The strategic use of capital has never been more important.

For some background, the NCUA allows credit unions to use up to 25% of their capital to fund HR benefits with “impermissible” investments (equities, etc.). These HR benefits can fund health insurance, SERPs, and more. But a 25% cap necessarily limits the amount of capital available for executive compensation.

However, 25% is a soft cap, and there are ways to go over it. Over the last few years, many credit unions set up insurance plans called Credit Union Owned Life Insurance (CUOLI) to make these investments. The CUOLI built income to pay for more HR benefits. Yet in so doing, they significantly undermined their ability to fund executive retirement plans and recruit/retain leaders.

This is why credit unions must use their capital strategically when funding HR benefits. Credit unions have two options for how to do that:

  1. Invest in your executive team through SERPs, or;
  2. Invest in the HR benefit operational costs.

HR benefits can be seen as operational. In many ways, they’re the cost of keeping the doors open.

Conversely, investing in the executive team is strategic. It bets on the future of the credit union through its leadership and their ability to ensure continued growth and success. It also ensures that credit unions don’t lose money and experience when trying to replace talent that leaves for better deals.

Furthermore, a litany of new titles for new business areas are entering the industry. From crypto, to member experience, to diversity and inclusion, to anything with the word “digital,” C-level positions are popping up left and right. Especially in larger institutions, this means that there are more “core” executives that demand top-level compensation packages like supplemental executive retirements plans (SERPs) that can replicate stock options.

In turn, this puts even more pressure on that NCUA-approved 25%.

Of course, there are ways to increase available capital above 25%. These methods may require additional documentation and some legwork.

Untangling these strategies—and ensuring executives get fairer compensation without going over the NCUA credit union’s capital allocation—is why strategically evaluating the use of your capital is so important in todays market.

If you’d like to discuss how to do that—and how to explore better outcomes for your credit union and executive team, please reach out. I’d be happy to connect!

Strategic Use of Capital in Credit Union Benefits

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