Figuring Out the Formula For Credit Union Employee Benefits

There is a war for talent currently raging in the world of credit unions. The needs of the newer generations entering the industry are much different than those who have worked in the industry, making it a challenge for credit unions to create and maintain employee benefits programs that will help retain employees.

Host Sarah Snell Cooke, co-founder/CEO of The Credit Union Connection, talked with CU Benefit CEO David Sims to discuss options for funding increasingly expensive employee benefits programs, so they can invest in their employees, and in turn, better retention, as well as recruiting. They also discuss benefit trends, including an interesting new law to help younger people invest in retirement sooner, and considering benefits for the most age-diverse workforce in history.

Read the full transcript:

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Sarah Cooke 23:18

Welcome everybody to this edition of The Credit Union Connection. My name is Sarah Snell Cooke. I am your host today. I'm sitting here with David Sims. Welcome David.

David 23:43

Thank you for having me. Appreciate it.

Sarah Cooke 23:45
Thank you. And David is the CEO of Ten Talents Wealth Management as well as CU Benefit. And

explain the difference, tell us a little bit of your background. David,

David 23:55

Yeah. So, when I graduated college, I wanted to really do something in finance, but also wanted to help people, so I went into financial service planning, ended up being a Certified Financial Planner. And as I was helping people, working with that, I kept getting asked to help with businesses, and which led into doing executive benefits, golden handcuff, golden parachute retirement plans, pensions. And when a friend of mine retired, he wanted me to take over his side of the business, and he had started working with credit unions, so I got to join the credit union space. And as we were doing that, was realizing, wow, there's a real need for help in the credit union space. So I had already had Ten Talents Wealth Management set up that was doing the executive benefits and the retirement plans for businesses and credit unions. And when I created this new program with the NCUA for, on the credit union benefit side, I wanted to have a separate company that was a completely independent entity of all the other business just so that it could focus on solely working for credit unions. So, that's why, it kind of set the two businesses, they work in tandem together. I have one that's the independent insurance side and independent consulting side, and I have the other one that has all the securities, so that way I don't ever have to worry about not having the right solution for any of our clients. Awesome.

Sarah Cooke 25:18

Well, it makes sense to have the two separate so like, right now, we're looking at one of the most multi generational workforces in the US, between Gen Z all the way up through the Boomers are hanging on in those jobs sometimes. And so meeting everybody's needs and their wants is difficult. But then also, yeah, also even the war on talent right, or war for talent, not war on talent, war for talent right now, or many areas and some industries are experiencing worker shortage. And so what is the future for that war for talent? Where do you see it heading?

David 25:54

Yeah, so when, when I'm working there, we, you know, last survey I saw said that, you know, 67% of credit unions are going to lose a senior leader in the next five years, and unfortunately, there hasn't been the, I want to say, the mentoring and bringing up of that next generation of talents. So, you do see a gap there where now you have, you know, older generations working longer in order to kind of be able to pass that torch in the most successful way possible. And so, you know the besides, you know just the leadership structures that are changing, you're also just seeing a cultural change, because what is important to one generation is not necessarily important to the newest generation. So, when we're doing, when we see the research on, you know what benefits and what, what is attracting people to go work in the credit union space, it is completely different, depending on the generational group that they fall into. You're seeing, you know, where, you know, the older generation is sitting there worrying about, you know, obviously the inflation. Are they, are they going to run out of money for retirement? You know, so they're very much on a, you know, looking at the fiscal side of it to where younger people coming in are working, you know, work life balance, you know. Are there, you know, educational opportunities to be able to advance their career and training and, you know, and then you know, the work life balance working from home, which is a whole new dynamic since, you know, since Covid. And so trying to find a way to appease everybody but still serve the members in the best way possible seems to be a universal challenge across all the credit unions we talk to.

