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Business Life Insurance from Term Life America
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About Supplemental Executive Retirement Plans - SERPs
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A salary continuation plan generally uses a defined- benefit type of formula to calculate the benefit amount.
The salary reduction approach typically resembles a defined-contribution plan, with individual "accounts" that usually have an investment element for each participant.
Economically, both the salary continuation and the salary reduction approach amount to the same thing, but represent significantly different underlying compensation philosophies.
Employer-instituted plans often use the salary continuation approach rather than salary reduction, but this is not universal.
Salary Continuation (Defined Benefit) Formulas
The salary continuation or defined-benefit approach usually specifies plan benefits as a percentage of compensation.
Compensation for this purpose is typically measured over a three to five year period of the employee's highest earnings, as in a qualified defined-benefit plan. The benefit payable can also be dependent on the employee's years of service.
The salary continuation benefit can be integrated with social security, usually using a 100 percent offset.
For example, the nonqualified plan might provide an annual retirement benefit of 60 percent of the employee's final average (or highest three year average) compensation less the actual social security benefit paid to the employee.
The complex social security integration rules applicable to qualified plans do not apply so any suitable type of integration formula can be used. An offset for other types of benefits can also be used in the formula; for example, the nonqualified salary continuation payments could be offset by any other retirement or disability pay- able to the employee under qualified or other plans.
A SERP is a plan similar to a qualified defined benefit plan in that it focuses on providing adequate retirement income to executives. Benefit formulas and other provisions are similar to those for qualified defined benefit plans. The term SERP is usually used to refer to a plan covering a relatively broad group of executives. A company may also refer to its entire collection of special retirement benefits for executives as a "SERP"
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Companies offer 5, 10, 15, 20, 25 or 30 year policies that can include a return of premium plan options. Some plans offer no exam underwriting for your convenience.
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