Liquid Gold: Compensation Planning Issues And Solutions For Credit Unions & Not For Profits

Jeffrey Adler & Carly Wilhelm

Apr 12, 2023

Modern Capital helps organizations grow by retaining, rewarding, and recruiting top-level talent via supplemental benefits & income. We tailor customized designs and strategies to protect Human Capital, arguably the most important corporate asset. We also consult on ways to increase non-interest income to the bottom line, offset employee benefit costs, and donate to charity in financially optimal ways.

In our post Covid world along with the new remote office environment, we are facing additional challenges with connectedness, team integration, growth, and maintaining corporate philosophy.

In the not-for-profit arena, there is not a chance for a C-suite executive to own a piece of the company and in the for-profit arena, the utilization of second classes of stock provides for minimal control and no diversification. What’s the solution? Enter the world of selective benefit planning.

Selective benefit plans include: 457, 162 bonus, supplemental executive retirement, long term incentive, and “split dollar”. In fact, in the not-for- profit space, utilizing some of the programs are not part of the calculation of excise tax (21%). For some organizations, this has amounted to over $600,000 or more in annual savings.

Employers don’t want to implement programs which will cause an excise tax as they are the ones responsible for paying this punitive tax. Are employers, C-suite executives and boards capable of navigating these waters on their own? We don’t believe so as most employers have utilized compensation consultants in the past as their skill set and understanding of the benchmarks of each individual verticals is crucial.

Collateral assignment split dollar is a method whereby the executive purchases a specially designed life insurance policy and the employer pays the annual contributions. The premium contributions are treated as loans to the executive. The executive signs a note whereby the employer is paid back at the executive’s death. This allows the employer to have no out-of-pocket cost to provide the benefit. Furthermore, this method allows the cash value of the policy to be outside the calculation of the excise tax.

This is one method of providing supplemental benefits to executives. There are numerous other techniques that when designed appropriately, protect the employer and provide tremendous retention & reward to the C-suite executive.

As the penetration rate within the mentioned organizations is small, this benefit should be discussed with the C-suite and the board.

A successful plan will require discovery, recommendations, fine tuning recommendations, implementation, monitoring, and regular servicing.

With that said, the utilization of supplemental programs is one of the major components of a properly structured compensation program for credit unions, healthcare delivery systems, financial institutions, higher education, and the entrepreneurial closely held business landscape.

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