Executive Benefits, or Nonqualified or Select Benefit Plans, can provide current or future benefits. When providing future benefits, Executive Benefits generally come in the form of Nonqualified Retirement Benefits provided to select key employees, and these can be used to replace or enhance Qualified Retirement Plans.
While Executive Benefits provide important tax advantages to both the employer and employee, the tax treatment is generally not as favorable as it is with Qualified Retirement Plans.
Executive Benefits are not, however, subject to the strict rules governing Qualified Retirement Plans.
In the context of retirement plans, there are two basic types of Executive Benefits:
- Elective Deferred Compensation Plan (EDC)
An arrangement where an employee defers a portion of pre-tax salary until death or retirement.
- Supplemental Executive Retirement Plan (SERP)
An arrangement where the business agrees to pay an additional amount to an employee upon death or retirement.
When a SERP or EDC plan is provided to employees of state government or tax-exempt organizations, it is subject to specific rules and limits set forth in I.R.C. section 457 (and is often called a “457 Plan”).
- Additional way to compensate specific executives above and beyond a Qualified Retirement Plan
- Qualified Retirement Plan rules do not apply
- Can have a positive impact on your efforts to recruit and retain quality executives