Having recognized a need for security, the question to be asked is what level of protection is desired (from whom or what event)? Generally, benefits may be protected from the following events:
Change in Financial Condition
Will the employer be in a financial position to pay the benefits; and/or will cash be available to pay benefits?
Change of Heart
Will current management change its mind and discontinue benefits for whatever reason?
Change in Control
Will an acquiring company take away past or future benefit accruals or terminate the plan entirely?
Bankruptcy
Will the changing economic environment control the financial success or failure of the company resulting in bankruptcy or insolvency?
A Rabbi Trust is the most commonly solution used to set assets aside to informally finance nonqualified plan liabilities. A Rabbi Trust:
Established by an employer to provide a source of funds which may be used to satisfy the employer’s obligation to executives under a nonqualified benefit plan
Typically set up as an irrevocable trust and is usually considered a grantor trust
Provides protection against: Change of Heart and Change of Control