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Evaluating Exec Benefits

November 2010 – Vol: 33 No. 11
by Karen Bankston

Tips for boards doing due diligence on their CUs’ plan

November 19, 2010

This is bonus from “Closing the Gap” from the December 2010 issue of
Credit Union Management magazine.

If your board is working on supplemental retirement compensation for your CEO, here are thoughts from three experts in the field that you might want to consider.

Christine Burns-Fazzi, principal of Burns-Fazzi, Brock, a CUES Supplier member based in Charlotte, N.C., recommends that board due diligence encompass three crucial areas: knowing your vendor, understanding plan design and conducting annual reviews. Here are some specific points to consider for each area.

Know your vendor:

  • Evaluate the vendor’s experience and expertise.
  • Weigh the vendor’s reputation in the industry.
  • Examine key operational issues.

Understand the plan design:

  • Conduct regular reviews to ensure that the compensation program and retirement benefits are fair in comparison to the executive market (correlated with credit union size, region and field of membership) and reasonable in terms of the total scope of all components (including, for example, a 401(k) program with matching funds, defined benefit retirement program, and supplemental benefits).
  • Ensure that the type of plan complements the credit union’s philosophy.
  • Manage the risks inherent in the legal obligation, including events that trigger payment (such retirement, death, disability or termination).
  • Analyze and manage the risks of the informal funding mechanism, including market/transactional risk, interest rate risk due to market volatility, credit risk, liquidity risk, strategic risk, and compliance and reputation risk.

Conduct annual reviews for ongoing due diligence, focusing on both product performance and plan design.

In creating and maintaining supplemental retirement and other long-term compensation plans, Gene Zumwalt advises boards to keep their focus on their goals and objectives for those plans.

"What is it you’re trying to accomplish? Is it primarily a retention tool and, if so, for what positions? Is it to attract candidates and, if so, what does it take in your area and marketplace to do this?" notes Zumwalt, director of executive benefits intelligence for CUES Supplier member CUNA Mutual Group, Madison, Wis. "Once you’ve established your goals and objectives, the rest of planning flows from that.” (Note: CUES has partnered with CUNA Mutual Group to offer executive benefits and retirement plan services. For more information, call CUNA Mutual at 800.356. 2644, ext. 3272, or e-mail executivebenefitsmailbox@cunamutual.com.)

Joe Tripalin recommends at least annual reviews of plan performance.

"You need to consider: Is it doing better or worse than we had projected? If the latter, why isn’t it doing well? Do we expect it to recover?” asks Tripalin, director of marketing with OM Financial Group, Smithfield, R.I. " Could it still create a reasonable benefit? If it won’t, then the obvious thing is to talk to the organization that provided the funding mechanism about what ideas they might have. They might suggest an additional deposit or adding or switching to a different program."

In fact, boards should expect their plan providers or consultants to proactively provide regular updates and recommendations for programs that are not performing up to expectations. If they don’t, it’s a good time to start looking at other options, he says.

Karen Bankston is a free-lance writer based in Stoughton, Wis.

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