These plans also provide a unique tool for recruiting and retaining your most valuable contributors. A SERP agreement stipulates the promise to pay future survivor and retirement benefits for key employees. These benefits may be a specific amount or based on the accumulation of annual contributions. Benefits are payable at retirement, upon completion of a certain length of service, or to your key employee's family in the case of a premature death.
Key employees incur no current costs because they have no access to the benefits.
Benefits are taxed as compensation when received by the employee, and the employer receives a tax deduction when benefits are paid. Life insurance is usually used to fund the plan benefits due to the many tax advantages it offers. You can provide enhanced retirement income and survivor benefits to your executives on a selective basis. Life insurance proceeds may recover the cost of providing your executive benefit plan. Key employee taxation is deferred until payments are received.