During this time of uncertainty, credit union executives are concerned about their current financial well-being, as well as their retirement plans. The coronavirus has taken huge emotional, physical and financial tolls on credit union leaders – not just the members whom we all love, so OM Financial Group has waived its analysis fees to stress test any credit unions’ Supplemental Executive Retirement Plan (SERP).
“At OM Financial, we believe it is our responsibility to advise credit unions, their boards and executives always, but especially during this trying time,” said Bruce Smith, Senior Executive Benefit Consultant of OM Financial Group. “One of the most important areas to review are existing SERPs for executives to ensure they are still achieving the intended goals.”
As not-for-profits, credit unions are limited in what they can provide to recruit and retain top talent. Specifically, there are only two options: 457(f) Non qualified Deferred Compensation Plans or Collateral Assignment Split-Dollar Plans.
Many 457(f) plans tied to the stock market are getting costly for both credit unions and their valuable executives, potentially taking significant losses during the coronavirus pandemic, as well as in any bear market. In addition, many credit unions are required to pay a 21% excise tax on their 457(f) plans.
The current environment is negatively affecting all retirement plans. Life insurance in a SERP is an investment over the executive’s entire life. The difference is Whole Life plans are experiencing downward pressure on the dividend, but there always is a dividend. Indexed Universal Life Insurance has even greater downward pressure because caps are continually reduced, lowering the potential return, plus the market volatility, especially as distributions are paid out. Insurance companies even recommend using 70% of the maximum return on IULs when setting plans rather than the full potential return.
“We firmly believe in the value of split-dollar, whole life insurance-based SERPs,” Smith added. “They are more conservative and experience far less volatility than other plans, while earning a great return for your highly valued executives.”
Split-dollar, whole life SERPs are a win all the way around, immediately turning a 457(f) liability – especially during this time of lost income due to the coronavirus pandemic – into a performing asset. These SERPs are based on a life insurance policy the credit union executive owns, but the credit union has a lien against it. When the credit union initiates a split dollar plan, it begins to accrue interest income from the very first premium payment. Two new income streams to the credit union for the life of its covered executives – interest income and dividends! Plus, split-dollar SERPs experience significantly less volatility and more consistent returns. In fact, these plans offer certain guarantees backed by the insurance company. OM Financial SERPS are backed by the safety and soundness of Mass Mutual, which has been in the insurance business for more than 160 years.
When the executive passes away, the whole life insurance policy death benefit is divided between the credit union and the executive’s estate – tax free!1 Particularly, if the executive declines payouts while they’re working or unfortunately passes away unexpectedly early, the tax benefit to their family is even more substantial. The credit union is made more than whole by the insurance company on its principal and interest, and the executive’s family has piece of mind as well.
