irrevocable, although it can be designed to be revocable until the happening of certain events such as a change in control.