"SERPs" Up: Retirement Benefits for Senior Executives; Why Supplemental Plans for Top Management Are an Increasing Important Part of Compensation Packages

By Kauffer, David J.; Weinberger, Mark A. | Journal of Accountancy, November 1990 | Go to article overview

"SERPs" Up: Retirement Benefits for Senior Executives; Why Supplemental Plans for Top Management Are an Increasing Important Part of Compensation Packages


Kauffer, David J., Weinberger, Mark A., Journal of Accountancy


The principal purpose of a supplemental executive retirement plan (SERP) is to ensure adequate post-retirement income for selected senior executives. Under these plans, they receive benefits beyond those provided by the employer's qualified retirement plan. SERPs are becoming increasingly popular--a recent survey of the Fortune 100 industrial companies showed 93% currently maintain SERPs.

WHY A SERP?

SERPs are beneficial to executives and employers for many reasons. For the executive, the principal benefits are the supplemental retirement income and survivor compensation in the event of the executive's premature death.

The benefits usually are carefully defined and easily understood by the executive. Typically, SERPs do not require that performance goals be achieved but do require continued employment to a specified age for eligibility. As opposed to many other forms of compensation, the executive is able to defer tax on the earned benefits until they are paid, usually after retirement.

A substantial disadvantage to the executives covered by a SERP is that the employer's obligation to pay the promised benefit is unsecured. Although certain techniques discussed below may provide limited security for the executive, the participant must rely on the employer's financial stability.

This reliance is a disadvantage often overlooked by executives. Today's turbulent economic and legal climates have left major corporations unable to meet their legal obligations, including those owned to their employees. One prominent example is LTV Corporation, which has been in bankruptcy since 1986 and was the subject of a U.S. Supreme Court decision. The Court ordered LTV to reassume responsibility for its pension plan, thereby relieving the Pension Beenfit Guaranty Corporation, but left it up to the bankruptcy court to set priorities for the company's obligations.

Still, SERPs remain attractive to employers since they can provide benefits to a select group of executives without jeopardizing the preferred tax status of retirmenet benefits under qualified plans. What's more, the employer needn't provide the same benefits to a broad group of employees. If the company had to provide these benefits to a large group of employees, often it would not provide the benefit at all.

A employer can use a SERP to

* Facilitate early retirement for executives whose services are no longer desired.

* Attract senior executives who otherwise would receive an inadequate pension due to short service.

* Enhance the executive compensation package to motivate toplevel executives.

* Protect selected executives against involuntary termination.

* Create "golden handcuffs" by proportionately increasing benefits for additional years of service, thus providing a financial incentive for valued executives to remain with the company.

WHY NOW?

Changes in tax law have increased the popularity of nonqualified deferred compensation. Tax reform legislation has reduced the amount of benefits an executive can receive from qualified plans and increased the expense of providing a particular level of benefits to executives.

In annual reports to Congress, the Office of Management and Budget consistently lists qualified employee benefit plans as the single greatest "tax expenditure" in the federal system. In an era of proclaimed fiscal responsibility and a mounting deficit, Congress is likely to continue to reduce benefits and tax advantages associated with qualified retirement plans, particularly those for highly paid executives. Accordingly, employers will continue to search for programs that supplement or replace qualified employee benefit plans for these executives.

SERPs vs. EXCESS BENEFIT PLANS

Employers can use two principal types of nonqualified deferred compensation arrangements to bypass the qualified plan rules: the excess benefit plan and the SERP. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

"SERPs" Up: Retirement Benefits for Senior Executives; Why Supplemental Plans for Top Management Are an Increasing Important Part of Compensation Packages
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.