Advantages of Using a Supplemental Executive Retirement Plan

There are several advantages of using a Supplemental Executive Retirement Plan to recruit, retain and reward key executives.

In this post, I am going to discuss the advantages of of using a Supplemental Executive Retirement Plan (SERP) and then discuss the disadvantages of using a SERP.

Both employer and participant can derive significant benefits from a supplemental executive retirement plan.

The plan provides “golden handcuffs” because benefits are forfeitable by the employee in the event of voluntary termination of service.
The plan can be used as a substitute for a qualified plan or equity ownership for designated employees.
The plan is flexible, allowing the employer to:
- discriminate in favor of one or more employees it wishes to reward
- design the plan to attract and retain important executives
Benefits are normally deductible by the employer when they are paid to the participating executive.
The employer has complete control over the following:
- selection of benefits
- timing of benefit payments
- plan values
Benefits paid under insurance policies used to secure the promised benefits are generally tax-free to the employer.
The employer may be able to recover some or all of the costs to provide the plan through life insurance proceeds.
The plan is easy to administer.

Plan costs are paid entirely by the employer—the participating employee has no out-of-pocket cost for the benefits he or she receives.
No income is imputed to the participating employee during the period of employment; consequently, there is no current income tax liability for the employee.
The plan provides various benefits, including:
- supplemental retirement income
- survivor benefits
- disability benefits

Though these are the advantages of using a Supplemental Executive Retirement Plan, there are also some disadvantages a business should consider.