FAQ
409A (“Rabbi Trust”)/Deferred Compensation Plan
What is a rabbi/409A account?
MBA rabbi trusts (governed by Internal Revenue Code 409A) are generally used as a companion product to the 403(b) where a participant is attempting to defer more income to retirement than the 403(b) will allow. IRC 409A has severe penalties for not fulfilling contribution elections and contains more restrictions on distributions than a 403(b). Additionally, the assets in a 409A plan are subject to the claims of the employer's.
Why would I want a 409A account?
You may want a 409A account if: 1) your contributions exceed maximums that can be received into the 403(b); 2) you are not technically an employee of a ministry but the ministry wants to contribute to a retirement plan on your behalf; or 3) your employer wants to make a lump sum retirement gift that exceeds 403(b) maximums.
Is there a limit on the amount that can be contributed to a 409A?
There are no limits in a rabbi trust other than that you must fulfill, but cannot exceed, the annual contribution election as filed by your ministry.
Why can't I change the distribution on my rabbi trust (409A plan) immediately?
Congress enacted laws under Internal Revenue Code 409A to prevent abuses of executive pay and benefits. With this came restrictions on distribution changes in a 409A plan.
Why is the 409A so restrictive?
Prior to large company scandals, like Enron, involving executive compensation, there was little protection against highly compensated employees from manipulating accounts similar to the 409A. Congress felt that they needed to add restrictions to these plans in order to avoid similar circumstances from occurring in the future.