There are two types of trusts used for Supplemental Executive Retirement Plans (SERP.)
Although any business involves a level of risk, small businesses generally expose their owners to an increased risk level. It is the uncertainty of business that renders many nonqualified retirement plans such as a SERP to be somewhat risky.
Specifically, what happens to the promised benefits under an unfunded SERP if the employer that has promised them is bought out by another company that chooses not to honor the plan commitment or the employer declares bankruptcy? In such a case, absent any other protection, the SERP participant becomes an unsecured creditor of the employer. However, ensuring that the funds intended to support plan benefits remain available to the employer’s creditors has been key to the plan’s ability to defer income taxation.
Because of the unenviable position in which the executive is thrust in such a case coupled with the increasing prevalence of these plans, interest in securing the benefits promised by a SERP or other deferred compensation plan is also increasing. For many, the answer to providing additional payment guarantees may lie in the use of a trusts for Supplemental Executive Retirement Plans.
Click on each to learn the benefits and limitations of each of these trusts used for Supplemental Executive Retirement Plans.