SERP Plans for Executives and their Key Employees
Your business can create a Supplemental Executive Retirement Plan (SERP)
A Supplemental Executive Retirement Plan is a deferred compensation agreement between the company and the key executive whereby the company agrees to provide supplemental retirement income to the executive and his family if certain pre-agreed upon SERP conditions are met by the executive. The Supplemental Executive Retirement Plan is funded by the company out of cash flows, investment funds or cash value life insurance. Any deferred benefits are not currently taxable to the key executive. When paid, the SERP benefits become taxable to the executive as income and tax deductible to the company.
Supplemental Executive Retirement Plans (SERP), using your business’ interest in the life insurance cash values to fund the promised benefits. Supplemental Executive Retirement Planswithdrawals can be taken from the policy to distribute to the employee, or the entire policy can be transferred to the employee in a lump sum at retirement. As a form of “golden handcuffs,” the promised SERP benefit to the employee can be made contingent upon the employee fulfilling certain requirements, such as remaining employed for at least ten years.
Whether you own a closely held business or are a senior executive in a major corporation, you know that your business is dependent on the capabilities of your key people. Keeping key people is critical to the long-term success of your business and using a SERP makes this easier. Increasing compensation, enhancing incentives and adopting new fringe benefits add to business overhead. Balancing the impact on the bottom line with the need to retain experience and expertise can be a challenge in today’s marketplace.
A Split Dollar Supplemental Executive Retirement Plan is a cost and tax effective method of providing life insurance protection to your key employees. The overall plan is tailored to meet the needs of your business and each key employee that you choose to cover. Moreover, as the owner of a business, you can obtain significant personal benefits from a Split Dollar Supplemental Executive Retirement Plan of your own.