SERPs: A Powerful Tool for Retaining Talent and Protecting Your Legacy

When it comes to attracting and keeping top executive talent, compensation alone isn’t always enough. High-performing executives are looking for more than a salary or even a bonus check—they want long-term financial security and alignment with the company’s future. For business owners, particularly those thinking about succession planning or maximizing enterprise value, this is where Supplemental Executive Retirement Plans (SERPs) come into play.

What Are SERPs?

A Supplemental Executive Retirement Plan, or SERP, is a nonqualified retirement plan designed to provide additional income to key executives once they retire. Unlike traditional qualified retirement plans (like 401(k)s), SERPs are not bound by the same contribution limits or nondiscrimination rules. This gives business owners the flexibility to reward top leaders in a way that is both meaningful and strategic.

In essence, SERPs are a promise: “Stay with us, and we’ll ensure your retirement lifestyle reflects the value you’ve brought to this organization.”

How They Work

• Employer-funded: Typically, the business funds the plan. No contributions are required from the executive.

• Customizable benefits: Payments are structured to meet company goals—whether as a lump sum at retirement or annual income for life.

• Golden handcuffs effect: Because benefits are often tied to tenure, the plan creates a financial incentive for the executive to remain with the company.

Why SERPs Matter for Business Owners

For closely held businesses, professional firms, and family enterprises, SERPs can play a critical role in both talent management and long-term planning.

1. Attracting Top Talent

In today’s competitive market, executives are comparing more than just salaries. They want to see what their future could look like with your organization. Offering a SERP demonstrates commitment to their financial well-being and separates you from competitors who may only offer short-term perks.

2. Retaining Leaders Through Key Transitions

Executives are often the backbone of growth periods, acquisitions, and succession planning. SERPs provide a compelling reason for them to stay the course, ensuring stability during pivotal business stages.

3. Enhancing Enterprise Value

When you retain key leadership, you also preserve the business’s continuity and reputation—two critical factors that increase enterprise value. Whether you’re preparing to sell, pass the business to family, or bring in outside investors, having loyal executives in place makes your company more attractive.

4. Protecting Your Legacy

For many business owners, the business represents decades of hard work and sacrifice. A SERP helps ensure that the people responsible for carrying your vision forward remain invested in the company’s long-term success.

The Benefits for Executives

Executives benefit from SERPs in ways that go beyond immediate compensation:

• Retirement security: SERPs provide additional income above what traditional retirement accounts can offer, especially valuable for high earners who hit contribution limits in qualified plans.

• Tax-deferred growth: Benefits typically grow tax-deferred until received, creating potential compounding advantages.

• Personal alignment with company success: Because the executive’s financial well-being is tied to staying, there’s a natural incentive to remain engaged and committed.

Considerations and Risks

Like any strategic financial tool, SERPs come with considerations:

• Company liability: Because the business funds the SERP, obligations remain on the company’s balance sheet until payout.

• Retention vs. restriction: The goal is to reward, not handcuff excessively. Poorly designed SERPs may feel restrictive to executives rather than motivating.

• Regulatory compliance: While nonqualified plans offer flexibility, they must still comply with IRS Section 409A rules around timing and distribution of benefits.

A well-designed SERP requires careful planning and collaboration with financial, tax, and legal advisors to ensure it serves the goals of both the business and the executive.

SERPs in the Bigger Picture of Business and Estate Planning

SERPs are not just about talent management—they are about the broader picture of wealth protection and succession planning. As we approach the potential “estate planning sunset” of 2026—when current federal gift and estate tax exemptions are scheduled to be cut nearly in half—the timing of compensation and wealth transfer strategies becomes even more critical.

By using SERPs alongside other estate and business planning tools, owners can:

• Strengthen leadership continuity during transition.

• Enhance the business’s valuation ahead of a sale or succession.

• Protect family wealth by structuring payouts in a tax-efficient manner.

Final Thought

SERPs are more than an executive perk—they’re a strategic tool for aligning leadership loyalty with business longevity. For business owners, they provide a way to safeguard what you’ve built while giving executives the retirement security they value most.

At DPH Financial Services, we help business owners and executives design solutions rooted in trust, transparency, and professionalism. Whether you’re exploring ways to retain key talent, protect your legacy, or prepare for the estate tax sunset on the horizon, our team can guide you through strategies that fit your unique goals.

Interested in learning how a SERP could fit into your business and estate planning strategy? Let’s start the conversation.