Credit Union CFO Focus: Benefits pre-funding in action

In 2003, the National Credit Union Administration amended Regulation 701.19, giving federally chartered credit unions the ability to purchase investments that would otherwise be impermissible under parts 703 and 704, so long as these investments directly relate to the credit unions’ obligation or future obligation to support employee benefit plans.

The change gave credit unions more investment options for increasing returns to help offset the cost of employee benefits. For example, credit unions could now purchase potentially higher yielding investments to help offset or pay for the costs of group health plans, 401(k) plans, and group life and disability insurance.

Pre-funding employee benefits can help offset rising costs and add to your bottom line. Over the last five years, employee benefit costs have increased an average of 27 percent according to Kaiser/HRET’s annual employer benefits survey. Over the same five-year period, CUs’ investment margins have declined 13 percent, according to NCUA call report data.

The process of benefits pre-funding starts with an annual estimate of a credit union’s obligations to employee benefit plans. With this information, the credit union can determine an investment to purchase.

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