One way for employers to replace
lost qualified retirement benefits and correct reverse discrimination is to
implement a supplemental executive retirement plan (SERP)
The employer selects the key personnel who participate, pays
retirement or survivor benefits from general assets and takes a tax deduction
for the benefit payments.
Flat Dollar SERP
Companies have flexibility in determining the type of SERP they offer.
Benefits can be a flat dollar amount
such as $25,000 per year for life after retirement.
Companies use another type of plan, called an excess SERP
to replace the retirement benefits executives lose due to qualified
plan limits. An excess SERP
provides a benefit equal to the full amount under a company's pension formula,
regardless of the limits, offset by qualified pension and Social Security
Another widely used supplemental
retirement plan, the Target SERP
not only replaces lost retirement benefits, but also helps
correct benefit discrimination.
The company promises executives a specified percentage of final pay, often
60 percent to 70 percent. This
helps bring executive retirement income percentages in line with those of the
average company employee. As with
the excess plan, the Target SERP benefit
is offset by other retirement income.