More on Using SERPs to Lay a Better Foundation for Your Execs’ Retirement

October 17, 2023 (4 min read)

A supplemental executive retirement plan (SERP) is a specific type of top-hat plan that supplements an employee’s qualified plan benefits. The plan can be structured so that it doesn’t simply supplement the qualified plan in which the executive participates, making employer contributions above applicable IRS limits; it also can allow participants to elect to defer a portion of their salary and/or bonus into the plan, like other non-qualified deferred compensation (NQDC) plans whose sole focus is deferral (and growth) of the executive’s money. This is often referred to as an elective NQDC plan. Section 409A compliance is imperative. What about investment? If it’s an individual account plan (defined contribution plan), the employee’s benefit is in their individual account. To avoid taxation, it’s not a real, actually funded account; it’s just a bookkeeping account. The plan can provide for its notional investment, often allowing the executive to direct the investment of their individual account, sometimes with reference to the same mutual funds (or other) investments available in the employer’s 401(k) plan.

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Supplemental Executive Retirement Plan
Consider using this SERP template to provide a select group of employees with additional retirement benefits under an NQDC arrangement compliant with I.R.C. § 409A. The template is a formula-based SERP suitable for a for-profit private employer. The templates Section 2.3 takes into account the hypothetical amount that may be attributable to vested matching contributions made (as an accounting entry) by the employer on the participant’s deferrals under the nonqualified plan.
Section 409A Resource Kit
Remember the importance of Section 409A compliance when counseling on NQDC. Section 409A governs almost every aspect of nonqualified deferred compensation, which is generally defined as any legally binding compensation where payment is or can be made in a taxable year after the taxable year in which the arrangement is created.

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Employee Benefits & Executive Compensation Key Legal Developments Tracker
Stay informed on new developments.
- Retirement Plans. PBGC revised final regulations on the allocation of assets in single-employer plans to prescribe interest assumptions for plans with valuation dates in the fourth quarter of 2023. These interest assumptions are used for valuing benefits under terminating single-employer plans and for other purposes. 88 Fed. Reg. 62706 (Sept. 13, 2023).
- Health and Welfare Plans. Treasury, IRS, the Department of Labor, Health and Human Services, and the Office of Personnel Management, issue FAQs regarding implementation of certain provisions of Title I (the No Surprises Act) of Division BB of the Consolidated Appropriations Act, 2021, in light of the August 24, 2023, decision in Texas Medical Association v. United States Department of Health and Human Services, Case No. 6:22-cv-450-JDK (E.D. Tex.) (TMA III). FAQ Part 62.
- Health and Welfare Plans. Treasury, IRS, the Department of Labor, and Health and Human Services reopened the federal Independent Dispute Resolution (IDR) portal, for the initiation of new single disputes, including single dispute resolution involving bundled payment arrangements. The ability to initiate new disputes involving air ambulance services as well as batched disputes for air ambulance and non-air ambulance items and services remain temporarily unavailable. IDR portal functionalities related to previously initiated batched disputes are also unavailable. Federal Independent Dispute Resolution Process Partial Reopening of Dispute Resolution Guidance.

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