SERP (Supplemental Executive Retirement Plan)
How does a SERP work?
A SERP is a retirement plan that usually targets a percentage of final salary for a Credit Union Executive. A 401(k) has strict contribution limits; a SERP is flexible. A supplemental plan makes sense for retaining or rewarding valuable senior staff. SERPs grow in popularity year after year as marketplace competition heats up -- along with the demand for top talent.
A SERP has a funding component for the financial aspect, plus a legal document that spells out the whys and wherefores of the plan, including things like vesting schedule and payout stipulations.
TYPES OF SERPs
457(f). This plan is for select executives of tax-exempt organizations and has loose contribution limits. It is in contrast to plans like 457(b) or 401(k) which cap contributions. While both employer and employee can contribute to a 457(f), in practice the employer normally makes 100% of the contributions.
SPLIT-DOLLAR. This plan can provide 'tax-free' income during retirement if properly designed, and may allow the credit union to recover all of investment into the plan, plus interest. This plan can work very well for Executives that are relatively close to retirement age.
FREQUENTLY ASKED SERP QUESTIONS
What is the first step if we want to learn more?
The first step is to get a handle on the executive’s retirement outlook. We help by providing a Benefit Analysis that shows projected final salary and projected Credit Union-provided benefits at retirement.
You can then look at retirement goals and peer averages. That brings the discussion into focus.
What will a plan like this cost the Credit Union?
When done right, funding a plan like this is a cost-neutral event with potentially little or no impact to the bottom line.
Does the retirement age and years of service of the executive matter?
Yes. When performing the Benefit Analysis and determining the retirement goal, age is a key variable. Years of service is usually considered.
Our CEO is very close to retirement. Is it too late to put in a plan?
It depends on the time horizon until retirement and the benefit desired. If a SERP is not doable, a Post-Retirement Health Care Plan is a nice option.
Our CEO has been with the Credit Union for many years, has family here, and will stay no matter what. If retention is not an issue, why should we provide a supplemental plan?
If your CEO has done good work for the Credit Union, the focus shifts from retention to reward. Most boards want to make sure that their quality CEO retires with a reasonable income.
How is the vesting schedule set up?
Any way the Credit Union prefers. It is very common to have some sort of vesting between plan inception and retirement.