Supplemental Employee Retirement Plans (SERP's), also known as Selective Employee Retirement Plans, are broad terms used to describe either Non-Qualified Defined Benefit or Non-Qualified Defined Contribution plans. A Defined Benefit Plan (DB) identifies a stated future benefit to be paid after certain longevity criteria have been met. Defined Contribution (DC) plans identify a funding amount on the front-end, with a non-identified future benefit. However, the term SERP is a broad term that has historically denoted Defined Benefit Non-Qualified Plans. Additionally, they are designed to trigger when Qualified Plans, such as 401k plans, have reached their limits.

In short, Serp's provide employer paid deferred compensation to key executives who are in a high tax bracket. They can defer their income until retirement when most likely they will be in a lower tax bracket. The economic benefit of deferral is significant if deferred for a long period of time. By offering a SERP a corporation can help attract employees and provide an incentive to remain with the company.

Serp's are funded with a Rabbi Trust, Secular Trust, Corporate Owned Life Insurance or Split Dollar Life Insurance. This is a way to provide reassurance to the employee that the benefits will be paid.

A SERP can be structured to allow participants to elect to defer a portion of their salary. The election must be made in writing in the year before the compensation is earned. Unlike a qualified plan, a SERP allows a participant to defer up to 100% of their compensation into the plan.

A SERP can also provide for employer contributions in addition to or even in place of employee salary deferral. Employer contributions are usually discretionary. No deposits are required to be made in any given year.

Benefits can be structured to pay upon termination of employment, retirement or some other event. Benefits can be structured to be paid in a lump sum, or in payment. The employer has some flexibility in establishing a vesting schedule and forfeiture provisions. You can even stipulate the the employee will lose their rights to benefits if they fail to work until retirement age or if they work for a competitor.

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