New Hampshire Supplemental Executive Retirement Plan - SERP
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How to fill out Supplemental Executive Retirement Plan - SERP?
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FAQ
SERPs are paid out as either one lump sum or as a series of set payments from an annuity, with different tax implications for each method, so choose carefully.
Risk of forfeiture. Forfeiture can occur if the employee has not met the requirements to ?earn? or ?vest? in the future SERP payout. This usually occurs when the employee leaves the company prior to retirement. This also can happen when leaving the company prior to vesting or not achieving performance thresholds.
A SERP is a non-qualified deferred payment plan that a firm offers only to high-up workers, such as executives and other key HCEs. Firms add to SERPs with their own dollars and can choose either funded plans or unfunded plans. Workers can usually defer paying taxes on employer contributions to unfunded SERP plans.
SERPs do not have contribution limits. Employers often fund a SERP by taking out a cash value life insurance policy on you.
A supplemental executive retirement plan (SERP) is a set of benefits that may be made available to top-level employees in addition to those covered in the company's standard retirement savings plan. A SERP is a form of a deferred-compensation plan. It is not a qualified plan.
Understanding SERP The company funds the plan out of its current cash flows or through the funding of a cash-value life insurance policy. The money, and the taxes on it, are deferred. After retiring, the executive can withdraw the money and must pay state and federal taxes on it as ordinary income.
SERP withdrawals are taxed as regular income, but taxes on that income are deferred until you start making withdrawals. Much like other tax-deferred retirement plans, SERP funds grow tax-free until retirement. If you withdraw your SERP funds in a lump sum, you'll pay the taxes at all once.
The plan is funded by the company out of cash flows, investment funds or cash value life insurance. Any deferred benefits are not currently taxable to the key executive. When paid, the benefits become taxable to the executive as income and tax deductible to the company.