Payment to the employer from a rabbi trust

[Guest phs]

Can a rabbi trust that provides payment to the employee be amended to allow the employer to be reimbursed in the event the employer makes the benefit payment to the employee? The trust is revocable and provides for amendment with the employee's consent. The purpose of having the employer pay the employee the deferred comp is to run the amount through the payroll system.

[pjkoehler]

If you are using the IRS model rabbi trust, you shouldn't need an amendment. Section 2© of the model trust says that the Company may pay benefits directly to participants under the plan. Assuming the trust adopted the optional revocability provision set forth in Section 1(B) of the model trust, the Company retains the power to direct the Trustee to return the assets allocable to the discharged benefit liability, without creating an "exclusive purpose" issue under Section 1(d). You'll observe that model trust prohibits employer reversions only if the trust is irrevocable. See Section 4 of the model trust.

Even if the plan doesn't have language analogous to Section 2© of the model trust, the employer has no obligation to contribute to the rabbi trust, so it could obtain a reimbursement by offsetting its future contributions to the trust by the amount of the payments made directly from nontrust assets. If the plan is an individual account plan, this would be a simple bookkeeping adjustment, in effect reallocating the assets attributable to the account balance of the recipient to active participants.