Nonqualified deferred compensation plans backed by rabbi trusts are gaining popularity.
Tax Executive › Vol. 43 Nbr. 6, November 1991
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Nonqualified deferred compensation plans backed by rabbi trusts are gaining popularity.
Recent legislation has reduced the benefits available to executives under qualified employee benefit plans and, consequently, has made forms of nonqualified deferred compensation (NQDC) attractive to both public and closely held corporations. NQDC arrangements provide additional benefits to recruit and retain executives and supply the flexibility needed to counteract the qualified plan limitations under the Tax Reform Act of 1986. Judging from the steady stream of private letter rulings that the Internal Revenue Service has issued on the subject, NQDC plans backed by so-called rabbi trusts are extremely popular these days. Such plans enable an employer to provide rewards for key executives and top producers without increasing benefits for everyone. Plan participants are able to defer income recognition while attaining some assurance that funds will be available to make the promised payments.
Historically, benefits under nonqualified plans have been paid out of the general assets of the employer when they become due. The increasing incidence of takeovers and bankruptcies of overleveraged companies, ...See the full content of this document
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