When TruNorth Federal Credit Union, Ishpeming, Mich., needed to reduce expenses in the aftermath of the Great Recession, General Manager George Isola was faced with a tough decision. He and his board searched for ways to improve return on assets without increasing member fees or cutting back the credit union’s employee benefits package. Their benefits package included a competitive group health plan and a 401(k), for which TruNorth FCU contributed 9 percent of employees’ annual salaries, regardless of employee contributions. “That’s low-hanging fruit when you need to reduce expenses,” he says.
With employee compensation and benefits now accounting for more than 50 percent of credit union operating expenses (according to data from the National Credit Union Administration), supporting the rising cost of benefits is more critical than ever. Declining investment yields and net interest margins make this an increasingly daunting task for credit unions. In the last five years, credit union yield on investments has fallen 36 percent and net interest margins have declined 13 percent, according to the NCUA 5300 Call Report Quarterly Data from December 2014. These trends have caused a benefits-funding gap to emerge for many credit unions.
Rather than reducing benefits, Isola sought a long-term solution to close this “gap.” He discovered benefits pre-funding and began exploring several pre-funding options. He believed this could be the solution he was looking for.continue reading »