SERPs Sweeten Tax-Exempt's Executive Pay

By Stephen Miller, CEBS Jan 18, 2013

Despite increased scrutiny by lawmakers and the Internal Revenue Service over the past few years, more than half (58 percent) of U.S. tax-exempt organizations offer their top executives employer-paid nonqualified retirement plans, such as supplemental executive retirement plans (SERPs), up from 49 percent two years earlier, according to HR consultancy Mercer’s 2012/2013Executive Benefit and Perquisite Practices Survey for Tax-Exempt Organizations.

The survey, fielded in late 2012, included responses from more than 460 tax-exempt and managed care organizations across the U.S.

Similar to nonqualified deferred compensation (NQDC) plans, nonqualified retirement plans do not meet the IRS or Employee Retirement Income Security Act (ERISA) requirements for being immediately tax deductible to employers, and they are often used to additionally compensate high-level executives.

Nonqualified retirement plans, however, are designed to exceed the accumulation and participant deferral opportunities of company pension, profit-sharing or 401(k) programs without current taxation to the executive. They often include a vesting provision, or are tied to the vesting schedule in the employer's qualified plan. When distributions are taken from the plan, typically during the executives' retirement years when they may be in lower tax brackets, the benefits become taxable to the executive as income and tax deductible to the employer.

Among tax-exempt organizations, nonqualified retirement plans were most popular among health care organizations (67 percent) followed by foundations and charities (53 percent and 39 percent, respectively), according to Mercer's survey.

“Executive benefits continue to be a strategic component of total rewards programs,” said Pat Kopacz, principal with Mercer’s talent business, in a news release. “Organizations are wise to evaluate market trends as well as the mix of benefits on a regular basis to effectively attract and retain their top employees.”

SERPs vs. Restoration Plans

The survey shows that nearly three times as many tax-exempt organizations (37 percent) provided SERPs for top officers than provided restoration plans (13 percent), the next most popular type of nonqualified retirement plan. Restoration plans provide benefits based on the same provisions as the qualified plan but without regard to IRS limits.

Just 8 percent of tax-exempt organizations provide both SERPS and restoration plans. SERPs are most popular among health care organizations and charities, while restoration plans are more common among foundations and educational institutions.

“Nonqualified plans are typically used to restore or enhance qualified plans,” said Kopacz. “Restoration plans work well at foundations and education institutions since qualified plans at these types of organizations tend to be sizeable. In other tax-exempt industries an enhanced SERP allows the organization to offer a competitive package and even compete with publicly traded companies where equity plans are common.”

Executive Supplemental Benefits

Other non-retirement benefits, such as supplemental life and additional long-term disability (LTD) benefits, are offered at many tax-exempt organizations. According to the survey, nearly all participating organizations offer basic life insurance coverage for all employees with almost half providing employer-paid coverage of one times base salary. In addition, about 40 percent of organizations offer supplemental employer-paid life insurance for executives with median total coverage of approximately three times base salary.

While executives are covered by the same employer-paid LTD plan as all other employees, it is common for them to receive additional employer-paid coverage through a supplemental group plan or an individual policy. Just more than one-third (34 percent) of all organizations and 50 percent of health care organizations provide supplemental employer-paid LTD coverage.

Executive Perks

The most common perquisite for executives is a car or car allowance, provided by 44 percent of tax-exempt organizations. Country club dues, offered by 17 percent of organizations, were the second most popular followed by financial counseling/tax advice (12 percent).

“Abundant perquisites are a thing of the past,” said Kopacz. “With increased reporting and public scrutiny, perquisites that do not serve a clear business purpose have become less popular or have been eliminated altogether.”


Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

The Appeal of Nonqualified Plans, SHRM Online Benefits, January 2004

Quick Links:

Keep up with the latest news. Sign up for SHRM’s free Compensation & Benefits e-newsletter


Job Finder

Find an HR Job Near You
Post a Job


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 10,000 companies

Search & Connect