Accredited Wealth Management Advisor Practice Exam

What is a characteristic of unfunded supplemental executive retirement plans (SERPs)?

1. The employee has secured rights in the benefits to be paid

2. These plans are often provided to top executives of the company

3. The plan must establish substantial risk of forfeiture provisions

4. The plan is fully funded and backed by assets

The correct answer is: The employee has secured rights in the benefits to be paid

Unfunded supplemental executive retirement plans (SERPs) are designed to provide additional retirement benefits to select executives, typically beyond what is available in qualified plans. A defining characteristic of these SERPs is that the benefits promised to the employee are not legally secured or backed by any assets. Therefore, employees do not have secured rights to the benefits, meaning they may not receive the promised payouts if the company faces financial difficulties. The essence of an unfunded SERP lies in that it provides the company flexibility in managing its retirement liabilities without needing to set aside funds or assets upfront. While these plans are indeed often offered to top executives, the specific characteristic that truly defines unfunded SERPs is the nature of the rights associated with the promised benefits. Hence, the statement about the employee's secured rights in the benefits being paid aligns with the nature of the plan, reinforcing that the benefits are contingent upon the company's promises rather than guaranteed by specific funding.