What is a SERP?

A Supplemental Executive Retirement Plan (SERP) is a non-registered retirement plan designed to provide additional retirement income for high-earning executives. SERPs supplement traditional retirement savings plans such as RRSPs or RPPs including Defined Contribution (DC) and Defined Benefit (DB) registered pension plans which are constrained by contribution limits and provide inadequate retirement savings to higher earners. SERPs are generally uncapped and are typically built on top of a DC or DB plan and funded by the employer.

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Who is a SERP For?

SERPs are ideal for:

Senior executives or key employees of companies of any size whose income exceeds the thresholds of registered plans.
Organizations of any size looking to attract, retain, and reward top-tier talent.

How does a SERP Work?

SERPs can provide flexible funding to the employer and can exist in three states:

Unfunded and Unsecured: The employer earmarks a promised amount, which grows as a liability on their balance sheet, before paying the amount to the employee at a later date, deferring cashflow (and taxation) until paying the benefit at termination or retirement. No assets are set aside to guarantee payment to the employee in the event of default or insolvency of the employer.
Unfunded and Secured: Similar to above, except a Letter of Credit is obtained to provide security for the SERP entitlement in the event of default or insolvency of the employer. The cashflow and tax owing for the benefit is deferred until termination or retirement.
Funded: The employer funds the SERP during each funding period. The SERP funding vehicle is typically a Retirement Compensation Arrangement (RCA).

Benefits to the Employer

Attract and Retain Top Talent: A SERP is a powerful tool to differentiate your compensation package and ensure long-term commitment from key employees.
Customizable Design: Plans can be structured to align with company goals, such as rewarding longevity or performance through vesting periods and KPIs.
Cost Efficiency: SERPs can be informally funded or paid from future corporate cash flows, reducing the need for upfront expenses. If security of the future payout is needed, a letter of credit can be adopted to provide the security without the need for full pre-funding.
Enhanced Reputation: Offering competitive executive benefits strengthens your organization’s market position as an employer of choice.

Benefits to the Employee

Increased Retirement Income: SERPs bridge the gap between the limits on registered savings and actual retirement needs.
Personalized Compensation: Plans are tailored to the individual executive’s compensation structure, maximizing retirement benefits.
Deferred Taxation: Benefits are taxed to the employee only when received, providing greater financial flexibility.
Peace of Mind: A SERP provides a sense of financial security, allowing executives to focus on achieving business objectives.

Use Case: How a SERP Benefits Sarah, a Senior Executive from XYZ Corp

Situation: Sarah earns $350,000 annually, significantly exceeding RRSP and RPP contribution limits. She’s concerned about maintaining her lifestyle in retirement. XYZ Corp would also like to improve their talent attraction and retention strategy.
Solution: XYZ Corp. implements a SERP for Sarah, promising 2% per year of service payable after retirement for the same number of years as she accrues in credited service to a maximum of 20 years. This benefit is pre-funded and paid out to Sarah through a Retirement Compensation Arrangement (RCA) during her retirement.
Outcome: Over her 15-year tenure, Sarah earns substantial supplemental retirement income through the SERP. This plan bridges the gap left by registered plans and ensures she’s financially secure in retirement. It also provides a retention incentive until she reaches the targeted 15-year tenure, without unduly penalizing Sarah with a full loss of entitlement, or rewarding her with a full accrual of entitlement, if she chooses to retire earlier than expected.

Contact your GBL representative to learn how a SERP can elevate your executive attraction and retention strategy!

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Supplemental Executive Retirement Plan (SERP)