By: Corey Murphy
Credit unions, both large and small, are facing a number of challenges including liquidity constraints, the great retirement, and a highly competitive executive job market. Unfortunately, smaller credit unions tend to be more sensitive to these issues. Asset size aside, attracting and retaining key executive talent in today’s climate stands out as a critical component for credit union success.
TriscendNP recently partnered with a smaller, yet vital player, in the Northwest credit union market that found itself grappling with this issue within the confines of a liquidity squeeze. For this credit union, retaining its senior leadership team was deemed vital to its continued growth and success. Before settling on TriscendNP as its partner, the credit union believed that its liquidity issues would plague its ability to provide benefits that aligned with the standards and practices of its credit union peers and competitors. The challenge was to create a tailored benefit package within a framework that harmonized with the credit union’s overall financial strategy, while also resonating as retentive and rewarding with senior leadership.
We first began a dialogue to understand the credit union’s needs and liquidity constraints. In doing so, we explored various benefit options to strike a reasonable balance between cost for the organization versus benefit for its key executive team. While a 457(f) Deferred Compensation plan was considered, it was quickly ruled out due to it being a greater non-recoverable expense when compared to other available options. Split-Dollar, while highly retentive and favored due to its non-compensatory and capital recovery nature, the up-front funding commitment was deemed too strenuous at the time due to the up-front funding commitment.
Seeking a middle ground that satisfied the credit union’s goals without overcommitting resources, we explored the idea of a convertible §162 Executive Bonus Plan. This option provided an affordable starting point, with the possibility to convert to a Split-Dollar arrangement at a later point in time. By exploring all available options, TriscendNP was able to design a plan that was market competitive, while aligning with the credit union’s specific financial capabilities.
The Solution: Designing a Convertible §162 Executive Bonus Plan
Recognizing the unique situation, TriscendNP focused our approach and created a custom, flexible §162 Executive Bonus Plan. To ensure alignment with its liquidity constraints, TriscendNP developed a dynamic pro forma tool for the Board, which assisted them in determining an annual outlay they were comfortable with. This tool provided insights into the projected benefit, accounting impact, and total outlay, and allowed for a more informed decision-making process. The tailored solution enabled the credit union to establish a comfortable annual budget while still providing a calculated, worthwhile benefit to its key executives.
In addition, an essential part of the discussion and planning was the ability to convert the §162 Executive Bonus Plan to a Split-Dollar arrangement in the future. This added layer of flexibility provided the credit union with more control over its long-term planning, ensuring that the chosen solution could evolve with its needs and anticipated growth.
The flexibility of the §162 Executive Bonus Plan, coupled with its ability to be converted to Split-Dollar, struck the perfect balance. It addressed the credit union’s priorities without compromising on the perceived value of the benefits offered to the executives, providing a clear path for future adaptability and success.
This case serves as a reminder that size doesn’t limit the ability to innovate and thrive; it merely calls for a more thoughtful, tailored approach. Through active collaboration, constraints were turned into opportunities, ultimately revealing a targeted, custom solution that enabled success without compromising core financial principles.