During my tenure as Executive Vice President and COO of a well-regarded community hospital on Chicago’s North Shore, I had the privilege of helping lead a financially strong organization. However, we recognized that long-term success required joining a larger health system.
With the help of consultants, we identified two prominent health systems in the Chicago area and, after a year of due diligence, finalized a merger. Our hospital became the third facility in what would ultimately grow into a 10-hospital system.
As senior executives, we were accustomed to receiving non-qualified deferred compensation through our Supplemental Executive Retirement Plans (SERPs). Additionally, we were offered Change of Command and Control and Staying on Board bonuses as part of the merger.
The Harsh Reality of a SERP Payout
After the merger in 2000, several executives, including myself, were classified as having experienced an "involuntary termination of employment without reasonable cause." This triggered an immediate lump-sum distribution of our SERPs.
When I inquired about options to spread the payout over multiple years or roll it into an IRA to reduce the tax burden, I was informed that neither was possible. The result? A $239,237 distribution, of which $104,446 was immediately withheld for federal, state, and FICA taxes—leaving me with just $134,791, or 56% of my SERP value.
It was a frustrating and costly lesson. But it doesn’t have to be this way.
A Better Approach for Executives
Fortunately, there are more tax-efficient solutions available—ones that can help executives retain more of their hard-earned compensation. We have implemented these strategies in more than three dozen healthcare systems nationwide.
If you’d like to learn more about how to protect your SERP payouts, reach out to discuss solutions tailored to your situation.
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