Companies use a SERP plan to reward and retain key executives. Because these plans are not qualified, they can be selectively offered to key executives whose contributions to the company`s qualification plan, such as. B 401 (k), are limited by maximum annual contributions, income eligibility limits or both. A supplementary executive pension plan is a deferred compensation agreement between the company and the CEO, under which the company agrees to provide additional old-age income to the executive and his family if certain pre-agreed legal and free movement conditions are met by management. The plan is funded by the company from cash flow, investment funds or Cash Value Life insurance. Currently, deferred benefits are not taxable to the Executive Director. In the event of payment, the benefits are taxable for the manager as income and tax deductible for the company. A typical example of a plan would be to provide the executive with a pension from all employers, provided that the superannuation compensates 70% of executives with an average salary of three years. As a SERP is not offered to all employees, you probably won`t find a predefined package in the staff manual. In addition, the details of the plans vary considerably from company to company.
However, in a typical unfunded agreement, the employer agrees to provide a superannuation to its executives or HCEs, funded by their own dollars. With a defined benefit SERP, the most common, the employer generally calculates the benefit using a lump sum in dollars or a percentage of the employee`s average final salary. It then pays this amount over a one-year period from the worker`s retirement age. Another agreement is a defined contribution plan in which the employer makes periodic contributions to a staff account until retirement, like a pension plan. The money is invested in the employee`s name until the employee`s retirement triggers the payment. Find out how the plan works, what the rights requirements are, and whether you can benefit from participating in a plan. The employer may invest the funds allocated under the SERP in pensions, life insurance or securities in order to allocate these assets to employees in the future. Life insurance is often taken out by executives or HCEs to protect the employer from taxes due on capital gains on securities.