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A supplemental retirement plan may be offered to a broad range of employees. However, supplemental executive retirement plans (SERPs) are reserved for the company’s elite. A SERP is a non-qualified deferred compensation plan offered to a company’s key employees, including CEOs, CFOs and high-ranking officials. They are typically used to retain talent but are tied to both employee and company performance.
When taking a job, it’s important to understand the complete compensation package, and it may even be a good idea to discuss it with a financial advisor.
Supplemental Retirement Plan Basics
A SERP is additional compensation offered to qualified employees as part of their benefits. It is typically packaged with health insurance, life insurance or stock options.
While the value of this supplemental retirement plan varies by company, it often represents a percentage of an employee’s three-year average compensation. Performance reviews, metrics, time employed by the company, and other benchmarks may affect the amount of a SERP offered. Those metrics also determine if an employee can cash out their SERP upon retirement.
A company will fund a SERP either through cash flow or by taking out a life insurance policy on an employee. If the employee is eligible to withdraw funds once they retire, they can do so either in a lump sum or through monthly distributions.
Who Can Get a SERP?
SERPs are generally offered to high-level, usually C-suite employees. However, a company is free to offer this supplemental retirement plan to as many or as few of those elite employees as it likes.
A SERP is typically offered to employees with many years of experience. However, high-level employees looking to change companies or enhance their current deal may be able to negotiate a SERP into their benefits package.
Why Offer a SERP?
To retain top talent. SERPs are additional compensation to help entice valuable, high-level employees to stick around. With CEO turnover on the rise – CEO tenure fell 20% between 2013 and 2022 – this supplemental retirement plan can help convince executives to stick around. That stability can help a company’s overall health and financial standing.
SERPs are usually offered in tandem with other retirement savings options like 401(k)s or IRAs. Highly compensated employees may be subject to IRS restrictions and could receive this supplemental retirement plan in lieu of other plans.
Supplemental Retirement Plan Benefits
Since SERPs are non-qualified plans, SERP funds aren’t subject to the 10% tax penalty if you withdraw before age 59 ½. There are also no required minimum distributions (RMDs) once you hit 73 (or 75 if you were born in 1960 or later). This supplemental retirement plan can amass benefits of up to 70% of pre-retirement income, making it a valuable tool for building a nest egg.
SERP withdrawals are taxed as regular income, but taxes on that income are deferred until you start making withdrawals. Much like other tax-deferred retirement plans, SERP funds grow tax-free until retirement.
If you withdraw your SERP funds in a lump sum, you’ll pay the taxes at all once. If you decide to take those funds in monthly distributions, taxes will be deducted from each payment.
SERPs also can be used as a way to fund retirement once you’ve maxed out contributions to your IRA or 401(k). For 2026, the maximum allowable 401(k) contribution is $24,500 ($23,500 in 2025), while the maximum IRA contribution is $7,500 ($7,000 in 2025). Both allow for a catch-up contribution for those aged 50 and older: $8,000 for 401(k)s and an additional $1,100 for IRAs. However, 401(k) participants who are between 60 to 63 years old can save an extra $11,250 in their 401(k) instead of the standard $8,000 catch-up contribution.
Also, keep in mind that the IRS sets a compensation limit each year, which affects how much can be contributed to a retirement account based on an employee’s compensation. In 2026, the IRS compensation limit is $360,000 (up from $350,000 in 2025). This means that any compensation exceeding this amount is not considered when calculating contributions to retirement plans.
Highly compensated employees can reach those marks quickly, making this supplemental retirement plan a welcome addition to a plan.
If a company funds a SERP with a cash-value life insurance policy, beneficiaries can receive those benefits in the event of an executive’s premature death. However, an employer can forego the life insurance plan and make regular contributions to an employee’s account. That arrangement works like a pension, with money invested on an employee’s behalf until they retire or die.
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Potential Drawbacks
Unlike other retirement plans like 401(k)s or IRAs, SERP funds aren’t protected in the event that a company goes bankrupt. Since SERPs are often pegged to performance benchmarks and time spent employed at the company, they also aren’t guaranteed.
Many SERPs require executives to be employed with a company for a specific amount of years. If you leave the company or don’t meet your goals, you may not qualify for the supplemental retirement plan. Executives who don’t want to be tied to one company for a long time may want to consider more diverse retirement options.
Bottom Line
SERPs are a strong added incentive for high-level employees. SERPs offer a bit more flexibility in accessing funds during retirement, but also are not insured should the company encounter financial difficulty or if an employee fails to meet SERP requirements. In short, they are a great added savings vehicle to help fund retirement, but shouldn’t be your only option.
Retirement Tips
- If you’re still struggling to figure out your retirement needs, a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While you may want to know what average retirement savings look like throughout the U.S., your retirement may require a different strategy. SmartAsset’s retirement calculator can help you determine what you’ll need for retirement.
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