Deferred Compensation Plan
Here are some common uses for a Deferred Compensation Plan, commonly referred to as a Supplemental Executive Retirement Plan, (SERP).
1. In Lieu Of A Formal Pension Plan
Where the cost of a qualified plan is not justified due to corporate circumstances (i.e., participation would involve a large number of non-executives), but providing retirement benefits to certain key executives is still desirable. The plan can be discriminatory and the employer has total discretion in choosing its key employees.
2. Supplementing A Qualified Pension/Profit Sharing Plan
Because the amount of retirement income highly paid executives can derive from such plans are restricted due to the severe limits imposed by qualified plan rules, non-qualified plans can be used to make up the difference.
3. Assistance In The Recruitment Of Key People
A greater fringe benefit program is possible for a new employee through a supplemental executive retirement plan, and, in many cases, can provide more than what they left behind.
4. In Lieu of Stock or An Ownership Interest
Key employees generally prefer supplemental executive retirement benefits over minority stock interest in close corporation settings when little or no dividends are paid, or if the owners wish to restrict the ownership to family members.
5. Retain Key Employees To Run Business For The Family
Where a business owner desires to see his or her family continue to own the business, a supplemental executive retirement plan can hold the key people and keep the business alive until minor or inexperienced children can take over.
6. Contractors Subject to Federal Acquisition Regulations (FAR)
Under FAR, a contractor may build into its overhead, the cost of a deferred compensation program, thus obtaining cost recovery (subject to the provision under 48 CFR).