Working With Firms Not Linked to Credit Unions Has Its Pitfalls
"Because it's more complex, and it was a newer product for credit unions at the time, we raised a lot of questions that we were not getting answers to," recalled Sharon Custer, president/CEO of the $330 million BMI FCU in Dublin, Ohio. "The process literally went on for a couple of years."
Nearly four years ago, Custer had conversations with several providers of 457 plans, including Andy Sheeter, who previously worked for Benmark Inc. as a senior benefit consultant designing executive benefit plan for credit unions before launching Sheeter Consulting LLC, a benefits solutions firm in January 2004. With other pressing items such as the development of an operations center in the forefront, BMI put the 457 plan on the shelf. Soon after, the credit union was approached by more providers offering a split-dollar plan agreement as an alternative for Custer and another credit union executive.
Under the arrangement, two parties share insurance premium payments, death benefits and cash surrender values. While the parties often are an employer and selected employees, two private individuals may also enter into a split-dollar plan, according to the American Institute of Certified Public Accountants. BMI signed on with a company that said it could set up the plan. Two years in, the provider still had not implemented the policy, Custer said. Meanwhile, every now and then, Sheeter would place a courtesy call to see how things were going. In early 2008, he happened to catch Custer on a day when she had reached her boiling point.
"We were spinning our wheels. We gave up on the provider," Custer said. "That's how frustrated we were."
Sheeter came aboard to help loosen the tangles the other provider had created with the split-dollar plan, a process that took about six months, he said. The plan's structure needed to be organized so that it would not hurt the credit union financially. Sheeter also put together a 457 plan for another executive that honed in on critical factors such as the person's age and length of time to retirement.
"Fixing the split-dollar plan was the most labor intensive," Sheeter said. "The moral of the story is people have options. Executives at credit unions that are unhappy with their plans do have options."
For some credit unions, linking up with companies not familiar with the credit union model can be troublesome. Custer is convinced that the firm BMI signed on with did not have a clue. While there are many non-credit union affiliated firms that are currently serving the industry and others with divisions solely devoted to cooperatives, asking the right questions and getting references, though old-fashioned methods, are time-tested, Sheeter said.
"I see a lot of existing plans. Every plan I've seen not done by a credit union firm was out of compliance," Sheeter noted. "Compliance rules for credit unions are unique. If you don't know those rules, and don't keep up with the changes, the plans will be out of compliance."
Sheeter Consulting has worked with more than 30 credit unions ranging from $25 million to more than $1 billion in assets, Sheeter said. "A plan design is a plan design," he explained. The same plan for a $50 million credit union will work for a $4 billion credit union.
"Of course, you're dealing with bigger numbers. When I work with larger credit unions, I think there is a perception that their plans are unique."
With credit unions looking for scale at the best price, collaboration is encouraged now more than ever. Sheeting Consulting recently partnered with CU Executives Inc., a San Diego placement firm. The alliance extends Sheeter's Florida presence to the West coast. Elaine Boyd, president and founder of the company, has sent clients Sheeter's way. The two met during one of NAFCU's annual conferences and discovered they had complementary synergies. Several unique situations have materialized since their referral partnership formed in April.
Boyd said credit unions where staff members are unionized are unusual, but they do exist. For one such credit union, the union employees actually had post-retirement medical plans that were better than the management had. The CEO wanted to find a way to even out the benefits so that management employees would have better plans, but he wasn't sure how.
"[Sheeter] designed a plan that made sense for them that was low cost and had a reasonable funding option," Boyd said.
In another instance, a tenured CEO four years away from retirement spoke to a SERP provider that suggested a proposal that did not make sense for her situation or her credit union, Boyd said. "The funding option offered was in the stratosphere." The CEO later told Boyd she thought having a SERP was out of her grasp. Sheeter was able to come up with plans for the CEO and the senior vice president.
"We work collaboratively. I have the credit union contacts, and Andy is the numbers guy. He can spot things a mile away. He has the ability see all of the ins and outs," Boyd said.
Custer said while BMI would not close the door on working with non-credit union firms, working with those familiar with the industry is a plus. The limitations that regulators have in place for working with third-party firms also offer some crucial protections.
"We always put a high value on working with providers who know about credit unions," Custer said. "We ask for references, and we call them because we want to know about their experiences."