Supplemental Executive Retirement Plan

Experienced Financial Advisers Serving Business Owners, Entrepreneurs, and Investors

Supplemental Executive Retirement Plan

Supplemental Executive Retirement Plan

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Retirement Planning can be Difficult for Business Owners

Business owners and their highly compensated key employees have two unique problems in funding their own retirement.

  1. The Federal rules governing tax-favored qualified plans limit the amounts that can be deferred or contributed into these plans by, or on behalf of, highly compensated individuals.
  2. Many business owners are not taking significant salaries from their business earnings. Reasons for this include avoidance of high personal income tax rates and the need and/or desire to reinvest earnings back into the growth of the business.

This can make funding outside investments for retirement difficult. A Supplemental Executive Retirement Plan may be a solution.

Taking Care of Retirement for Yourself and Your Key People with a Supplemental Executive Retirement Plan (SERP)

Running a business in today’s competitive environment can be challenging. Much of the success and growth of your business is attributable to your own talents and efforts, and to those of your key employees. You can enhance your overall executive benefit program by adding a SERP. And when life insurance is used as a funding vehicle, the cost of the plan may be fully recovered by your business.

What is a Supplemental Executive Retirement Plan?

A Supplemental Executive Retirement Plan (SERP) is established for a particular employee or group of employees to provide additional retirement benefits beyond what is offered by a traditional 401(k), profit sharing or other qualified retirement plan.

A SERP provides a retirement income for the business owner and selected key employees without reducing current compensation. For these plans to work, the continuation of the business through retirement years is crucial. A business succession plan can be combined with a SERP to assure continuation of the business.

How can my Company Benefit from Having a SERP?

A SERP allows you to select key employees you would like to single out to receive a special compensation benefit. A SERP can be designed to motivate and reward individual and company performance results defined in the SERP agreement. A SERP helps improve retention of important employees and increases morale while encouraging top tier individual and company performance. A SERP can be designed to repay the company for the cost of the supplemental benefit provided to covered employees.

Why Would I Want to Establish a Supplemental Retirement Plan? We Already have a 401(k) with an Employer Match.

Qualified retirement plans such as 401(k), profit sharing and defined benefit pension plans provide valuable and important retirement benefits, but the rules governing these plans discriminate in favor of rank-and-file employees. Qualified plans have strict rules regarding the coverage of eligible employees and limit the amount of contributions that can be made for each employee.

SERPs are nonqualified salary continuation plans that allow an employer to select the employees who will participate, and to determine the level of the supplemental retirement benefit that will be paid. A SERP can also help increase a highly compensated employee’s retirement income to a percentage of pre-retirement income that is on par with what a rank-and-file employee will receive from a combination of Social Security and qualified plan benefits.

What about administration of a SERP?

Administration of a SERP is relatively inexpensive and can be performed by a third-party administrator that specializes in this type of work. The administrator prepares an annual report for the participant and information necessary for the employer to account for the present value of the future liability of the SERP benefit promised to the covered employee.

Retain, reward, and recruit the best employees in the marketplace by creating a Supplement Executive Retirement Plan for a select group of management or highly compensated employees.

Ready to find out more? CONTACT US and let’s start a conversation!

Gibson Financial Group and its agents do not offer tax or legal advice and may transact business only where properly licensed.

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