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Total Benefits Pre-funding can Help CUs Remain Employer of Choice
Tuesday, April 29, 2014 6:40 AM

Credit unions struggling to keep up with the rising costs of their employee benefit programs should consider implementing a total benefits pre-funding program (TBPF), according to CUNA Mutual Group’s John Moreno.

“Investment in people, namely salaries and benefits, is typically the largest expense an employer has and, unfortunately, it’s an expense we often don’t have a lot of control over,” said Moreno, senior executive benefits specialist.

Family health care premiums have increased 80 percent over the last 10 years, according to the Kaiser Family Foundation/Health Research & Educational Trust 2013 Employer Health Benefits Survey.  “With benefits costs increasing 8 percent annually and investments yielding only 1.6 percent on average, it’s becoming increasingly difficult for credit unions to maintain a competitive benefits package and remain an employer of choice.”

TBPF can defray the rising cost of benefits because it allows credit unions to pre-fund employee benefit obligations with potentially higher-yielding investments that would otherwise be considered “impermissible” by the NCUA. These investments are now allowed if they are directly related to the credit union’s employee benefits obligation or potential obligation for as long as that obligation exists.

“The benefit for credit unions is they can potentially increase investment returns, which in turn could improve the bottom line. Plus they can use the additional income to continue offering high-quality employee benefits.”

TBPF funding options include corporate-owned life insurance (COLI) which provides predictable returns through interest earnings on policy cash values and dividends; institutional managed account programs, which can include different investments such as mutual funds, stocks and bonds; and variable annuities or variable life insurance, which offer investment opportunities along with different features such as a guarantee of principal.

However, Moreno cautions credit unions to be aware of the potential risks of TBPF as identified by the NCUA. These include:

  • Credit Risk
  • Interest Rate Risk
  • Liquidity Risk
  • Transaction Risk
  • Compliance Risk
  • Strategic Risk
  • Reputation Risk

When choosing a third-party provider, Moreno said to choose one that is financially strong, committed to the marketplace and will be there for the long term.

“My experience has shown me that credit union HR professionals want to attract and retain top talent. A Total Benefits Pre-Funding program can help your credit union fund and provide best-in-class benefits.”