Attracting and retaining top talent in the modern competitive business environment can be arduous. Offering unique and customized benefits becomes crucial, especially when dealing with business owners and key employees. One such creative solution is the Supplemental Executive Retirement Plan or SERP.
What Is a SERP and Why Is It Important?
A SERP is an employer-paid deferred compensation agreement that offers supplemental retirement income to selected employees. It is advantageous when the executive’s standard retirement package might fall short of their needs. Let’s look into why a SERP might be the perfect addition to your employee benefits package.
The Need for Customization
With restrictions on contributions or benefits from traditional qualified plans, some executives might be disadvantaged. Here is where the SERP comes into play. It’s designed to fill those gaps and provide a more attractive retirement package.
An Example to Consider
Imagine a fictional company, TechPinnacle Corp. They have a high-ranking executive, John, who has significantly contributed to the company’s success. They want to ensure that John stays with them and is satisfied with his retirement plan.
1. The Agreement: TechPinnacle enters into a SERP agreement with John and purchases a life insurance policy on his life with his written consent. The company owns the policy, pays a non-deductible premium, and names itself the beneficiary.
2. Triggering Events: Upon John’s retirement, the company pays the promised benefit. This payment is usually tax-deductible for the company but taxable to John. If a survivor benefit is included, the proceeds might also be used for that purpose, offering a tax deduction for TechPinnacle.
3. In Case of Death: If John passes away, the company receives the death benefits income tax-free.
This plan ensures John’s satisfaction and loyalty to the company while offering financial advantages for TechPinnacle.
Considerations for the Business
Here’s what makes a SERP particularly attractive for businesses:
– Tax Benefits: Cash values accumulate tax-deferred, and death benefit proceeds may help recover plan costs.
– Recruitment and Retention Tool: A SERP can be a magnet for valuable employees like John.
– Flexibility: The business gets to choose the participants and enjoys less administrative and funding burdens compared to traditional plans.
Conclusion
A Supplemental Executive Retirement Plan is a versatile and strategic tool that can be tailored to meet your business’s and key employees’ specific needs. It offers a win-win situation, enhancing employee satisfaction and loyalty while providing financial benefits to the company.
If you want to create a competitive edge in your employee benefits package, a SERP might be the solution you need. Talk to a financial professional to see how a SERP can be structured to suit your business’s unique requirements. Talent retention is fierce, and a SERP could be your ace in the hole.
