Supplemental Executive
Retirement Plan
Recruit, Reward
and Retain your
best employees
.
Life
your way
SM
HO W C A N I
recruit, reward and retain KEY EM PLOYEES?
C ONSI DE R A S U P P L E M E N TA L EXEC UTIVE RETIREMENT PLA N —
ONE OF THE
most flexible non-qualified plans
AVAI L A B L E I N T H E MA RKET TO D AY
Running a successful business is not an easy task. As a
business owner, you are required to manage day-to-day
operations, oversee the development and improvement
of products and services, anticipate the effects of political,
economic and global events and perhaps even more
important, stay one step ahead of your competitors.
A solid group of top executives or key employees is critical
to helping you meet all of these business objectives.
Supplemental Executive
Retirement Plan
Non-qualified plans, like a Supplemental Executive Retirement Plan, can be the key to helping you recruit, reward and
retain your key employees — the people who shape and define your business. These employer-employee agreements were
developed to offset the reverse discrimination rules associated with highly compensated executives in tax-qualified plans.
Current income tax rates fostered the growth of additional non-qualified plans designed to help key employees reduce
their current tax bills and leverage the power of tax deferral for their retirement assets. Perhaps one of the most attractive
features of non-qualified plans is their flexibility. Most non-qualified plans can be custom tailored to a company’s
philosophy, objectives and cost considerations. Employers can hand pick the executives who will participate in the plan
and most plans can be constructed with minimal investment in time, paperwork and plan administration.
the
concern
Any employer will tell you that dependable, hardworking employees create the foundation of a successful
organization. In many cases, a business’ success can be
directly linked to a group of key executives who are
empowered to make important business decisions.
Therefore, a primary concern of any employer in a highly
competitive industry is to be able to recruit, reward and
retain key employees who will help drive business growth
and profitability. In order to help meet their goals, many
employers strive to offer these key employees additional
retirement benefits that are rewarding, flexible, affordable
and based on the business meeting certain performance
objectives.
Please note: This document is designed to provide
introductory information on the subject matter. MetLife
does not provide tax and legal advice. Clients should
consult their attorney and/or tax advisor before making
financial investment or planning decisions.
the
solution
One possible solution is the Supplemental Executive Retirement Plan (SERP) or Golden Handcuff Plan. By employing
this strategy, the employer can choose between several
designs including:
Defined Benefit Plans
Specific dollar amount at retirement
Defined Contribution Plans Specific annual contributions
Profit Sharing Plans
Discretionary dollar amount based
upon profitability of the company
Each of these designs allows the employer to augment
compensation arrangements for their key employees by
agreeing to provide future supplemental retirement income.
Unlike other types of non-qualified deferred compensation
plans where employees defer their salary in return for future
benefits, SERPs are funded with employer contributions.
Since the SERP benefits are merely a promise to pay and
are subject to a “substantial risk of forfeiture,” they are not
currently taxable to the executives.
To fund the program, many employers choose life insurance
because of its ability to potentially provide the company with
a tax-favored source of cash accumulation from which it will
pay future benefits.
1
HOW A SERP WORKS
The employer chooses the key employees to participate in the plan and implements the plan with
a legal document defining the following:
• Plan type
• Amount and frequency of employer contributions
• Contribution design
• How benefits will be paid
• The method of crediting earnings
The employer decides whether to informally fund the plan with an asset reserve (i.e., life insurance) that will offset
future benefit liabilities. The plan administrator maintains and periodically reports employer contributions, interest
credited and account balances to the company and participants. Since future benefits are merely a “promise to pay,”
and may be subject to “substantial risk of forfeiture,” they are not currently taxed to the employee. When the time
comes for the employer to pay the benefit, or if the compensation benefit is no longer subject to “substantial risk of
forfeiture,” the employer can claim a tax deduction for that benefit. If the employer created an informal asset reserve,
they may receive a reimbursement from the reserve for the benefit amount that was paid. The employee or named
beneficiaries report the paid benefit as taxable income.
THE FOLLOWING EXAMPLES SHOW HOW THE SERP WORKS BEFORE
RETIREMENT AND AT RETIREMENT OR DEATH.
1. The employer enters into an agreement with
a key employee and promises to pay future
pre-retirement
retirement income.
2. The company purchases a life insurance policy
on the key employees and names itself owner
and beneficiary. To ensure that the death proceeds of an employer-owned policy can be
received by the company income tax free, it is
essential to comply with the requirements of
Internal Revenue Code Section 101(j).
at retirement
or death
1
2
3. The employer uses the life insurance policy’s
cash value to provide retirement income to
the key employee.1
4. Employees will pay income tax on the benefit
and the employer treats the benefit amount
as a tax-deductible expense.
Cash value accumulation may not be guaranteed. Investments in variable life insurance are subject to market risk, including loss of principal.
Distributions from the policy through withdrawals of certain policy values (up to cost basis) and loans are generally not taxed as income provided you follow certain premium limits which prevent your policy from becoming a modified endowment contract (MEC). Distributions taken during the first fifteen years may be subject to tax. Loans and withdrawals
will generally reduce the cash value available and death benefit payable. If policy loans are taken, there may be income tax consequences if you permit the policy to lapse or if the
policy is surrendered or exchanged.
