|By Harrison, Glenn|
Split-dollar life insurance helps CUs provide solid supplemental executive retirement plans.
Credit unions with at least
Split- dollar life insurance hasn't reached the penetration of the 457(b) and 457(f) tax-deferred retirement accounts, which were offered by 45 percent and 31 percent of the survey respondents, respectively These percentages are flat or down from the previous two years, however.
A split-dollar program offers stability and tax advantages that can perfectly complementor replace in some cases- 457(b) and 457(f) investment fund accounts, says
A split-dollar life insurance agreement is a contractual arrangement between employer and employee to share the premium obligations and the coverage benefits of a life insurance policy While there is no formal restriction on the type of policy that can be paid with a split-dollar arrangement, most agreements focus on the purchase of a permanent life insurance policy Permanent life insurance accrues equity in the form of cash value, a policy feature that is often an important focal point. (See accompanying article, "Split-Dollar Life Insurance Basics on p. 22")
Chesbro believes the turbulent economy's effect on executive retirement account balances has pushed the industry further along the learning curve for split-dollar arrangements. "Credit union boards and executives are looking for more predictable benefits that balance the risk of investments," she says. "Split-dollar life insurance can do this, but the terminology for it can be confusing at first. It's important to know what split-dollar life insurance is, and what it is not." (See related article, "What Split-Dollar Life Insurance Is Not," on p. 22.)
Part of a Larger Package
As the economy continues its slow recovery and hard-hit banks return to profitability, the competition for top executive talent could become even stiffer, Chesbro says. "The leaders who guided credit unions relatively safely through the financial crisis are probably very attractive to banks that need to stabilize their bottom lines right now," she says. "If credit unions want to keep their talent at home, or find the best talent from outside, they need to have competitive retirement packages."
Retirement packages are especially critical for recruiting and retention. While the salaries of credit union CEOs compared to their bank counterparts have improved overall, boards still need to keep in mind that they want to retain their CEOs in a competitive talent market. Additionally credit unions are not allowed to use some compensation strategies, such as stock options, that banks can use to retain their top leaders.
Besides this age-old issue, credit unions need to address the gap between what executives earn in their peak years and what their standard retirement benefits can generate in retirement income.
It's a matter of lifestyle. A useful rule of thumb is that maintaining your lifestyle after retirement requires an annual income of 60 percent to 80 percent of your final-year salary. Income from a pension and/or a 401(k) plan plus
The Employee Retirement Income Security Act and other regulations limit the amount that credit unions can contribute to a pension or 401(k) plan. That, and the cap on