HOLLYWOOD, Fla. (6/23/08)--Credit unions face challenges recruiting and retaining talented executives in a competitive marketplace, but several available executive benefit plans can help resolve the issue, Rick Boothby, executive benefits specialist for CUNA Mutual Group, told Discovery Conference attendees Thursday. Boothby explained the types of benefits that non-profit and tax-exempt organizations can offer to key executives are limited by specialized tax rules under Section 457 and Section 409A of the Internal Revenue Code. “The good news is these limits are not the end of the story for credit unions. Fortunately, alternate plan designs are available for non-profit, tax-exempt organizations, which are not governed by Section 457 or 409A,” Boothby said. “Understanding how these alternate plan designs work can help credit unions recruit, retain, reward and retire top talent.” Credit unions may offer one of five non-qualified retirement benefit plan designs, depending on executives’ needs:
* Section 457(f) plans; * Split dollar loans; * Split dollar loan/457(f) combo arrangements; * Executive bonus plans; and * Restricted executive bonus arrangements.
CUNA Mutual has implemented tailored executive benefit programs at about 1,600 credit unions, but that is less than one-fifth of the approximately 8,300 U.S. credit unions today, said Boothby. “With the volatility in the banking industry, we’ve seen an increase in the number of credit unions implementing 457(f) plans as a ‘golden handcuff’ or ‘glue in the seats’ tactic for retaining key executives. Credit union executives are contacted daily by head hunters offering positions in larger credit unions or other businesses outside the credit union industry,” he said. “Many executives leave, lured by attractive executive benefit plans offered by competitors,” Boothby added. “In many situations, a supplemental executive retirement plan is written into the pre-employment offer letter to provide 50% to 80% of the executive’s future retirement income.” To keep their credit unions competitive with other organizations, credit union board members must provide executives with incentives to remain with the credit union, Boothby stressed. The best plan-design will be based on mutually desired features, Boothby said. In addition to attracting and retaining valuable executives, an executive benefit plan can help the credit union because it counters existing benefit package shortfalls, has minimal impact on the balance sheet, and is easy to establish and maintain. “Credit unions should identify their most valuable executives and determine the effect on the credit union if those employees were recruited elsewhere. Then, design an appropriate benefits solution to ensure that does not happen,” Boothby concluded.