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Business Preservation Planning |SERP

Business Preservation Planning |SERP

There are two types of Supplemental Executive Retirement Plans (SERPs): (1) Unfunded; and (2) funded. An unfunded SERP is when the employer contractually promises to pay certain compensation-related benefits at a date in the future. 

However, that contractual agreement or promise is not secured. A funded SERP is when the company puts the assets in a trust account¹.

Most companies use cash value life insurance to fund SERPs. The company purchases a life insurance policy on the key employee’s life that is sufficient to provide the future benefits outlined in the agreement. The company pays the premiums, owns the policy and is the policy beneficiary¹².

Bottomline, a supplemental executive retirement plan (SERP) is a deferred compensation agreement between the company and the key executive whereby the company agrees to provide supplemental retirement income to the executive and his family if certain pre-agreed upon conditions are met by the executive¹. 

A SERP may be used by companies to help attract and retain key officials, such as high-level executives and CEOs⁴. 

The Employer enters into a Supplemental Executive Retirement Plan (SERP) with its key executives. Through this arrangement, the Employer agrees to provide supplemental retirement income to selected executives and their families in return for the attainment of agreed-upon objectives³.

(1) The Supplemental Executive Retirement Plan (SERP) Explained.

(2) Supplemental Executive Retirement Plans | The Hartford. (3) Supplemental Executive Retirement Plans (SERPs) - SmartAsset. (4) Supplemental Executive Retirement Plan (SERP) Pros & Cons - Investopedia.

(5) What Is a Supplemental Executive Retirement Plan? - The Balance.

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Business Preservation Planning |SERP

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