Rabbi Trusts

What is a Rabbi Trust”?

A “rabbi trust” is usually established by the employer as an “informal” funding vehicle for a non-qualified deferred compensation plan (e.g. excess plans, voluntary deferral plans, SERPs and other employer-funded plans) that the employer sponsors for executive employees in order to promote their retention and to provide additional assurances that the plan benefit will ultimately be paid (the first IRS ruling on this type of arrangement was associated with a congregation’s retirement trust for their rabbi’s benefit, thus the name “rabbi trust”) By setting aside assets in a Rabbi trust under the management of a professional, institutional trustee, a Rabbi trust adds a level of safety to the employer’s promise to pay and protects the assets held in a Rabbi trust from a change in control or change of heart event. Also, while a Rabbi trust cannot legally provide additional protection in the event of employer bankruptcy or insolvency, as a practical matter having assets set aside in a Rabbi trust can provide some leverage in negotiating what the executive ultimately receives.

Eastern Point Trust Company

With over 30 years of experience serving the Fortune 100 and the major not-for-profit industry, Eastern Point Trust Company is one of the most cost-effective and experienced providers of Rabbi trust trustee and trust administration services.

EPTC’s experienced team protects executive benefits in the event of an internal change in control, an external “change in control” event or the event of your separation or retirement.

Additionally, EPTC is one of the only trust companies that provide comprehensive Rabbi trust solutions.

How Eastern Point Trust Company Protects Plan Benefits

When a change in control event transpires (internal or external), the terms of the Rabbi trust will vest EPTC, as trustee, with the sole power and absolute authority to manage the assets of the Rabbi trust. The trust may be designed to prohibit the new management team or the acquiring company from:

  • Directing the assets of the trust to an alternative use,
  • Amending or terminating the trust (plan) without approval by the participant(s).
  • Altering or managing the investments of the trust.

In other words, the foremost duty of the Rabbi trust trustee is to ensure the benefits of the trust to plan participants are protected and not eroded, directly or indirectly. As the Rabbi trust trustee, EPTC may execute additional powers following a change in control event, such as:

  • Preserving participant rights to investment direction or designing, developing and deploying an investment policy for the portfolio of the trust.
  • Funding sufficiency to ensure assets will meet benefit payment liabilities.
  • Investment performance and adherence to the investment policy.
  • Calculating trust benefit funding requirements for the new company.
  • If a dispute arises between a participant and the employer, determining the proper beneficial right of the participant.
Experience and Resources

EPTC has a dedicated team that specializes in serving the unique and complex needs of nonqualified plans.

Eastern Point’s Rabbi trust team is comprised of senior trust officers, investment fiduciaries, ERISA experts and attorneys; all of whom have decades of hands-on experience addressing complex and adversarial change in control situations.

In the event of a change in control and change of heart circumstances, EPTC can hold and invest Rabbi Trust assets pursuant to the trust agreement, providing an additional key layer of security to the beneficiaries.

Once a change event has occurred, as trustee, EPTC can assist with investing the assets of the Rabbi trust in a wide variety of investment vehicles. Our services may include:

  • Asset custody
  • Defending the trust and interests of trust beneficiaries from hostile takeovers
  • Determining the trust beneficiaries beneficial interests after a change in control
  • Administering Trust distributions
  • Reporting