Promus Financial | Executive Benefits

Supplemental Executive Retirement Plans

 

Supplemental Executive Retirement Plans (SERPs) are non-qualified retirement plans covering key company employees that provide benefits beyond those covered in other retirement plans such as pensions, 401(k) plans or non-qualified deferred compensation plans.  Unlike 401(k) and non-qualified deferred compensation plans, in which employees defer their compensation in order to receive it later, SERPs are entirely funded by the plan sponsor (i.e. the employer).

SERPs are widely used to recruit, reward and retain key employees.  There are two categories of SERPs:

 

  • Defined benefit – A benefit-focused program utilizing a targeted amount or formula-driven payout (generally as a percentage of final pay) based upon retirement or vested separation from an employer.  Defined benefit SERPs are often used by companies to “make-up” benefits lost due to IRC §415 contribution limits placed on qualified pension plans.  Another common plan design targets a particular “replacement ratio” as a percentage of final pre-retirement income.
  • Defined contribution – A contribution-focused program with amounts defined at the time of contribution and credited to a participant’s account.  Account balances are credited with tax-deferred earnings until retirement or vested separation from an employer.   Like a 401(k) plan, there is no final benefit target, per se.

 

In addition to benefit design, key considerations include benefit financing, benefit security, effective communication and administration.