PRE-RETIREMENT
Benefit Promise
KEY EMPLOYEE
EMPLOYER
LIFE INSURANCE POLICY
Purchase Life Insurance Policy
AT RETIREMENT OR DEATH
KEY EMPLOYEE
Cash Value
Retirement Income
Income
Tax on
LIFE INSURANCE POLICY
EMPLOYER
Benefit
Tax Deduction
IRS
For Illustrative Purposes Only.
3
the
benefits
for the employer
• Helps recruit top talent by offering an executive
benefit program.
• Rewards highly paid employees by giving them an
additional investment strategy beyond the limits
of a traditional qualified retirement plan.
• Gives employers the flexibility to include a single
executive or a group of key executives without violating
the anti-discrimination provisions associated with
traditional qualified retirement plans.
• Helps retain key employees with long-term
vesting schedules and performance requirements
• Allows customized options for the employer to
determine contribution designs to fit the needs of
the company.
• Uses the life insurance cash value to finance retirement
benefits.2 Should the executive die during the service
period, the policy death benefit can be used by the
employer to provide cost recovery for the corporate
contributions.
• Allows the employer to control the policies as the
owner and beneficiary and carry the cash value as an
asset on the company’s balance sheet.
(Golden Handcuff Plan).
2
4
Distributions from the policy through withdrawals of certain policy values (up to cost basis) and loans are generally not taxed as income provided you follow certain premium
limits which prevent your policy from becoming a modified endowment contract (MEC). Distributions taken during the first fifteen years may be subject to tax. Loans and withdrawals will generally reduce the cash value available and death benefit payable. If policy loans are taken, there may be income tax consequences if you permit the policy to
lapse or if the policy is surrendered or exchanged.
the
benefits
for the employee
• Employer-funded plan as opposed to employee salary
and/or bonus deferral.
• Offers tax-deferred growth potential for retirement
accumulation.
• Provides annual income and/or a survivor benefit to
protect loved ones.
• Rewards and recognizes key employees for their
hard work and dedication.
The SERP or Golden Handcuff Plan
technique is a unique planning strategy
that may help your business achieve
specific financial goals. You should
discuss this strategy in detail with
your financial and legal professionals
to see if it is appropriate for your
specific business needs.
• Helps solve reverse discrimination issues associated
with qualified plans.
5
Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available
from MetLife. The policy prospectus contains information about the policies features, risks, charges and expenses. Investors should
consider the investment objectives, contract features, risks, charges and expenses of the investment company carefully before
investing. The investment objectives, risks and policies of the investment options, as well as other information about the investment
options, are described in their respective prospectuses. Clients should read the prospectuses and consider this information carefully
before investing. Product availability and features may vary by state.
MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no
guarantee that any variable investment options will meet their stated goals or objectives. The account value is subject to market fluctuations so
that, when withdrawn, it may be worth more or less than its original value. Guarantees are based on the claims-paying ability and financial strength
of the issuing insurance company. Please contact your financial professional for complete details.
Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document
is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of
insurance products. You should seek advice based on your particular circumstances from an independent tax advisor.
MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general
information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change.
Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should
consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.
Life insurance is medically underwritten. You should not cancel your current coverage until your new coverage is in force. Surrender charges may
be due on an exchange of one contract for another. A change in policy may require a medical examination. Surrenders may be taxable. You should
consult your own tax advisors regarding tax liability on surrenders.
Guarantee Advantage Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E-34-07 and in New York, only
by Metropolitan Life Insurance Company on Policy Form Series 1E-34-07-NY. Legacy Advantage Survivorship Universal Life is issued by MetLife
Investors USA Insurance Company on Policy Form Series 5E-32-05 and in New York, only by Metropolitan Life Insurance Company on Policy Form
Series 1E-32-05-NY. Equity Advantage Variable Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E-4606 and in New York only by Metropolitan Life Insurance Company on Policy Form Series 1E-46-06-NY-1. Whole Life is issued by Metropolitan Life
Insurance Company on Policy Form Series 8-90(08). Guaranteed Level Term is issued by MetLife Investors USA Insurance Company on Policy Form
Series 5E-21-04 and in New York, only by First MetLife Investors Insurance Company on Policy Form Series 5E-21-04-NY. All are MetLife companies.
All guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by
MetLife Investors Distribution Company, 5 Park Plaza, Suite 1900, Irvine, CA 92614. Variable products are offered through MetLife Securities, Inc.
and New England Securities Corporation; both at 1095 Avenue of the Americas, New York, NY 10036 (member FINRA/SIPC). July 2010
Insurance Products:
• Not A Deposit • Not FDIC Insured • Not Insured By Any Federal Government Agency
• Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value
MetLife Investors Distribution Company
MetLife Investors USA Insurance Company
5 Park Plaza, Suite 1900
Irvine, CA 92614
metlife.com
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© 2012 METLIFE, INC. PEANUTS © 2012 Peanuts Worldwide.
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Metropolitan Life Insurance Company
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