A poor-performing benefits plan can significantly impact a credit union's ability to attract the best among qualified candidates. Despite the challenges, there are a number of options for credit unions and their executives, including:
The 457(f) plan is a non-qualified, deferred compensation plan. Credit unions typically create these programs and fund them with a one-time contribution. The benefit that develops from this arrangement is not vested to the executive until some date in the future, which is spelled out in the written agreement between the executive and the credit union. If the executive should leave before the prescribed date, they forfeit the benefit. This is called a “risk of forfeiture” and is what keeps the arrangement untaxed until vesting occurs. Generally, the program is set up so the credit union recoups its original investment.
Section 162 Executive Bonus Plans
A Section 162 plan is a simpler, more straightforward arrangement, based on the purchase of a life insurance policy for the executive. The credit union pays the premiums on the policy, but the executive owns the policy. These are better suited for credit unions with smaller asset sizes or for organizations seeking an attractive supplement to the compensation packages of senior executives who are lower in the organization's hierarchy.
Split-dollar Supplemental Executive Retirement Plan
The collateral assignment split-dollar supplemental executive retirement plan solution is similar to the Section 162 plan. The executive owns a life insurance policy in name and all premiums are paid by the credit union over a multiple-year period, instead of requiring a large, up-front investment. These premiums are treated as though they are loans given to the executive at a zero percent interest rate. Once the agreement is terminated, or upon the executive's death, the credit union is repaid the amount of the “loan” in full. The remaining value is paid to the executive's estate. During retirement, the executive takes tax-free loans against the policy to supplement their retirement income. This arrangement allows the benefit to be more robust than that supplied by a Section 162 plan.
CUES Executive Benefits presented by Preferred Benefit Partners Consulting, LLC (PBPC) works with credit unions of all sizes to determine which option is right for them. With the guidance and expertise of PBPC, the credit union is able to choose a plan that aligns with the organization's resources and the executive's needs.
To learn more about the advantages of pre-funded benefits through CUES Executive Benefits, visit cues.org/executivebenefits/; call Joe Tripalin, president, Preferred Benefit Partners Consulting, LLC, at 608-445-0984; or e-mail firstname.lastname@example.org .