What are Supplemental Executive Retirement Plans?
A Supplemental Executive Retirement Plan, or SERP, is a special type of nonqualified retirement plan. As its name implies, the plans are usually offered only to a company’s highly paid executives. Because a SERP is a nonqualified plan, there is no limit on the amount that the company can contribute to it each year. And, since you can’t access the money until you either leave or retire, your tax liability will be deferred until the money is taken out. In some cases, however, the SERP money might not even be there when you want to make a withdrawal. That’s because the money that is contributed by the company comes from its general operating budget (rather than a special pension fund) and is merely kept as an entry on its books. If the company goes bankrupt or is sold, there’s no guarantee that you will get the money you were promised. Some firms buy insurance or set up trusts to protect SERP accounts, but you should be aware of the risks involved in plans that are unprotected.
