Benefits Prefunding - the Holy Grail for Credit Union Employee Benefits
Every
credit union leader is on the lookout for that game-changing strategy – the one
move that could elevate their organization to the next level. Is there a unique
advantage credit unions hold over banks? Can we maintain financial prudence and
still thrive?
This paper explores a powerful yet often overlooked opportunity: a shift in mindset around corporate investments that will enable credit unions to provide highly valued employee benefits without burdening operating capital.
Historically, credit unions have been limited to conservative investment options like CDs and bonds. When it comes to executive benefits, many rely on COLI (corporate-owned life insurance) plans, which are capped at 25% of net income and often takes decades to realize returns through death benefits.
However, a pivotal change occurred at the onset of the COVID-19 pandemic. Amid the chaos, a revised NCUA regulation – NCUA 701.19 – quietly reshaped the investment landscape for credit unions. Unfortunately, many leaders were too focused on navigating the pandemic to fully grasp its implications.
This regulation now
permits credit unions to invest in previously non-permissible vehicles – such
as annuities, mutual funds, EFTs, and managed funds – as long as the returns
are used to benefit employees. While salaries are excluded, one of the
largest employee-related expenses – health insurance – is fair game.Most credit unions currently earn modest returns of 2-3% after fees and liquidity requirements. In contrast, investment options allowed under the new regulation can yield a minimum of 6-8% annually, with some offering upfront bonuses of 13-23% to offset penalties from surrendering underperforming assets.
By partnering with a certified financial planner (CFP) who specializes in credit unions, leaders can design a strategy that:
· Protects principal
· Avoids market volatility
· Uses A-rated carriers
· Prepares you for NCUA audits, and
· Delivers significantly higher returns.
This paper isn’t just about better returns, it’s about reallocating investment gains to offset employee benefit costs, freeing up capital for strategic initiatives, and offering enhanced benefits that boost employee loyalty, retention and recruitment. All it takes is a shift in perspective. From cautious to strategic. From 2-3% to 6-8%. From reactive to proactive.
The Rapidly Changing Landscape of Employee Benefits Demands Changes in Credit Union Offerings and Funding Strategies
How did we get here? For nearly a decade, credit unions have grappled with persistent staffing shortages and increasing turnover—trends that continue to intensify. According to Wipfli’s 2024 report, 46% of credit unions identify employee recruitment and retention as one of their top organizational concerns.
These talent gaps extend beyond front-line staff. Leadership roles, compliance officers, risk managers, and internal auditors vacancies are increasingly difficult to fill—placing additional strain on institutions already navigating complex regulatory environments and rising member expectations.
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