Understanding Supplemental Executive Retirement Plans (SERPs)
A Supplemental Executive Retirement Plan (SERP) is a benefit program designed to provide additional retirement income to top-level employees beyond the standard company retirement savings plan. Unlike traditional retirement plans such as a 401(k), a SERP is considered a form of deferred compensation and does not qualify for special tax treatment. Key Takeaways SERPs are non-qualified retirement plans used to attract and retain key executives. They do not provide immediate tax advantages for the employer or employee. Employers can deduct the benefits as a business expense when they are paid out. How SERPs Work Companies offer SERPs selectively to key executives, as these plans do not need to comply with IRS contribution limits applicable to qualified plans. For instance, in 2024 , the maximum employee contribution to a 401(k) is $23,000 , with an additional $7,500 catch-up contribution allowed for those aged 59½ or older . A SERP is usually formalized through an agreement betwee...