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According to the Bureau of Labor Statistics, replacing employees costs 50-160 percent of employees’ annual compensation. Thus, attracting and retaining executives for key positions is essential not only to the strategic direction of your credit union but to the bottom line.
This is particularly important in today’s job market because “competition for executive talent has become intense,” said Eric Earle during the CUES Webinar “Protect Your Credit Union from Executive Churn.” Earle is an executive benefits sales consultant at CUES Supplier member and strategic partner CUNA Mutual Group, Madison, Wis.
Earle attributes the high demand for executives to two major factors: 1) improvement in the U.S. labor markets, and 2) baby boomers transitioning into retirement. “These factors are leading to an increase in talent poaching and organizations being laser focused on retaining their key talent,” Earle said.
Offering a competitive benefits program that incents executives to stay but also gets them to retirement goals must be a priority for each credit union.
Step 1: Customized Benefits Plans for Executives
The average employee outside the executive team typically retires with 60-80 percent of his or her pre-retirement income. This income is made up primarily of 401(k), Social Security and, less frequently, some sort of defined contribution plan, explained Earle.
“Now, your highly compensated employees have access to these same sources of post-retirement income—but with an important difference: Because of the way the qualified plans are designed, these executives are restricted as to how much they can contribute to, and thus receive from, 401(k) and Social Security,” he said.
This may mean executives will end up retiring at only 40 percent of their salary. “There’s a gap, and this gap puts your top leadership at a disadvantage compared to executives at traditional banks that offer better options,” Earle said.
Working with credit unions through the Northeast, South and Midwest, Earle finds that customized solutions are needed for each credit union. The goals are to meet financial needs of senior executives so they can focus on the credit union’s strategic goals and financial success. This means providing additional compensation and benefits to address the “shortfall” gap.
Supplemental retirement programs are an option to meet both these goals. SERPs operate as a written promise by the credit union to fund and/or pay out a benefit at some time in the future. IRS risk of forfeiture rules (meaning payment is conditioned on the performance of substantial future services or the occurrence of an event, and the possibility of forfeiture is substantial) keep the SERP untaxed until a future date.
SERP options include 457(b), 457(f) and life-insurance-based plans.
Step 2: Retire on Time
“When your employees have to delay their retirements because they haven’t saved enough, there are costs to your credit union,” said CUNA Mutual Group retirement specialist Chad Lay, who presented the CUES Webinar “It’s Time to Rethink the Goals of Your Retirement Plan.”
Delayed retirements can result in the loss of other employees whose upward mobility options become limited; higher costs of senior staff and older workers for salary and healthcare; and loss of staff productivity due to financial stress.
“At CUNA Mutual Retirement Solutions, we believe that, first and foremost, the No. 1 goal is to help your employees retire securely, on their terms and on time,” Lay said. “That’s what retirement plans are supposed to do and this is often clouded over by all the fiduciary burden, headline news and industry practice.”
If your employees are not joining your plan, they’re probably not funding an adequate retirement. The American Society of Pension Professionals and Actuaries reports that over 70 percent of working Americans with access to an employer-sponsored plan are currently saving for retirement while only 4.6 percent of those without a plan are currently saving.
“By offering your employees a plan, you have already done them a huge favor. But are they joining in sufficient numbers? We suggest a minimum participation rate of 80 percent but suggest you shoot higher. If your participation is too low, it’s probably due to some plan design issues,” Lay said.
Helping your staff track their retirement goals with a tool like CUNA Mutual Group’s RetireOnTarget is key. RetireOnTarget helps both plan administrators and employees see progress toward goals, and measures not only how much is being invested, but also the investment mix.
“American workers are increasingly responsible for saving for retirement. But many are not saving adequately,” said Lay. “Having an employer-sponsored 401(k) plan is not enough. Your employees often look to you for retirement guidance. They want and need your help in arriving at a financially secure retirement.”
