Today, many credit unions are growing and adding C-level talent—many from for-profit industries that had stock options. Now that credit unions are competing on a new playing field of fintechs, digitally service-oriented big banks, and big tech firms, retaining and recruiting the right leaders is essential.
The demand for talent is at an all-time high, especially for the execs running growing credit unions evolving through the retail and digital revolution. Fintechs and larger credit unions are targeting your talent for at least two reasons:
First, after fintechs get funded, they generally need domain expertise around payments, regulation, compliance, banking APIs, and many other specific things. However, the fintechs can offer options and probably pay more.
Second, credit unions are competing locally, regionally and nationally and with many credit unions nearly doubling in size over the past 3 years, they now need to scale up their leadership, operations, lending, and other teams.
So, if they want talented executives, your credit union might be a good place to look. While we know credit unions cannot issue stock options, it does raise the question:
If your competition can and is offering options and larger pay packages, what can you do to compete?
Supplemental Executive Retirement Programs, or SERPs, are tool that makes that happen.
In fact, 10% of the top 50 CUs added split-dollar SERPS in the last 6 months.
SERPs can be a great tool to combat the lack of options as a compensation tool. However, understanding the right design of a SERP is complex and requires CU knowledge, insurance understanding, compensation data, and capital evaluation. In addition, there are complex compliance, legal, and accounting issues. An expert firm is essential to getting the design right which will deliver the retirement that was illustrated.
Here are a few things to consider:
- Which base salary increase percentage should be used to calculate the final salary for an executive at retirement age? 3% (old school)? 5% if you are a large CU?
- Will you include an annual incentive in the total compensation used for the SERP size calculations?
- Can your SERP design accommodate an environment of increased asset growth and higher salary demand?
- When should you reevaluate your SERP to ensure it still meets retirement goals?
- How can you reach a total retirement payout of 20 years that equates to 70% of the final total comp (base and annual incentive)?
SERPs are fair—they are designed to provide the same benefit for the executives as the credit union’s team receives (60–70% of the final salary).
Since credit unions are non-profit cooperatives, stock options are not allowed. Credit unions’ missions tend to do a great job of attracting talent, but keeping that talent over time can come down to compensation. Giving an executive a SERP that acts something like a stock option might just be the trick.
I know what you’re thinking:
Our credit union has a 457(f)—isn’t that good enough?
It turns out split-dollar SERPs have significant values over 457(f)s:
- The executive gets a non-taxable retirement benefit at no cost to the CU. The non-taxable benefit is material, especially compared to a 457(f).
- The credit union is paid back with interest for their investment for their leadership
- The executive family gets a significant death benefit (that pays them the full amount of the retirement) if the executive passes away before or during the retirement period.
- If the credit union is state chartered, the CU will pay a significant excise tax on a large 457(f)—this is not the case with SERPs, wherein the credit union is paid back with interest.
So, if you have a great executive team and you want to keep them around, perhaps it is time for a quick conversation with OM Financial Group to make sure your team thrives into the future.