Retire in Style
Here's a shocker: according to a 1997 study by the accounting firm Coopers & Lybrand (now PricewaterhouseCoopers), the most common executive perk in America is something called a SERP. Never heard of it? The term broadly refers to all kinds of "supplemental executive retirement plans" that provide deferred compensation to key employees and business owners. The study found that SERPs were even more common than company cars. Sixty percent of the 149 companies surveyed had some type of management SERP.
Why is that so surprising? Because small companies make little or no use of SERPs. "Entrepreneurial companies have probably been able to get away with this so far because they tend to offer stock options instead, which managers have viewed as an attractive substitute," argues survey author Carl Weinberg, a principal in PricewaterhouseCoopers's Westport, Conn., office. But, he warns, all that may change: "In a less exuberant stock market in which options become less profitable, smaller companies won't be able to compete with bigger corporations for top talent unless they start offering SERPs as well."
SERPs are popular because they can be tailored to fit a range of business goals. Although they don't earn you the same tax benefits that you can get from "qualified" companywide retirement plans such as 401(k)s, the "nonqualified" plans for key employees don't bring the same regulatory hassles, either. Think of it this way: with nonqualified plans, you can pretty much offer whatever you want to any of your highly compensated employees. Just remember that there's a tax trade-off: although your business's contributions to qualified plans result in current tax deductions, your company's contributions to a nonqualified plan will not provide tax deductions until people actually receive the funds.
Among the many kinds of nonqualified plans, one of the simplest is a nonqualified profit-sharing plan. "The benefit of a nonqualified plan is that you can discriminate between the people that you want to cover and don't want to cover," explains Jake Weichholz, a tax partner in the entrepreneurial-services division of Ernst & Young. A typical plan might cover a few key people (and you), with the goal of providing large retirement packages. But take note: to set up any kind of nonqualified plan, you will need expert professional advice.
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