Total Benefit Prefunding Solution Defined
Gallup reports only 20% of employees feel connected to their workplace culture...
Those who do are:
- 62% less likely to burn out
- 5.8X more likely to identify their organization as an excellent workplace
- 4X more likely to be engaged in their work
To feel "connected," employees need to believe their loyalty is reciprocated. Credit Union Benefit created its Total Benefit Prefunding Solution to help credit unions fully-fund robust employee benefit programs that show commitment to employee well-being, aiding in retention.
Many credit unions are realizing 2.5 - 3% on their CD, Bond, Life Insurance, or other corporate investments (after fees), but they aren’t constrained by those limitations anymore. In 2019, the NCUA revised regulation 701.19 to allow credit unions to make investments in formerly non-permissible investment types (annuities, stocks, mutual funds, ETFs, etc.) so long as the proceeds/gains are used exclusively for employee benefits.
Credit Union Benefit has assisted credit unions ranging from $25M to $3.5B in assets to achieve the following:
- Make investments generating a 6-8% annual return on average
- Choose investment options with no risk to principal and no volatility
- Customize investment programs based on a credit union's risk tolerance
- Dramatically increase net income and improve overall ROI
- Execute a plan to cover employee benefit costs and annual increases with investment gains
- Utilize "free" benefits (no copays or deductibles) to attract and retain top talent
- Convert a large, annual cost into an invaluable competitive advantage
- Create sound and compliant investment programs that continuously pass NCUA audits
2-3X Higher Rates than COLI for Key Executives
NCUA 701.19 also provides opportunity to translate higher yields to improve executive retirement options. Typically, CEO and other key executives are covered under life insurance retirement plans such as COLI and Split Dollar, but those investments leave a lot of money on the table.
Life insurance-based COLI plans have returns averaging 2.5 - 3% after fees, and your credit union must wait to be made whole through a death benefit payout. In addition, life insurance investments are capped at 25% of your credit union’s net worth, which limits how many senior executives can be covered by a COLI program.
NCUA 701.19 allows credit unions to replace outdated, low-yield COLI plans with higher return investment options that have historically delivered a minimum of 6-8% returns on average – 2-3X what COLI offers.
The credit union receives the investment gains while retaining its principal investment. In addition, there is no 25% life insurance cap so you can expand retirement benefits to other top executives.
| Program | Product | Fees | Yield after Fees | Liquidity | Maximum Investment | Who Benefits? |
|---|---|---|---|---|---|---|
| Executive Benefit Life Insurance Options | COLI | 1.5%-3% | 2.5%-3.5% | After surrender charges expire usually 10-20 years | 25% of Credit Union's net worth | Can benefit all employees, but limited to the 25% of net worth rule |
| Split-Dollar | 1.5%-3% | 3-4% for CU 1.5-2% for executive |
Credit Union-Usually no liquidity available until death of executive. Executive-Able to borrow money in retirement if the policy performs. |
25% of Credit Union's net worth | A few key executives | |
| Total Benefit Prefunding by Credit Union Benefit | Multiple Options | 0%* | 6-8%** | Up to 10% per year or after surrender charges expire 5-10 years | No maximum investment amount, rather the credit union just can't consistently earn more than the cost of their employee benefits | All employees and executives as it can cover 100% of employee benefit expenses |
* Unless Credit Union wants to add an additional rider for their benefit
** Based on worst 10yr performance
Addressing Underperforming Investments (CDs, Bonds)
Many credit unions tell us they’re feeling stuck—trapped by low-yield CDs or Bonds that they’re reluctant to sell at a loss, all while facing liquidity pressure and a challenging rate environment.
Total Benefit Prefunding Solution turns this around.
How it works:
By leveraging our new approach to NCUA 701.19, Credit Union Benefit can add a 10-20% bonus to your deposits into a principal-protected investment. This allows you to take advantage of today’s higher interest rates without negatively impacting net income.
Recent example:
One credit union invested $10M in bonds in 2021 and was facing a $1.3M loss on their fixed-income portfolio, yielding just 2.1%. After working with Credit Union Benefit, they reinvested $8.7M of market value and received a 16% bonus from the investment company recommended - adding $1.39M to their portfolio.
Their new investment offers:
- 100% principal protection
- 10% annual liquidity withdrawals
- 10-year returns ranging from 6.3% to 12.14% annually
The result:
The client increased income by $92K, boosted potential returns by 3X–5X, and has improved liquidity. Even at the low-end of past 10-year performance, the new investment strategy still yields an additional $6.28M.
Don’t let low-yield investments hold you back. Let us help you enhance your net income and liquidity, without risk or volatility.