Sarah Cooke 27:35

Absolutely, you see it every day. And a big part of that, of course, is employee recruiting and retention, of recruiting and retention is the benefits side. So what are some of the trends that you're seeing? You mentioned that younger people and something different than the older people, but

David 27:53

yeah, so, yeah. So you know the what, you know, one of the fastest growing employee benefit demands out there is, you know, student loan forgiveness, or help with tuition reimbursement. And so you see that on a younger generation as a very attractive feature to kind of come in and and start a career somewhere. The, you know, with the new Secure 2.0 Act, they actually made a law, and they're still working on how to implement it, but basically, you could contribute to your 401, if you can't contribute to your 401K because you're making student loan payments, they're actually going to start counting those student loan payments as contributions to your 401K, so you actually can get a match from the employer, even though you're not putting money into the 401K, so you're basically you paying your student loans will count towards that to get the match to still be able to save money for retirement. So, it's really neat that's out there. And we work with a lot of different benefits brokers, because, you know, we don't do the employee benefits ourselves. We have a way to fund all of it for credit unions and the demand for increasing benefits has been greater than ever, and unfortunately, also has the cost of those benefits been greater than ever. You know, most of the renewals that we're hearing from credit unions now are somewhere in the 12 to 15% range of increase in cost, which you know, is just not sustainable, you know, for most credit unions. So, you know, that's why the program that we created is, basically helps credit unions create, almost like an endowment that will let them put money away, earn significantly more than they normally can through their normal investment opportunities, and as long as they use all the growth and interest to pay towards their employee benefits that goes to their employees, then they can reach a point where they would never have to pay for employee benefits out of pocket again. So we can take that expense completely off their bottom line, help offset that in-future inflation, and then let them have that extra income and money to do whatever is best suited for the credit union. Yeah. So

Sarah Cooke 30:10
at the root of that is the updated NCUA reg 71.19. Explain that to our audience, because I'm sure a lot of people have not heard of it yet.

David 30:20

Yeah. So back in 2003, the NCUA had a really great idea, is that they said, "You know what, we want to make it more attractive to work at credit unions." And you know, while we're there to serve our members, you know, maybe they we can't compete with banks or other for profit companies in just salary. But what if we had a total benefit offering that was much more attractive and much more richer than, than those companies. And so they said, "You know what, why don't we allow credit unions to invest in normally non-permissible investments, things that they normally can't have access to, and then, that extra money or growth has to go towards those employee benefits." And great idea, the problem was, is that nobody knew what to do with it when they came out with the rule, the regulation. Nobody wanted to be first and try it out. And what the industry ended up kind of filling in that space was saying, okay, hey, credit unions, why don't we invest in life insurance? You can, you, you can earn more in life insurance than you can in your CDs or your treasuries, and that extra money you earn can go towards that. The problem with that program, you know, it's not a bad program, it's just one of the problems that came up with it, is that it locks up credit union's assets, sometimes for 20, 30, 40, years, waiting for the death benefit to reimburse the credit union. So obviously, in today's environment, when liquidity is very important, you know, maybe a credit union doesn't want to lock up their money for 40 or 50 years. And so, when we built our program and approached the NCUA, it was like, hey, you know, we're looking at interest rate environment where we're under 1% you know, credit unions earning less than 1% on their CDs, they were earning anywhere from three to three and a half percent on their loans, but the employee benefit inflation cost was going up by 6%, so every credit union was kind of falling under, you know, going underwater. They were falling behind because they couldn't keep up with inflation. And so we basically just presented a model where we could build a, you know, a portfolio for them, not with, you know, either no risk or no volatility, but you know, usually earn, you know, historically, six to 8% rate of return, but with no principal risk, no volatility, that allows them to then keep pace with that inflation on the benefit cost, and actually get ahead of that to where now we have credit unions who started with us that now don't have to pay that out of pocket. It is completely paid for, very much like an endowment, with colleges who had to start those endowments because tuition costs were going up by so much so, you know, it's kind of they're able to invest into their into their employees, and one of the great things about that is, is if they start to make too much money, where it starts to exceed their benefit cost, well, then one of the solutions is just adding more benefits to your employees. So, and by benefits, I mean you're talking about health, vision, dental, life, sick days, vacation days, retirement plans, but also training, conferences, development, board incentives, board trainings, all of those things that can be paid for out of this program that allows them to invest into their people more so than they, you know, than they've ever been able to do. And the biggest credit unions for the longest time have been taking advantage of this. You know, you take, I think, like a Navy Federal, for example, they have 5 billion with a B in the stock market just to offset their employee benefit cost. Now they're, you know, obviously, with their size, they can handle the ups and downs of the market, you know, with what they're doing. But smaller credit unions had never, you know, really weren't approached about this, you know, because the opportunity wasn't as large with them. And so when we built our model, it was mainly to really focus in on helping smaller credit unions work with the economies of scale that they normally don't have in order to be able to recruit, retain, reward and retire the best people.

