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Better Managing and Controlling Your Employee Benefit Costs

Better Managing and Controlling Your Employee Benefit Costs. CUNA HR Training and Development Council Conference Boston, April 2008. Challenge to a Credit Union. To create and maintain an employee benefits package that is desirable and affordable! A Very Big Challenge.

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Better Managing and Controlling Your Employee Benefit Costs

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  1. Better Managing and Controlling Your Employee Benefit Costs CUNA HR Training and Development Council Conference Boston, April 2008

  2. Challenge to a Credit Union To create and maintain an employee benefits package that is desirable and affordable! A Very Big Challenge

  3. What Makes This Challenge Difficult • The balancing act between “fair” and affordable • The biggest culprit – spiraling health care costs • What we have always done in the past….

  4. Some CU Responses to Health Care Cost Challenges • Absorb the increases, take the bottom line impact • Raise deductibles or co-pays • Increase cost sharing with EE’s • Restrict eligibility • Significantly alter plan coverage… drugs, psychiatric coverage • Institute wellness initiatives…incentives for exercise programs, smoking cessation, weight loss

  5. Impact to Employees • Their paycheck shrinks as their out-of-pocket costs grow • They may not be able to afford the protection which leaves them without insurance • Certain medical conditions may not be coveredObviously this impacts the morale of the staff and the ability for the CU to attract and retain key staff!

  6. HRA’s – HSA’s? Health Retirement Accounts and Health Saving Accounts can encourage EE’s to wisely use the health dollars set aside by the CU, but to-date they haven’t significantly impacted the cost credit unions are paying for their medical coverage.

  7. Retirement Benefits – Another Challenging Area • Demise of the defined benefit pension plan has hurt highly compensated execs • For CU’s still maintaining a defined benefit plan, pension reform has added new cost challenges • Deferred compensation arrangements are much more common today for execs

  8. Deferred Compensation • An important and growing part of executive compensation • Deferred comp programs fix retirement benefit shortfalls • Deferred comp can fix compression problems • Deferred comp can facilitate succession plans

  9. Deferred Comp a Retrospective - Credit Unions with Programs 75% 45%

  10. Maintaining a Strong Benefit Program Requires New Ideas It is time to think outside the box!

  11. Pre-Funding of Benefits A New Idea! What is Pre-Funding of Benefits? It is an investment strategy where some investment dollars are redirected to variable investments with the goal of higher returns that can be used to offset benefit cost obligations. This is possible because CU’s can pre-fund employee benefits using what would normally be impermissible investments.

  12. Concept Diagram $ Alt Invest Added Returns – Year 10 $ Alt Invest Added Returns – Year 1 LOWER THE OUT-OF-POCKET BENEFIT COSTS SERP Costs 401(k) Match Post Retire Health Group Health LTD While the underlying benefit costs don’t change, the additional earnings from the alternative investments (that would normally be impermissible) can be used to offset the out-of-pocket benefit cost obligations.

  13. How Does Pre-Funding Work? • Calculate future benefit obligations and their costs, generally over 10 – 15 years • Calculate present value for those costs • Decide what portion of the present value cost to cover through investments • Select the investment vehicle • Decide how you want to access the investment and/or earnings

  14. What Benefits Can Be Included? • ERISA benefits, e.g. group health, life, disability and pension plans like defined benefit, money purchase, or the match on a 401(k). Also post-retirement health coverage. • Supplemental executive retirement plans (SERPS); executive benefit programs

  15. Other Positive Impacts • Raise return on assets – ROA • Improve bottom line financials by lowering the out-of-pocket costs associated with the employee benefit costs

  16. Where This Doesn’t Work • Credit unions that are fully loaned out, they don’t have excess investable dollars • Some credit unions that are in financial difficulty • State chartered credit unions in states that haven’t yet approved this concept

  17. One Final Thought The costs of benefits, especially health, are growing faster than your credit union’s returns from lending and investing. At some point, changes in the benefit package will probably be made. The pre-funding concept can delay or reverse that trend!

  18. Contact Information Joe Tripalin Preferred Benefit Partners, LLC Mobile 608-445-0984, email joe.tripalin@preferredbenefitpartners.com

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