How Credit Unions Can Improve 457(f) Plans for Executives

Competition for key talent has never been more prevalent than it is today

Providing a?supplemental executive retirement plan?(SERP) to key executives significantly enhances an organization’s ability to attract, reward, and retain its most important people.

One of the most popular SERP designs used by credit unions is a 457(f) plan. Before your organization considers installing a traditional 457(f) or if it already has one in place, please consider the following:

What is a 457(f) Plan?

457(f) plans are tax-advantaged retirement savings plans available to certain executives of tax-exempt organizations, including credit unions.

457(f) plans allow executive participants to contribute a portion of their compensation on a pretax basis, up to the annual IRS limit and receive matching or other employer contributions. Employers may also make discretionary contributions to 457(f) plans on behalf of their executive participants.

These plans can be funded with amounts necessary to provide a defined benefit to the executive upon retirement or with periodic contributions over time in agreed-upon amounts.

Upon retirement, the executive is responsible for paying all of the taxes, in a lump sum, at ordinary income rates. In some states, that can mean that more than half of an executive’s retirement benefit will end up going to the government.

The Benefits of 457(f) Plans

457(f) plans offer a number of benefits to credit unions and their executive participants, including:

• The ability to attract and retain top talent,
• Tax-deferred growth of investments, and
• Flexible withdrawal options

Traditional 457(f) Plan Designs

Traditional 457(f) plans can be effective executive retention tools but they have significant drawbacks, including:

• Offering the organization inferior rates of return on dollars invested
• Requiring the retiring executive to reinvest remaining post-tax assets in a taxable environment
• Lack of a death benefit for the executive’s heirs at his/her demise; rather, they receive only what has accumulated in the plan up to that date

Moreover, credit unions should be aware of the potential pitfalls associated with 457(f) plans, such as compliance with IRS rules and regulations, high administrative costs, and the risk of participant litigation.

How Credit Unions Can Improve 457(f) Plans

Credit unions can take steps to improve their 457(f) plans in order to maximize the benefits for both the organization and its executive participants. These steps include:

• Selecting the right 457(f) plan provider
• Designing a 457(f) plan that is compliant with IRS rules and regulations, and
• Implementing 457(f) plan administration and participant communication best practices

By taking these steps, credit unions can ensure that their 457(f) plans are well-designed and well-managed, providing maximum benefits for all involved.

Acumen Insurance Solutions 457(f) Plan Designs

Acumen’s plan designs provide a death benefit or self-completing feature equal to the full value of the executive’s projected retirement benefit. In addition, these designs:

• Offer a more tax-efficient solution for the executive to receive retirement benefits resulting in 30-40% more, after-tax income
• Include an investment vehicle for the retiring executive that has historically provided both a competitive return and a principal guarantee
• Can be implemented with no additional cost or burden on the organization