Do you have any employees who if they left would cause a significant financial loss to your company? A Supplemental Executive Retirement Plan is an effective way to strengthen the ties between your organization and its most valuable team members. Essentially, these plans function as a non-qualified method for your top executives to continue to set aside funds for their retirement even after they have maximized contributions to their 401(k) plans.

How do SERPs work?

Your company enters into an agreement with an executive for the payment of supplemental retirement income. These benefits will be financed with company dollars, and may be at risk depending on the financial stability of the company. Your company purchases a life insurance policy on the executive's life, naming itself the owner and beneficiary of the contract. In the event of the executive's death, heirs will either receive annual income or a lump sum payment from the employer. When the executive retires, he or she receives the SERP compensation from your company.

Employer advantages of SERPs

• The plan has minimal ERISA requirements and can provide selected employees with supplemental benefits.
• Your company controls the plan, owns the policy and carries the cash value as an asset on its balance sheet.
• Your company's cash value accumulates within the insurance policy on a tax-deferred basis.
• The plan can be designed so that you recover its cost.
• Your company can pick and choose who you want to participate.

Employee advantages of SERPs

• The plan can be custom designed to meet the executive's individual needs.
• Retirement income is accumulated without current taxation to the executive.
• The plan, through the policy's death benefit, can be self-completing in the event of the executive's death.