SERP – Providing Benefits to Your Most Valuable Employees

Success depends on executive leadership to drive all of the company’s strategic and financial initiatives. These dependable, hard-working employees create the foundation of a successful organization and expect a compensation and benefits package that goes beyond a paycheck and traditional bonus plan. They want to be recognized for their contributions with additional benefits that protect their future and that of their families. So how do you properly attract, retain and reward those individuals?

One possible solution is to create a supplemental executive retirement plan (SERP). A SERP is a deferred compensation agreement between the company and the selected key executive, where the company agrees to provide supplemental retirement income to the executive if the executive meets certain pre-determined eligibility, years of service, performance and vesting conditions. A SERP provides benefits in addition to those covered in other traditional retirement plans such as IRA, 401(k) or pension plan.

A properly designed SERP can not only attract and retain a highly compensated employee important to the organization, but it can also help to facilitate a smooth transition from the employee to new executive leadership after a certain period of service, or upon retirement.

Benefits for the Company:

1. Retain key executive talent and keep in place the team that is driving corporate growth and profitability

2. Relatively easy to implement and requires no IRS approval or involved administration

3. Employer controls the plan design and eligible group

4. Plans can be designed with manageable profit and loss impact if appropriately designed and financed

5. Plans can be designed with the ability to recover costs plus a cost of money

6. Allows customized options to determine contribution and/or benefit amounts that correspond with the company’s needs and financial sensitivities

7. Benefit amounts are not subject to disclosure in the Summary Compensation Table but rather are noted within a separate benefits table

8. Significantly less costly to provide a SERP benefit as opposed to losing a key executive who could leave the company with intellectual capital and industry and customer relationships

9. Plan benefits a select group of executives and can be driven by years of service, company performance (ROI, ROE, ROA, net income, revenue, etc.) or a combination of both.

10. Designs can take the form of a defined benefit plan (e.g. percentage of final average compensation), defined contribution plan (e.g. percentage of compensation contributed annually) or can take the form of a Private Equity whereby the executive earns a preferred return and then profit shares with the company above some income threshold.

Benefits for the Executive:

1. Compensation is deferred and not subject to income tax until received

2. Benefits, once received, are not subject to FICA

3. Benefits can be distributed to eliminate state tax

4. Benefit amounts can make up a meaningful part of one’s retirement income (40-60% of total final average compensation)

5. In the event the executive dies, a lump-sum survivor benefit can be provided to the executive’s beneficiary equal to the present value of future benefits

6. Benefits can be secured via a grantor trust from a change in control, change in heart or the company’s inability to pay plan benefits

Planning retention and succession strategies are essential for any business. A SERP is a proven strategy used to attract and retain top talent and can help the business achieve specific financial and business goals. Before moving forward, we would recommend that you discuss your options regarding plan design, plan funding, plan security and plan administration with our team of knowledgeable consultants.

More Information

For more information call (813) 367-1111 and ask for Sales, or email consulting@mezrahconsulting.com. A team member will reach out to you shortly! 

Who We Are  
Mezrah Consulting, based in Tampa, Florida, is a national executive benefits and compensation consulting firm specializing in plans for sizable publicly traded and 
privately held companies. For more than 30 years, we have focused on the design, funding, implementation, securitization and administration of nonqualified executive benefit programs, and have advised more than 300 companies throughout the U.S.  
As a knowledge-based and strategy-driven company, we offer clients highly creative 
and innovative solutions by uncovering value and recognizing risks that other firms typically do not see. Custom nonqualified benefit plans are administered through our affiliate mapbenefits®, a proprietary cloud-based plan technology platform that provides enterprise plan administration for nonqualified plans, including reporting and functionality for plan participants and plan sponsors.