A HYBRID SERP

In order to compete for talent, banks use supplemental executive retirement plans (SERPs) to attract and retain select employees.

Traditional bank SERP designs have their challenges:

• SERP is a liability/expense to the bank
• Benefit is taxable to the participant
• Participants benefit is subject to banks insolvency or regulatory takeover
• Executives personal net worth and retirement is too heavily concentrated in the bank
• Plan subject to 409(A) and 280(g)
• Liability is often offset by BOLI, which by design is a MEC (Modified Endowment Contract), making it subject to taxes and penalties, limiting the banks ability to access cash value.
• Cost recovery from BOLI death benefit

Loan regime split dollar does have its challenges:

• Longevity of plan.  The loan isn’t repaid until death, which can be decades after a participant leaves the organization

• Benefit distributions can be denied if organization deems the distribution to jeopardize policy performance.  (The policy is securing the loan via a collateral assignment of the policy to the organization)