Nonqualified plans typically
provide the majority of an executive's retirement income. However desirable these plans may be, there is still a risk factor - the
very nature of these plans require that the promise of payment
be an unsecured obligation. This risk factor is a major consideration for
There are basically two scenarios which might cause
a sponsor not to pay the benefits: a change of heart, and the
inability to pay due to financial considerations, such as
To help alleviate executives' concerns, the plan sponsor
may establish a trust as a vehicle to accumulate assets to
support the payment of benefit obligations under the plan. The
trust receives contributions, makes investments, and makes
distributions according to the terms of the plan.
One form of trust, a Rabbi Trust, protects plan
participants from being denied payment due to a change in
management or a hostile takeover. Another form of trust, a Secular Trust, will
further secure the benefits for the participant, but could result in some undesirable tax consequences.