FAQ

A SERP is a non-qualified supplemental retirement plan designed to enhance the plan participant’s retirement benefit. Unlike a 401(k) and 457(b), which have strict contribution limits, a SERP (457(f) or Split Dollar) is flexible and has no imposed limits in the amount that may be provided to the plan participant.

SERPs are excellent vehicles for rewarding your key employees and retaining those same employees with competitive compensation in a plan that is NCUA compliant and poses no limits on the amount the plan participant can save in a tax-deferred manner.

A 457(f) can be awarded to hand-selected employees and, unlike qualified plans including 403(b), 457(b) and 401(k), there are no contribution limits set by the IRS. However, the NCUA sets a reasonableness standard that should be considered.

A split dollar plan is underpinned by a secured loan from the employer to the employee to purchase a life insurance policy where the employer has a first lien on the policy. When properly designed, a split dollar plan provides non-taxable distributions to the plan participant during intervals, including retirement, and the organization recovers all funds invested into the plan with interest.

Both SERP types are customizable to the unique needs of the organization. PARC Street Partners, in designing our plans, doesn’t believe that one size fits all but knows that there is a SERP that’s fit for you.

As part of the 2017 Tax Cuts and Jobs Act, the excise tax was designed to level the playing field between for-profits and non-profits when it comes to non-qualified deferred compensation plans. The result, however, requires non-profits to pay an additional 21% federal excise tax for executives earning more than $1 million in one year, impacting the top 5 highest paid employees at the organization. According to the latest IRS guidance, Federal Credit Unions and some State Credit Unions are exempt from the excise tax liability.

Split Dollar SERPs are not subject to the Excise Tax because they do not generate any remuneration for tax purposes.

Yes, with board and plan participant approval. In the year the 457(f) is replaced, the organization recovers the entire accumulated deferred liability from the 457(f) as non-operating income.

When designed strategically, the only out of pocket costs to the organization are for the required legal documents, typically less than $2,500 per agreement and less still for multiple agreements. Many providers charge an annual servicing fee from the first year, PARC Street Partners does not charge an annual service fee for the first 10 years. After the first ten years, we charge $1,000 annually for administrative and travel costs for annual reviews.

If for whatever reason the employee cannot be insured, often the spouse can be insured as a substitute.

It’s not too late, the loan size might have to be increased to achieve meaningful benefits.

The ideal first step is always education. We host weekly webinars that go over SERPs in detail and we can schedule a consultation with one of our experts. The benefits of SERPs are profound but the plans are complex so we want to make sure you have the basics while we provide a no obligation analysis of your key employees or current plans.