Rabbi trusts would receive statutory protection under tax legislation recently approved by the Senate. But the legislation, S. 1637, which was approved by the Senate last week by a 92-5 vote, also contains restrictions on investment options in nonqualified deferred compensation plans.
Jack Dolan, a spokesman for the Washington-based American Council of Life Insurers, says statutory protection for rabbi trusts is very important to ACLI members.
He adds, however, that ACLI does not support the restrictions on NQDC investments.
Under the Senate language, the investment options in a NQDC plan must be comparable to those available to participants of the qualified employer plan that has the fewest investment options.
In addition, the Senate bill would prohibit open brokerage windows, hedge funds and investments in which the employer guarantees a rate of return above what is commercially available.
More generally, the legislation provides that distributions from a NQDC plan may not be made earlier than separation from service, death or disability, a change in ownership or control of the corporation or an unforeseen emergency that causes financial hardship.
In addition to the NQDC provisions, S. 1637 has 2 provisions affecting life insurers.