Supplemental Employee Retirement Plans (SERP's),
Supplemental Employee Retirement Plans (SERP's), also known as Selective Employee Retirement Plans, are broad terms used to describe either Non-Qualified Defined Benefit or Non-Qualified Defined Contribution plans. A Defined Benefit Plan (DB) identifies a stated future benefit to be paid after certain longevity criteria have been met. Defined Contribution (DC) plans identify a funding amount on the front-end, with a non-identified future benefit. However, the term SERP is a broad term that has historically denoted Defined Benefit Non-Qualified Plans. Additionally, they are designed to trigger when Qualified Plans, such as 401k plans, have reached their limits.
In short, Serp's provide employer paid deferred compensation to key executives who are in a high tax bracket. They can defer their income until retirement when most likely they will be in a lower tax bracket. The economic benefit of deferral is significant if deferred for a long period of time. By offering a SERP a corporation can help attract employees and provide an incentive to remain with the company. Serp's are funded with a Rabbi Trust, Secular Trust, Corporate Owned Life Insurance or Split Dollar Life Insurance. This is a way to provide reassurance to the employee that the benefits will be paid.
Non Qualified Deferred Compensation Plan
A Non Qualified Deferred Compensation Plan (NQDC) can be designed as either a "Defined Benefit" or "Defined Contribution" program. Under the "Defined Benefit" approach, the program is designed so that the employee is paid a fixed amount at some future date (example: $5,000 per month beginning at age 65, continuing 15 years).
Under the "Defined Contribution" approach, the program is designed with the employee and/or employer contributing a specified amount to the Plan (which may be changed in the future). Plan contributions and earnings accumulate to some future sum, at which point the employee may make withdrawals (similar in design to a 401(k) Plan).
Under either approach, the employer has broad discretion in Plan Design, including:
- Eligibility & Participation Requirements
- Vesting Schedule
- Provision for In-Service Withdrawals (If Any)
- Provision for Payout at Retirement (Lump Sum; Periods Available, etc.)
- Early Withdrawal Penalties
- Plan Financing
- Employer and/or Employee Contribution Rates
- Provision for Plan Termination
A NQDC Plan may be funded with voluntary employee contributions (salary reductions similar to a 401(k) Plan); employer contributions, or a combination of both.
Long-term care is the help needed to cope-and sometimes survive-when a chronic disability such as arthritis, heart disease, stroke or memory loss impairs your capacity to perform the basic activities of everyday living. Today, it includes a broad range of supportive medical, personal and social services which can be provided in a nursing home, in your own home, in an adult-day care facility, or in an assisted living facility. There are three levels of care: skilled (or acute) care; intermediate care; and custodial (or personal) care. Custodial is by far the most common.
Q. What are the odds you or your
spouse will need long-term care?
A. According to the Health Insurance Association of America, your risk of needing long-term care at age 50 is one in five. At age 65, it's four in 10. And at age 75, it's seven in 10. That's significant. The average stay is two and one-half years. About 10% stay five years or longer.
Q. What's the cost of long-term
A. According to the National Association of Insurance Commissioners, the average cost nationally of a year in a nursing home is over $70,00 and rising. According to the U.S. General Accounting Office, these costs could triple in the next 20 years.
Post Retirement Health Insurance Plans
Employer-sponsored post-retirement health insurance plans are designed to provide health coverage for employees after retirement. Eligibility for these plans is usually based on age, length of service, or combination of both (usually age 55-65 and 10-15 service years). Eligibility can be restricted to a specific classification of employees (i.e. executives). Many carriers will only underwrite retiree coverage if it is consolidated with coverage for active employees. Retiree health care plans may provide coverage only until the retiree becomes eligible for Medicare (sometimes called early retiree plans) or the plan may provide coverage both before and after Medicare eligibility commences. Many retiree plans must meet post-retirement plan liability recognition requirements outlined by FAS 106.
Long Term Incentive Plan
A Long Term Incentive Plan (LTIP) can be a great way to reward and retain key employees while avoiding the complications of sharing equity. By tying the amount you deposit in the LTIP to an employee’s annual bonus, you are potentially doubling the rewards that an employee earns for their individual contribution – a significant factor in the satisfaction and loyalty of high performance employees. The following is intended as an example. Before implementing an LTIP for your business, seek the advice of a lawyer who knows employment law in your jurisdiction.
“Each year, you will be given an annual cash bonus based on goals the company sets out for you. This annual cash bonus will be paid within 60 days of the calendar year end. In addition, an amount equal to your cash bonus will also be earmarked for you in a Long Term Incentive Plan (LTIP). Upon the third anniversary of the creation of the Long Term Incentive Plan, and every year thereafter, you will be entitled to withdraw one third of the plan’s total balance.”