Sarah Cooke 34:10
And so you're looking at serving then, those credit unions that are not 10, 20, $30 billion in assets, which is a lot of vendors want to go,

David 34:34

Yeah, I was gonna say, we start, we start, we started at the other end. And what's funny is, is that, you know, we started at the smaller end, and it's a very underserved market. And as, you know, as it's been growing, you know, now we're in 13 states, and we're seeing where now bigger credit unions are seeing how we're doing this and going, well, why are we doing it, this the old way? It doesn't really make sense. The math, this doesn't make sense. And to where now we are now working with some of the bigger, bigger credit unions, but they're kind of, you know, once again, using the ideas that we had started for the smaller credit unions, you know. And you know, and I personally believe, and I know our company believes that, you know, individual members are best served by credit unions who know them and, and work and live in their community. And so you know, you know that one of the reasons why, you know, you don't go to big banks, you work with credit unions because they know you and you can have a relationship with them. So, you know, I don't know what the the perfect size of a credit union is in assets, but the, there is still that personal touch that I think is very valuable and better serves the members by being able to do that, that just you know that a $30 billion credit union can't do.

Sarah Cooke 35:49

Absolutely, I totally agree. And so you talk a little bit about the ROI for credit unions, you talked a little bit about it. How do credit unions benefit from these investments? Because, like you said, they can only go toward employee benefits,

David 36:10

right? So what we're seeing is that, you know, most credit unions, you know we're talking about earlier, that you know a lot of the credit unions, you know, over the last 20 years, we've lost, you know, four or 5000 credit unions, and there's been just a lot of consolidation, mainly to try to improve the economies of scale so that they can cover their human capital cost. And their human capital cost is usually 50% of their operating budget. And so there's always that, almost, that war of, Okay, do I invest in my people? Do I invest in the infrastructure? How do what best serves the members? And so by being able to put, you know, money that's normally sitting in CDs or cash and not actually being able to go to work for them and be able to earn significantly more without adding any risk to the credit union, then it helps them be able to take those expenses off of, you know, their bottom line, which one, just alleviates the stress, and, you know, being able to take care of people, because now you're not having to pinch pennies in order to, you know, whether, okay, do we? Do we end up paying somebody more $1 per hour? Do we, you know, do we cut these benefits? Because benefits are going up, but you know what, what do the members need? Well, it really kind of, you know, takes that off, off the table. Of you don't have, you're not having to worry about that anymore. So by having be able to have the people invested in, and once again, if the investments are, you know, continually doing the way that they're doing, and doing well, then that is its own, you know, growth engine to improve benefits and add more things that's not coming out of the member's pockets,

Sarah Cooke 37:45
and it generally means better service to the members too, when people feel invested in, yeah, oh, oh,

David 37:50

absolutely, yeah. There's tons of research out there just talking about happy employees. You know, equal happy, happy customers are happy members in the credit union space. And you know, the, you also get longer tenure, which, if you have, you know, tenure at a place where people are invested, then you know, it's just, you know, you end up with so much more productivity and success in those type of environments. And so now, you know, if it, if a credit union is putting this program into place, they can now invest in somebody in the very start of their career, retain them and allow them to grow into, you know, better positions, bigger opportunities by, through learning and training, you know, travel, conferences, everything else, and then they can also retire there. So, you know, unfortunately, the newer generations tend to switch jobs, you know, almost on a weekly basis it seems, where the credit union has credit union space has been known for the longest time of having one of the longest tenures. But people, people fall in love with that type of culture and want to be there, yeah, well, now they can also be taken care of financially and take care of their families, but then also have that rewarding culture and be able to stay there, because, you know, there's these opportunities that are available for them.

