Rabbi Trust Services and Fees

By Jeff McCarthy

Rabbi Trust services and fees vary widely depending on the service capabilities of the trustee and the nature of the Rabbi’s Trust agreement’s provisions.  In choosing a trust provider and structuring the trust, the plan sponsor will want to balance the costs and benefits of the various arrangements that are available in the marketplace.

The most comprehensive type of arrangements, are provided by full-service trustees such as Wells Fargo.  The nature of the trust agreement provides for two types of relationships between the trust and the plan sponsor.  In the beginning, the trustee is a directed trustee with the operation and administration of the trust managed through instructions or directions from the plan sponsor.  The trustee simply holds the assets for the benefit of the plan participants.  The responsibilities of trust administration such as investment decisions are determined by the plan sponsor and executed by the trustee based on instructions.

In these arrangements, the nature of the trust relationship will change in the event of a change in control as specified in the trust documents.  In general, the trust specifies that upon a change in control the trustee becomes the administrator of the trust and responsible for investment decisions.  This is the critical distinction of this type of arrangement and they tend to be the most expensive with a relatively high fee structure.  Depending on the size of the assets under management, the fees can range anywhere from $25,000 and up.  The providers of this type of service are generally those trustees that have a full-service platform and can provide not only custody but also investment advice.

Another approach that Rabbi Trust providers take is to act in the same role as a directed trustee prior to a change in control.  Then, in the event of a change in control, assume a limited role as administrator of the trust as specified in the trust agreement.  The trustees in these situations generally charge a lower fee prior to a change in control and then adjust fees accordingly in the event of a change in control based on the services required.  Their philosophy is that if they are not providing the service, and it is uncertain whether it will ever be required, it really does not make a lot of sense to build it into the pricing.  The initial fees in these cases, are based on assets under management and would range from $15,000 to $25,000.  In the event of a change in control the fees would increase based on the duties required.  Providers such as Wilmington Trust and Reliance Trust Company fall in to this category.

A number of trust providers will only act in a directed manner.  They will simply not accept trusts that have them acting as administrator or investment advisor.  This dilutes the benefit security provided by the Rabbi Trust to a degree, but the assets are still segregated for the benefit of the plan participants.  Fees for these arrangements start at $5,000 and up depending on the assets under management.  Providers in this category include Eastern Bank, Frontier Trust, and US Bank.

In summary, there’s a wide range of Rabbi Trust arrangements available at almost any price.  From a plan sponsor’s point of view the key decision point is how much security protection do they place on the change in the trustee’s duties and who controls the administration of the trust assets in the event of a change in control and what are they willing to pay for it.

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