Executive Compensation Retirement Plans
Companies know that attracting and retaining key executives is a difficult task. To solve this problem, a company might offer a different retirement plan as part of certain employees’ benefits packages.
Every employee has value, but some employees are harder to replace than others. An entry-level employee working in a company’s manufacturing plant who leaves probably isn’t going to impact the company as much as the CEO, CFO, or other high-level executive’s departure. Ideally, a company board would have measures in place to deal with executive departures.
One of these measures is a Supplement Executive Retirement Plan (SERP), which is designed to be a more lucrative retirement option for retaining top talent.
The Supplement Executive Retirement Plan
Qualified retirement plans refer to plans such as a 401(k) that qualify a company for tax breaks. Qualified plans also require testing to ensure that all contributors are contributing fairly (more on this later). A nonqualified plan does not follow the testing that is required for fairness like a 401(k), is tax-deferred, and does not have contribution limits.
A SERP is a non-qualified plan, allowing it to function outside the rules of IRS regulated qualified plans. Unlike qualified plans like a 401(k) or pension plan, employers don’t have to offer the plan to all employees.
SERPs don’t follow IRS tax laws such as penalties for withdrawing from them before age 59 ½. There are no RMD (required minimum distribution) at age 70 ½ either. Think of a SERP like a private pension plan for selected key executives.
Advantages of a SERP
- No Limits on the amount to compensation each executive.
- No Insurance Products.
- Not bound by an ERISA rules or policies.
- Each Executive has a separate account and can manage their investments*.
- Setup a “Vesting” Schedule.
- No Annual Filing.
- No Discrimination Testing.
- Account funds grow “Tax-Free”.
*Investments include the Asset Lineup of ETFs to reduce costs and the Atlas “Model Portfolio’s”.
Call us today to discuss how to compliment your current Company Retirement Plan with a SERP, a Non-Qualified Plan for Executive Compensation.