For Executives and Highly Compensated Employees, a SERP offers several key benefits:
- Supplemental Executive Retirement Plans (SERPs) provide a defined, relatively predictable additional income stream during retirement.
- HCEs will only be taxed on that income when they receive it. SERPs do not produce tax consequences for HCEs while they are employed, and, like qualified retirement distributions, may offer tax advantages if HCEs are in a lower tax bracket during retirement.
- The presence of this income stream in early retirement gives HCEs the flexibility to leave savings in their qualified accounts longer, taking advantage of additional potential for compounding before minimum required distributions begin at age 72.
- Because employers oversee all aspects of funding and distributing SERPs, these benefits do not require any HCE contributions or oversight.