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Benefits Pre-Funding in Action
Friday, March 18, 2016 6:35 AM

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By John Pesh is Director of Executive Benefits at CUNA Mutual Group.


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 opportunity to pre-fund employee benefits gives credit unions more investment options for increasing returns to help offset rising employee benefit costs which have increased an average of 27 percent over the last five years, while CUs’ investment margins have declined 13 percent, according to Kaiser/HRET’s annual survey and NCUA call report data, respectively.

The process of benefits pre-funding starts with an annual estimate of a CU’s expense obligations to employee benefit plans and determines the amount and type of investment to purchase from there.

Case in Point

Years ago, Scott VanZandt, chief financial officer at Hudson Valley Federal Credit Union, knew it was a good idea to pre-fund the increasing cost of employee benefit plans. However, because credit unions are naturally risk averse, he also knew the board of directors would require a great deal more information before committing to such a plan.

Following a comprehensive assessment of Hudson Valley FCU’s needs, it was “apparent that it made even more sense to try to improve [the] potential for long-term investment growth,” says VanZandt. In September 2013, the credit union began slowly dripping funds from cash into its benefits pre-funding investment portfolio that ended up contributing $1.95 million to their net income in the first year, despite the volatile 2014 market and intentionally gradual investment. In all, VanZandt has been pleased with the improved long-term investment growth potential and increased ROI.

Another Example

After the Great Recession ended in 2010 credit union leaders across the nation were faced with a slow lending market, miniscule interest margins, and a resultant low return on assets. General Manager George Isola of TruNorth Federal Credit Union noted that their “ROA had declined to 37 basis points in 2011, compared to 52 basis points for the NCUA peer group,” and also compared to earnings of 75 to 100 basis points “in the good old days.”

Isola and his board looked for ways to improve ROA without increasing member fees or cutting back the credit union’s employee benefits package, either of which would have been an easy short-term solution, but detrimental overall to the credit union members' or employees' satisfaction.

Instead, Isola wanted to pursue a longer-term, sustainable solution that wouldn’t hurt employee morale or have a negative effect on member service. In his search, he was intrigued by a benefits pre-funding seminar led by a CUNA Mutual Group representative and looked into various pre-funding options before settling on an investment portfolio.

Isola says he wishes that he’d been able to start a benefits pre-funding program when he joined the credit union as general manager 22 years ago and is proud that TruNorth FCU has upheld its culture as a stable employer, where members are well taken care of by the same folks year after year.

Proprietary insurance is underwritten by CMFG Life Insurance Company. Proprietary and brokered insurance is sold by CUNA Mutual Insurance Agency, Inc., a wholly owned subsidiary. This insurance is not a deposit and is not federally insured or guaranteed by your credit union. For more information, contact your Executive Benefits Specialist at 800.356.2644.

Representatives are registered through, and securities are sold through, CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, 2000 Heritage Way, Waverly IA 50677, toll-free 866.512.6109. Insurance and annuity products are sold through CMFG Life Insurance Company. Trust services available through MEMBERS Trust Company, 14025 Riveredge Dr., Suite 280, Tampa, FL 33637. Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the credit union.