Definition of Employee Benefit Trust

EBTs promote employee retention.

An employee benefit trust often takes the form of a pension or profit-sharing plan set up by an employer to ensure that its employees have an adequate income stream during retirement. Such plans are usually managed by banks or third-party EBT firms, which act as a company's trustee, and pay out money from the funds in accordance with the regulations set by the company. Additionally, some EBTs also offer preretirement benefits such as health care insurance and employee loans.

Company Shares

Benefits provided by an EBT come in various forms, notes RBC Corporate Employee & Executive Services. For instance, employees may receive company shares as a benefit of their employment. This is a common EBT form, particularly at large corporations.

Investment Funds

Alternately, an employer may invest a certain amount of dollars on behalf of an employee in third-party funds, and as the employee racks up years of service, he becomes gradually vested in the funds, meaning that ownership of the original investment and its profits transfer from the employer to the employee. Co-investment plans in which both the employers and the employees contribute to a pool of money invested in third-party funds are another common EBT.

Share Appreciation Rights

Less commonly, employers may provide share appreciation rights as an EBT. This means that they award employees with certain shares of the company as a benefit of their employee, with award values related to share price movements also given out.

Set-Up and Follow-Up Cash

EBTs meant to provide cash at retirement are typically funded by initial, usually nominal, contributions by employers, and gain value through a series of future, scheduled contributions, states an article by Geoff Taylor and published by Streets Web. Thus, EBTs reward employees for longevity, since it can take many years for an employer to add sufficient funds to an EBT to be of any significant value to an employee.

Health Care Benefits

Some companies also provide health benefits for their employees through a third-party EBT firm that administers other EBT services for them. Because these firms typically administer the EBTs of many companies at the same time, they can leverage high numbers of employees throughout these companies to negotiate very good health insurance rates and benefits.

Loans

Many employees who have EBT benefits through their employers can't access their accrued funds until after they retire. However, some trusts allow beneficiaries to take out loans against the money accrued in their EBTs. Trustees may choose to extend either interest-free or interest-bearing loans to employees.

References

• RBC Corporate Employee & Executive Services: Employee Benefit Trust Services
• Streets Web: Employee Benefit Trusts
• Association of Washington Cities

Resources

• Ogier: Employee Benefit Trust Loans