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Rabbi trusts and ERISA
Rabbi trusts are exempt from several ERISA requirements, including:
- vesting
- funding
- participation
- fiduciary oversight
However, rabbi trusts must follow ERISA's requirements for disclosure and reporting.
A rabbi trust has to be:
- unfunded
- for a certain management group or group of top-paid employees
To be unfunded, assets have to stay unsecured. An unfunded plan has to give participants a status equal to that of unsecured creditors.
Participating employees have to be limited in:
- number
- AND
- rank
Locked or unlocked
Rabbi trusts can take on 2 different forms:
| Locked rabbi trust | Unlocked rabbi trust |
|---|---|
| Once they’re put in a locked rabbi trust, funds can’t be accessed by the employer until benefit obligations are met in full. Plan assets must go toward benefit payments. | In an unlocked rabbi trust, the company can access plan assets at any time, for any reason. |
Rabbi trust assets are always open to claims of the employing company's creditors. In the event of bankruptcy or insolvency, plan participants assume the same priority status as the company's creditors.
Employer benefits
- Rabbi trusts aren't subject to several of the complicated ERISA and Internal Revenue Code requirements.
- Rabbi trusts are flexible and can be fitted to your organization's goals.
Memory Jogger
Edna was an employee of Company L, but the company recently declared bankruptcy. Edna participated in a rabbi trust through Company L. Which of the following statements is true?