Unlike their bank counterparts, credit union executives have limits on how much they can contribute and receive from traditional qualified retirement plans, meaning many CEOs may retire at only 30-40 percent of their current salary, even after including Social Security and 401(k) plan savings. To level the playing field, credit unions should consider offering non-qualified compensation options, including supplemental executive retirement programs, (SERPs), a CUNA Mutual Group senior executive benefits specialist told an America’s Credit Union Conference Discovery breakout session audience Wednesday.
CUNA Mutual Group Public Relations
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SAN FRANCISCO – Unlike their bank counterparts, credit union executives have limits on how much they can contribute and receive from traditional qualified retirement plans, meaning many CEOs may retire at only 30-40 percent of their current salary, even after including Social Security and 401(k) plan savings.
To level the playing field, credit unions should consider offering non-qualified compensation options, including supplemental executive retirement programs, (SERPs), a CUNA Mutual Group senior executive benefits specialist told an America’s Credit Union Conference Discovery breakout session audience Wednesday.
Bruce Bauer said credit unions are facing a “perfect storm.” when it comes to recruiting, retaining and compensating their executives. Nearly 50 percent of U.S. employers are challenged to fill mission-critical positions, according to a 2012 Manpower Group Talent Shortage Survey, and 63 percent of organizations say other companies try to recruit their leadership.
“Jobs are opening up, executive talent is being aggressively wooed away from you, and your top talent is feeling financially vulnerable,” Bauer said. “Credit union executives who might retire at only 40 percent of their current salary may seek other employment options.”
SERPs are non-qualified retirement plans that provide benefits beyond qualified plans. Coupled with a strong continuing education program, they form the foundation of a solid leadership continuity program, which is essential to recruiting, retaining and rewarding key employees, Bauer said. “Maintaining your bench strength can prevent disruption in the attainment of your credit union’s strategic and financial goals while providing consistency in decision making.
Popular SERP instruments include 457(b) and 457(f) plans, and split-dollar life insurance plans. SERPs can be set up for CEOs and top management tiers and can be designed to return the credit union’s initial investment and avoid a net loss over time. Regulatory provisions allow credit unions to fund SERPs through formerly impermissible assets. With a well-defined investment allocation plan to help minimize risk, pre-funding helps overcome this challenge for credit unions. Investment and insurance options such as bank-owned life insurance, annuities and separately managed investments can also help fund SERPs.
Proper due diligence is a must to analyze the risks associated with a SERP, evaluate alternatives and determine required ongoing regulatory reporting.
When developing compensation plans, Bauer recommended credit unions:
- Align compensation philosophy with their mission, organizational and financial goals.
- Encourage leadership continuity by defining a scope that addresses the CEO and key executives.
- Use peer compensation data to establish a desired level of competitiveness and include it in their overall succession plan.
- Ensure regulatory soundness by working with a firm with a trusted long-term service commitment. Consider their ability to provide flexible designs, top products and funding options, exceptional knowledge and strong regulatory adherence.
CUNA Mutual Group was founded in 1935 by credit union pioneers, and our commitment to their vision continues today. We offer insurance and protection for credit unions, employees and members; lending solutions and marketing programs; TruStage® consumer insurance products; and investment and retirement services to help our customers succeed. More information is available on the company’s website at www.cunamutual.com.
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company. Property and casualty insurance products are issued by CUMIS Insurance Society, Inc. Each insurer is solely responsible for the financial obligations under the policies and contracts it issues. Corporate headquarters are located in Madison, Wisconsin.