In general SERP benefits deliver employer-provided retirement income. Supplemental Executive Retirement Plans, often abbreviated as "SERPs", are pension-style nonqualified plans used to restore benefits that executives lose due to qualified plan limitations.

SERPs are sponsored to replace benefits lost by IRC Section 415 limits (i.e., $195,000 annual benefits and $49,000 annual contribution limits), benefits lost by IRC Section 401(a)(17) limits (i.e., $245,000 salary cap), other limitations and as incentives to join (golden handshake) or to stay at the company (golden handcuff).

Ordinarily, an executive’s SERP follows the base benefit plan formula-- mirroring the same benefit design without the limits to eligible compensation and maximum benefit restrictions. The amount is also often offset by other compensation like social security, the qualified plan, a nonqualified plan, and even disability benefit payments. The target compensation replacement ratios may be 60 to 70 percent of the executive’s pre-retirement pay, taking the offsets into account.

While a company could provide for defined contribution SERP (for example, a profit-sharing arrangement), defined benefit arrangements are more common. These plans can be easily structured to target a specific percentage of replacement income. The SERP can also be set up as a defined contribution plan with a specified annual amount contributed during each year of the executive’s active employment, like a percentage (perhaps 10 to15 percent) of compensation, growing with interest or via account management until retirement.