Attracting and retaining top executive talent is a strategic imperative for credit unions. As the war for talent intensifies and executive demographics shift, designing competitive, compliant, and cost-effective benefit plans has never been more important. Two of the most powerful tools in a credit union’s executive benefits toolkit—457(f) plans and split dollar plans—each serve unique purposes. But when thoughtfully combined, they create a comprehensive strategy that balances short-term retention with long-term retirement planning.
Here’s how credit unions can align these tools to both meet institutional goals and deliver meaningful value to key executives.
Why Combine 457(f) and Split Dollar Plans?
When used individually, 457(f) and split dollar plans each offer important advantages. But they also have limitations. The key to maximizing their value is recognizing how their strengths complement one another.
- 457(f) plans are effective for shorter-term objectives. They create near- to mid-term incentives (e.g., five-year cliff vesting schedules) that keep executives engaged while giving credit unions flexibility to align benefit payouts with strategic milestones, such as leadership transitions or retirement timelines.
- Split dollar plans, on the other hand, are better suited for longer-term strategies. Structured correctly, they offer superior tax efficiency, the potential for cash value accumulation, and estate planning benefits that extend beyond employment.
Combining both allows credit unions to design a layered strategy that builds loyalty over time, rewards executive performance at key career points, and supports long-term financial security.
Aligning Executive and Credit Union Objectives
The most successful benefit plans are those that align the personal goals of the executive—such as a planned retirement age—with the financial and operational goals of the credit union.
By integrating a 457(f) plan, such as customizing benefit dates, with structured payouts every five years, you can provide meaningful financial incentives throughout the executive’s tenure, keeping top talent motivated and less likely to respond to outside offers. As the executive nears retirement, layering in a split dollar plan offers a tax-efficient method to provide substantial retirement benefits—particularly attractive for younger executives with a longer career runway. The early-stage 457(f) plan builds commitment, while the later-stage split dollar plan rewards long-term loyalty and supports a smooth transition out of leadership.
Plan Design: Considerations and Customization
Every credit union is unique in terms of size, budget, and governance. That’s why designing an effective executive benefit strategy requires a tailored approach.
Key considerations include:
- Asset size and financial performance –When assessing benefit plan strategies, financial capacity plays a major role. Larger credit unions often have the flexibility to offer split dollar plans to both the CEO and broader executive team. In contrast, mid-sized or smaller credit unions may opt to offer a split dollar plan solely for the CEO, while using 457(f) plans for other executives. This approach helps manage long-term financial commitments, particularly in relation to the 25% of net worth limitation on pre-funded benefit investments.
- Regulatory limits – Credit unions must comply with NCUA guidelines around benefit plan funding and “reasonable compensation.” This includes staying within a total limit of 25% of net worth, with no more than 15% allocated to an individual carrier. Careful financial planning and modeling of future credit union growth are essential to ensure programs remain within these regulatory limits while balancing executive value with fiduciary responsibility.
- Executive career stage – Younger executives with 10–20 years before retirement benefit from initial shorter-term incentives. As retirement approaches, split dollar becomes more attractive for its tax advantages and potential for wealth accumulation.
- Liquidity planning – Thoughtful structuring ensures the credit union maintains adequate liquidity to meet future obligations without straining capital ratios.
- IRS excise tax on top executive income – For executives earning over $1,000,000 annually, the IRS imposes a 21% excise tax, which the credit union is responsible for paying. We conduct detailed modeling to recommend strategies that reduce or eliminate the potential for this tax.
Plan Design: Career Stage Flexibility
Many credit unions are discovering that combining 457(f) and split dollar plans offers greater flexibility to address evolving executive needs, succession planning, and organizational growth. Real-world examples show how these plans can be layered and adapted over time:*
- Supporting Long-Term Retention for Younger Executives
One credit union began with a 5-year 457(f) plan, for example, to engage a younger executive early in their career. As the executive neared the end of that term, they introduced a 15-year split dollar plan, extending the retention window and aligning it with the executive’s long-term retirement goals. This staggered approach allowed the credit union to adjust plan design as the executive’s priorities evolved. - Tailoring Plans by Tenure and Timing
At a credit union with five executives, two leaders had shorter time horizons and received smaller 457(f) plans. The other three, who had more runway before retirement, started with 457(f) plans and later added split dollar agreements. This mix helped the credit union balance financial capacity with the need to retain key talent through varying timelines. - Scaling for Growth in a Large Institution
A large credit union focused first on the CEO, establishing a split dollar plan as a foundational retention tool. The following year, they implemented 457(f) plans for the broader executive team to align timelines and incentives. After a merger, the credit union reassessed and updated the structure, maintaining 457(f) plans for the team while layering in a second split dollar plan for the CEO—demonstrating how these tools can evolve alongside organizational change.
Avoiding Common Pitfalls
While the market for executive benefits has expanded, not all providers take an objective approach. A common mistake is allowing plan design to be driven by provider incentives rather than the credit union’s long-term needs.
Some firms push split dollar plans as a one-size-fits-all solution, drawn by the commissions associated with high-premium life insurance policies. This can lead to overfunded or misaligned plans that don’t meet the credit union’s strategic goals or regulatory expectations.
Partnering with a fiduciary-aligned advisor, like Earnest Consulting Group, who understands the unique challenges of credit unions including governance, regulation, and membership-focused missions, is essential. We are fully licensed in both investments and insurance, which requires us to uphold a higher level of fiduciary responsibility. Plan design should be guided by a deep understanding of executive goals, careful financial modeling, and a focus on long-term sustainability.
A Roadmap for Success
A combined 457(f) and split dollar strategy offers credit unions a powerful way to recruit, retain, and reward key executives—while managing risk and aligning with institutional goals.
Here’s what a successful roadmap might look like:
- Start with retention-focused 457(f) plans for new or mid-career executives, using 3–5 year vesting intervals to build long-term commitment.
- Layer in split dollar plans as executives reach mid- to late-career, aligning projected retirement dates with more tax-efficient benefit delivery.
- Customize based on size and scale—consider split dollar only for the CEO or top leadership at smaller institutions, while offering a tiered approach at larger ones.
- Re-evaluate regularly – Conduct annual reviews, or reassess following significant events such as a merger, to ensure the plan continues to align with both original and evolving leadership goals, organizational strategy, and changing compliance standards.
Build a Plan That Works for Your Credit Union
Executive benefit planning is not just about compensation—it’s about strategy, succession, and sustainability. By combining 457(f) and split dollar plans, credit unions can develop a benefit structure that is as dynamic and forward-looking as the leaders they seek to retain.
But designing the right plan takes more than just choosing the right tools—it requires a deep understanding of the credit union’s mission, finances, and long-term goals.
At Earnest Consulting, we help credit unions navigate these decisions with clarity, objectivity, and a commitment to doing what’s best for the institution—not just what earns the biggest commission.
To explore how a combined executive benefit strategy might work for your team, get in touch with our advisors to discuss more.
*The hypothetical examples are for illustrative purposes only. They are not a prediction or guarantee of actual results. These examples are not intended to represent the value or performance of any specific product.
Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Earnest Consulting Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. Supervisory address: 280 Congress Street, Suite 1300 Boston, MA 02210 | Phone 617.439.4389. | CRN202808-9281094
