Understanding Supplemental Executive Retirement Plans (SERP)

The Supplemental Executive Retirement Plan is a type of retirement plan that is offered by certain companies in order to provide additional retirement benefits to upper-level executives in the company. This type of investment plan is designed to retain talented executives in the company. Here are the basics of the Supplemental Executive Retirement Plan and how it works.

Supplemental Executive Retirement Plan

The Supplemental Executive Retirement Plan or SERP is a retirement plan that is offered over and above a company 401k or some other type of qualified plan. The Supplemental Executive Retirement Plan is considered to be a non-qualified retirement plan option. This is an optional plan that employers can put into place in order to provide additional benefits in a perks plan for upper-level management. 

Employer Funded

One of the big differences between the Supplemental Executive Retirement Plan and the 401k is that the employer funds it entirely. With a 401k or some other type of qualified plan, the employee will be in charge of contributing a certain percentage of their income. With regular plans, employers will also make a partial matching contribution to the employee's account. With the Supplemental Executive Retirement Plan, all of the money that goes into it comes directly from the employer. This is very attractive to employees because they are essentially getting retirement benefits without having to reduce their salary to obtain them.

No Restrictions

With traditional qualified retirement plans, you have to abide by IRS rules when setting them up and maintaining them. One of the attractive features of this type of plan for employers is that they do not have to abide by specific restrictions that are set forth by the IRS. They can set up the plan anyway that they wish and the IRS will not have say over how it is administered. This means that the employer does not have to fill out any government forms or documents at the end of the year.

Selective

Another benefit for employers is that they can be selective when choosing which employees get to be involved in this plan. With other qualified plans, they have to make the retirement plan available to every single employee in the company. They also have to make equal contributions to every employee. With the Supplemental Executive Retirement Plan, this is not the case. The employer can choose exactly which employees get to receive benefits and which ones do not. They can also make irregular contributions to the accounts when funding them. The employer has complete discretion in these matters.

Survivor Benefits

With this type of retirement plan, the money can be paid to the surviving family members of an employee if they pass away. This provides an additional source of money besides any life insurance policies that the individual has. This can be a big benefit to the employee because they know that their family members will be taken care of after they are deceased.