Tailored retirement benefits for your executives
For many business owners, there is a lot of investment that goes into key executives. As an incentive to encourage the executive to stay long-term with your company, many businessowners enhance executive benefits with a supplemental executive retirement plan (SERP).
A SERP lets the executive know they are a valuable part of your team while also encouraging them to stay with your company.
How does a SERP work?
You promise to pay the employee a retirement income stream or lump sum benefit if he or she stays with the company until retirement. You also may provide disability and/or death benefits under the plan.
A SERP is often called a 'golden handcuff' plan. When structured as a forfeitable plan, the employee generally forfeits all business if he/she leaves your business early.
Funding a SERP
For many business owners, life insurance is the ideal informal funding mechanism for many SERP agreements.
As a business-owned policy, the company has total control over the policy and flexible, tax-advantaged* access to its cash value and income tax-free** death benefit. The company can then use the policy to help meet its obligations under the SERP.
Flexible and selective
SERPs are flexible and allow you to pick and choose participants. A SERP has only minimal reporting requirements, and there are no contribution limits.
Comparison of SERPs vs. qualified plans
| SERP | Qualified plan | |
| Contributions are currently deductible by employer | No | Yes |
| Contributions are currently taxable to executive | No | No |
| Employer deducts payment of retirement income | Yes | No |
| Executive taxed on retirement income | Yes | Yes |
| ERISA reporting requirements | Minimal | All |
| Employer control | Yes | Yes |
| Employer cost recovery | Yes | No |
| Ability to select participants | Yes | No |
Get started today!
If you have key executives you hope to retain long-term, a SERP is a very useful method of doing so. For more information, contact your Ohio National financial professional.
*If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the loan or withdrawal is made and, if taken prior to age 59½, a 10% federal tax penalty may apply. Withdrawals and loans reduce the death benefit and cash surrender value.
**Assuming compliance with IRS rules, including applicable notice and consent requirements under Internal Revenue Code Section 101(j)
A supplemental executive retirement plan offers:
The employee only receives a benefit if he or she stays with the company until retirement.
The executive is taxed and the employer takes an income tax deduction when the benefits are paid to employees.
Your business maintains maximum control over life insurance policy cash values.
SERPs generally offer more flexibility over plan design and participant selection than qualified retirement plans (such as 401(k) plans).