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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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