Sarah Cooke 39:08

Which should lead kind of back to our first discussion, or maybe this is before we even started recording was people training up, leadership training, leadership skills, because that's one of the things we're seeing a lot of these mergers are also happening because they can't find a new CEO or, or they they have no board members left because, you know, there are different things like that, that all seem to tie back to this, like this type of benefits plan. I think that's

David 39:37

really interesting, exactly, exactly. And, you know, and with the, you know, the older life insurance programs, when you put in one for an executive, well, the executive retires and still has that. It's still on the credit union's books until that executive usually passes away. So, sometimes they'll put one in and then the executive retires. Well, they didn't, they don't necessarily have the money to start a new one until that executive passes away, which, once again, be 20 or 30 years down the road. And then how do you have one for one executive that you don't have for another? They're not going to feel as valued, especially when they, they're going to see the financials and the books on that. And so, with the way that you know, with the way that our program works, and where the credit union is always in control and holding on to the money, it's just generating a larger return for them, then it allows them to invest into all the future generations of leadership and things of that nature. So,

Sarah Cooke 40:28

yeah, I've talked to some of the executive recruiting places, and it's, you know, CFO or CTO or CIO might be more difficult to recruit than a CEO. Yeah, absolutely. So, we're going to wrap up here. I always offer my guests final thoughts. David, your turn, what are your final thoughts for this video?

David 40:39

Absolutely. Yeah. We just had a, a credit union in Illinois was sitting there going, Okay, well, we have the senior leadership taken care of. We just can't seem to get anybody in that next level of management. You know that, you know that second level tier of leadership that will eventually want to be into that first tier of leadership because they didn't have anything for them. And you know, one of the downsides of the you know, traditional program is that a credit union is limited to 25% of their net worth invested into them. So when you take a look at most credit unions, unless you're the very largest of credit unions, then that net worth is eaten up by just taking care of the executives, and then there was nothing for the other employees. So luckily, with our, our program, because we're not tying up credit union's assets for such a long period of time, we're not limited to that. We're only limited to the fact that they just can't consistently make more money than what their total benefit costs are, which makes sense. You know, the NCUA didn't want in credit unions turning into investment banks going, Okay, well, we're not going to loan to our members and serve our members. We're going to just invest in these investments and make a lot more money. Well, no, so they put that limit on just as long as they don't consistently make more than what their benefit costs are. And if they do, they either need to take out principle because they're making too much money, which usually is never a problem if somebody's making too much money, or they just have to increase the benefits they're offering to their employees, which, you know, the two largest benefits that we see being added once a credit union has things fully funded is they're paying for 100% of health insurance. You know, I hear all the time like, hey, we would like a single parent to be able to come and work at our credit union and not have to choose between health insurance and living on a daily basis, which, you know, unfortunately, there's a lot of people out there that are like that, where, you know, the benefit cost for a single parent is almost half of their income, sometimes when you're taking a look at that, so being able to take care of that, but then also, the being able to increase the match on the retirement side to where somebody can know that their retirement is taken care of, if, you know, just kind of by, you know, setting on autopilot and they and all of a sudden, that stress of not having to worry about health and medical on a daily basis and not have to worry about the future in the retirement side just lends to much happier productive workers. Yeah, you know, I just, you know, we've seen, like you said earlier, I think probably before recording that there's just a lack of information. Able to get access for credit unions and executives with what's available in the market, and also they're just limited on time. The two, the two numbers, two biggest objections that we get on our side are it sounds too good to be true. And then why isn't everybody doing this? And so once they realize, you know, it's too good to be true, the only catch is that they have to pay for employee benefits with that money that they're already paying for. They're like, well, that's not really much of a catch. And then the other one is, well, why isn't ever somebody doing this? It's like, because I can only talk to so many people at a time, you know. So you know, going from one to two to, you know, to 11 to now, you know, we're, we're north of, north of 30 now is just, you know, it's getting that word out to them as quickly as possible. So you know, if you know my, my thought would be, is, if a credit union has seen a challenge in the recruiting, rewarding or retiring or retaining people's space, but budget is a concern, you know, please reach out to us, because when they, credit unions see the numbers on the program and things that we're doing, it's a it's a life changer. You know, our average credit union increase into their net income by putting in our program is somewhere right now, actually, between 78 and 117% has been roughly the range on there, with some that are even higher. And for smaller credit unions, it's even a bigger increase for them because of the impact to their bottom line. Excellent.

Sarah Cooke 44:52
Well, thank you so much for your time today. David, appreciate it.

David 44:55
Actually, thank you so much. I've enjoyed it so much. Talking with you.

Sarah Cooke 44:58

Have a great day.

David 44:59

Thank you, you too.