Rabbi Trusts in the COVID-19 Economy, a Whitepaper PLUS FAQs

Rabbi Trusts in the COVID-19 Economy, a Whitepaper PLUS FAQs

April 2, 2020

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Last week, we shared our most recent whitepaper, “Rabbi Trust: An Important Element of a Nonqualified Executive Benefit Plan during Times of Financial Stress” plus an important blog post update, “COVID-19 and the Unforeseen Emergency under IRS 409A” here on the Deferred Compensation News. In case you missed the link to read or download this report, we’re resharing it here: #ICYMI.

We’ve also added some Frequently Asked Questions (FAQs) about Rabbi Trusts for today’s blog post follow up:

Q: Given the COVID-19 pandemic, can we use rabbi trust assets for other corporate needs?

A: No. The only time the funds of the rabbi trust can be used in any way other than to pay benefits to plan participants is in the event of a bankruptcy, in which case, the assets may become subject to the claims filed by general creditors. If the plan documents and trust agreements permit, an employer may choose to stop funding future contributions to the rabbi trust.

Q: Our company is running short on cash and may not be able to fully fund our upcoming deferred compensation plan distributions. Can we delay payments to the executive with the executive’s concurrence?

A: No, the 409A regulations require payment based on the terms of the plan document and permissible distribution events outlined in the 409A regulations. These events include separation of service, death, disability, a fixed date, or upon a change in control. Failure to adhere to these payment events would constitute a violation of the 409A regulations and would potentially subject the plan participant to the penalties outlined below.

Q: During this difficult economic time—or at any other time—what happens if our organization violates 409A regulations governing the operation of a deferred compensation plan?

A: Included among the numerous consequences of violating the 409A regulations that govern a deferred compensation plan are immediate taxation of the deferred compensation amounts, including interest penalties to the date of the violation PLUS an additional 20 percent penalty tax, all of which are imposed on the employee.Fulcrum Partners invites you to read our recent whitepaper on rabbi trust and to contact us with your questions regarding rabbi trusts or any aspects of deferred compensation.

Additional resources:

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through Lion Street Advisors, LLC (LSA) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI and LSF/LSA are non-affiliated entities and separate entities from OneDigital and Fulcrum Partners.

Unless otherwise noted, VAI/VSI, LSF/LSA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

Lion Street Advisors // Lion Street Financial

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