Attracting and retaining top leadership is one of the most pressing challenges facing today’s credit unions. As competition for experienced executives grows, boards are turning to creative and compliant benefit strategies to secure and reward their most valuable talent. One such strategy is the split-dollar plan, a flexible, long-term solution that aligns executive goals with institutional objectives.
Complementing Other Executive Benefit Tools
Split-dollar plans share the same fundamental purpose as 457(f) deferred compensation arrangements: retaining and rewarding key executives. Both are structured to promote loyalty and stability within leadership teams.
However, the plan designs differ. A 457(f) plan is typically a deferred compensation vehicle with specific vesting schedules and tax implications, while a split-dollar plan uses a life insurance framework that provides both a retirement benefit and death benefit protection. In either case, the ultimate goal remains the same; to help credit unions secure top talent and provide meaningful incentives for long-term performance.
Key Considerations in Designing a Split-Dollar Plan
Creating an effective split-dollar plan requires evaluating both sides of the equation, the executive and the credit union.
For the executive, factors such as age, anticipated retirement timeline, income needs, and overall career trajectory help determine the most appropriate design and funding structure. For the credit union, considerations like asset size, net worth, liquidity, and familiarity with non-703 investment programs are equally important.
A well-structured plan balances these two perspectives, aligning the executive’s long-term objectives with the credit union’s financial capacity and strategic goals to ensure the benefit remains sustainable and effective over time.
Avoiding Common Pitfalls
Split-dollar plans are inherently flexible and that fluidity can lead to challenges if not properly managed. Common pitfalls include:
- Selecting a high-risk life insurance product (such as certain indexed universal life policies) rather than a more stable option like whole life.
- Underfunding the plan at inception.
- Neglecting regular compliance and performance reviews.
Avoiding these issues comes down to a thorough initial consultation, careful product selection, and an ongoing commitment to compliance and plan monitoring. The most successful split-dollar plans are those that are thoughtfully designed from the start, with clear attention to long-term performance and sustainability.
Adapting Plans Over Time
No executive benefit plan should remain static. As an executive’s career progresses and economic conditions shift, split-dollar plans must evolve accordingly. Changes in interest rates, market performance, and regulatory requirements can all influence a plan’s value and effectiveness.
Earnest Consulting Group conducts annual reviews to assess plan performance, underlying assumptions, and compliance considerations. These reviews help ensure that each plan remains aligned with both current economic conditions and the long-term goals of the credit union and its executives. Ongoing education for boards and leadership teams also plays an important role in keeping all stakeholders informed and confident in the plan’s direction.
Fiduciary and Regulatory Responsibilities
Fiduciary diligence is central to Earnest Consulting Group’s approach. Both the consulting team and the credit union share a responsibility to act in the best interest of the institution, ensuring that every decision aligns with sound governance and long-term sustainability.
Split-dollar plans must also comply with NCUA regulations, net worth limitations, and reasonable compensation standards. Because these guidelines can evolve over time, Earnest Consulting Group continuously monitors regulatory changes and updates plan designs as needed to maintain full compliance and proper documentation.
What Happens if an Executive Departs Early?
The treatment of benefits in the event of a pre-vesting departure is governed by the plan document itself. Typically drafted by an attorney, the agreement between the credit union and executive outlines vesting schedules which may be immediate, cliff-based, or partial. If an executive leaves early, Earnest Consulting Group collaborates with the credit union and its legal counsel to interpret and execute the plan terms appropriately.
A Strategic Tool for Long-Term Retention
When thoughtfully designed and proactively managed, split-dollar plans can be one of the most powerful tools a credit union has to retain, reward, and protect its leadership team. They balance the executive’s financial goals with the institution’s fiduciary responsibilities, fostering stability, continuity, and trust across all levels of leadership.
Earnest Consulting Group partners with credit unions nationwide to design compliant, performance-driven benefit solutions that help retain and reward the executives driving organizational success. To learn more about how split-dollar plans can support your leadership strategy, contact us today.
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. | CRN202812-10000030
