When two credit unions decide to merge, the focus often falls on balance sheets, branch networks, and technology platforms. But there’s another area that deserves equal attention: executive benefit plans. These plans carry long-term commitments, financial implications, and retention value, all of which become more complex during a merger. For boards, understanding how to evaluate and integrate these plans is essential to ensuring a smooth transition and protecting leadership continuity.
Key Challenges in Merging Benefit Plans
The legal documents governing most benefit plans are written to survive a merger. If the surviving credit union retains an executive, it can simply adopt the plan as written, carry the accruals forward, and continue funding the obligation. If the board chooses not to retain an executive, many plans trigger accelerated vesting, functioning like a built-in severance package.
Another challenge is comparing benefit plans across both institutions. A newly merged executive may come in with a superior plan compared to existing leaders, which can create internal inequities. Conversely, an incoming plan may be less competitive, prompting the board to enhance it for retention purposes. Either way, boards should carefully analyze how plans align and make thoughtful adjustments to preserve morale and fairness.
The Impact on Retention and Morale
Retention is the core purpose of benefit plans, but morale is equally important during a merger. Employees talk, and if one executive’s plan is perceived as significantly better than another’s, it can create resentment and destabilize leadership teams. Boards should proactively address disparities by reviewing incoming plans and, where appropriate, supplementing existing arrangements. Aligning benefit structures helps prevent dissatisfaction and demonstrates commitment to all key executives.
Compliance and Strategic Alignment
Regulatory compliance must remain front and center during mergers. The NCUA’s guidance allows credit unions to fund benefit plans up to 25% of net worth. Incoming plans from a merger count toward that total. Fortunately, in most mergers, the combined net worth increases, helping offset the addition of new plans. Still, boards should evaluate how enhancements or new obligations fit within the 25% threshold and ensure every decision aligns with long-term strategic goals.
Avoiding Common Pitfalls
One of the biggest mistakes boards make is overlooking timing. For example, if an incoming executive has a plan that vests in two years, and no supplemental plan is in place, retention risk increases significantly. That executive may be tempted to leave once the plan vests, especially if approached with an external opportunity. Boards can avoid this pitfall by putting additional plans in place early, reinforcing long-term retention before vulnerabilities emerge.
Another risk lies in failing to integrate investment practices. If a plan from the merging institution carries higher market risk than the surviving credit union is comfortable with, adjustments may be necessary. Boards should ensure all benefit plan investments align with the surviving credit union’s investment policy statement and overall risk tolerance.
The Role of Due Diligence
Due diligence is not only about financial or operational integration, it extends to executive benefit plans as well. Boards should thoroughly review the investment structures behind each plan, particularly in cases like 457(f) arrangements, where the level of risk can vary. By aligning investments with the credit union’s policies and appetite for risk, boards reduce the chance of unexpected losses or conflicts.
How Earnest Consulting Group Helps
Merging benefit plans requires both technical expertise and practical experience. At Earnest Consulting Group, our team brings more than 130 years of combined experience in financial services, most of it directly within the credit union space. We’ve guided credit unions through countless mergers and understand the complexities that executive benefit plans add to the process.
Our experience not only includes access to a broad investment platform, but also in the ability to anticipate challenges, balance fairness, and design strategies that protect both the credit union and its executives. This depth of experience ensures boards don’t navigate these issues alone.
Position Your Credit Union for a Seamless Merger
Merging credit unions is complex, and merging benefit plans adds another layer of risk and opportunity. By addressing challenges head-on such as retention, morale, compliance, and investment alignment, boards can turn potential pitfalls into long-term strengths.
If your credit union is preparing for a merger, connect with Earnest Consulting Group to ensure your benefit plan strategy supports stability, retention, and growth.
This article is provided for general informational and educational purposes only. It does not constitute legal, tax, investment, or other professional advice, nor is it intended as a recommendation or solicitation of any securities or investment advisory services. Credit unions should consult their own legal, tax, and financial advisors regarding their specific circumstances.
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. | CRN202902-10526199
