Rabbi Trust and Gov't 457(b) plans

[Guest Statler]

I am having a disagreement over the correct trust to use for a Governmental 457(b) plan. I contend that you can use a Rabbi trust for a Gov't 457(b) since it has the exclusive benefit rule and the Rabbi trust is still subject to the plan sponsor's creditors. So a Gov't 457(b) would need a trust (or custodial agreement) that has the exclusive benefit language with out being subject to creditor. The other person says that you can use Rabbi Trusts for all 457 plans. Am I missing something?

[Everett Moreland]

You are right; governmental 457(b) plan assets cannot be held in a a rabbi trust. See the following from 1.457-8(a)(2)(i):

"The terms of the trust must make it impossible, prior to the satisfaction of all liabilities with respect to participants and their beneficiaries, for any part of the assets and income of the trust to be used for, or diverted to, purposes other than for the exclusive benefit of participants and their beneficiaries."

[Guest Statler]

You are right; governmental 457(b) plan assets cannot be held in a a rabbi trust. See the following from 1.457-8(a)(2)(i):

"The terms of the trust must make it impossible, prior to the satisfaction of all liabilities with respect to participants and their beneficiaries, for any part of the assets and income of the trust to be used for, or diverted to, purposes other than for the exclusive benefit of participants and their beneficiaries."

Thanks, I was stating to question myself and it is nice to have confirmation that I have not lost it completely.