Supplemental Executive Retirement Programs

Written by Patricia Skinner
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A strategy for attracting and retaining key executive staff is the introduction of supplemental executive retirement programs. This is a way of addressing the so called "reverse discrimination" against higher earning executives, who miss out because of the limits set by most 401(k) plans and profit sharing schemes. Many companies are now devising these supplemental programs in order to retain the right caliber of executives for their operation.

Why Supplemental Executive Retirement Programs?

Due to the fact that some executives have very high salaries, the amount that they can set aside into a 401(k) retirement plan is very limited. As a result, it usually does not meet their needs for the future. So to make a position attractive to personnel, accountants have come up with alternatives that will provide the higher paid executive with an answer. They could be drawn up in the form of a classic retirement program, or the payout could be linked to the profits of the company as some kind of profit sharing scheme.

Supplemental executive retirement programs are non-qualified, which means it does not have to follow ERISA regulations. Rather than programs that apply to all employees, these are usually an agreement between selected employees and the employer. The two parts of the agreement are usually that the employer agrees to make the payout on an agreed date, or on death, and the employee agrees to continue working for the company.

There are two ways that a company can provide for the payout on supplemental executive retirement programs. They can either set aside money on a regular basis, or decide to pay the executive from company earnings once the amount becomes due. It is for this reason that there is an element of risk involved to the employee with such plans. If the company goes down or is sold on, the amount paid to the executive could be cancelled.


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