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

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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Related Content

• 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. 

Practical Guidance Updates 
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