Supplemental Executive Retirement Plan
With a SERP, an employee receives supplemental retirement benefits.
Options to employees may include:
- Select benefit distribution options
- No cost to employee
- Not taxed on benefits until received
- No early distribution penalties
- No mandatory age distributions
Benefits are payable upon:
- Termination of employment
Benefits may be payable in a lump sum or in a series of payments.
The employer can choose the financing method that works best:
- Pay as you go
- Taxable assets
- Corporate Owned Life Insurance (COLI)
Elective Deferred Compensation Solutions
In some situations employers and employees may want to weigh the future viability of the company structure. Does the business owner intend to sell the company? Will the company be around when the benefits are to be paid out?
The company’s goals may point to an Elective Deferred Compensation Plan. This is an employee benefit plan that allows an employee’s pre-tax contribution of current compensation to grow in the hands of the employer, not being taxed to the employee until paid to him or her at a later date (e.g., retirement). Today, most public and large private companies provide voluntary deferral opportunities to their key employees to help them save for retirement.
Some key characteristics of an Elective Deferred Compensation Plan include the following:
- The employee
- can defer income without the limitations placed on qualified plans,
- may choose from multiple allocation options (contingent on plan design).
- The employer
- selects the participants
- has the discretion to make additional contributions on the employee’s behalf,
may discriminate as to the amount of additional contributions.
The information contained on this website is not intended to be used as a basis for legal or tax advice. In specific cases, the parties involved must always seek out and rely upon the counsel of their own attorneys.
Split Dollar Solutions
A Split Dollar Plan is a technique in which one party (e.g., the employee) in need of insurance is assisted by another party (e.g., the employer) in paying the premiums. The employer owns a permanent cash value policy and endorses to the employee the right to name a beneficiary for a portion of the death benefit. The employee is charged an ongoing term cost, making the death benefit income tax free when received.
Company-sponsored group term insurance plans provide a valuable benefit to employees but typically the death benefit declines or goes away after retirement when the insurance is most likely to be needed. Because it is a term insurance benefit with only the first $50,000 of coverage tax-favored for both parties, many companies only provide $50,000 of insurance. This may leave key executives and employees either under-insured or with temporary term coverage that becomes more expensive over time and then declines or disappears. There is a significant ongoing tax cost to the employee for any group term coverage remaining after retirement.
A Split Dollar Plan can be a cost effective way to provide key employees life insurance protection in addition to, or in lieu of, group term protection.