Recently, there have been articles in the media that talk about a purportedly "new" and "secure" way to deliver tax free executive retirement income and a tax free death benefit. This supposedly superior solution to credit union executive retirement needs suggest that everybody wins. However, the old adage "If it looks too good to be true, it probably is" holds here. These kinds of programs are neither new nor secure and require a closer look. 

These programs are essentially collateral assignment split-dollar plans. The mechanics appear to be relatively straight-forward. A life insurance policy is purchased, with the executive as the owner of the life insurance contract. The credit union makes a loan or loans to the executive to pay the premiums. The executive assigns a portion of the policy cash value and/or death benefit to the credit union to pay back the cumulative premiums loaned by the credit union. Loans may be repaid either at retirement, at death or some combination of both.

The structure of CASD requires that the arrangement be in place for a very long time in order to deliver the expected benefits. It is important that credit union boards look at all of the what-ifs. A CASD proposal can be manipulated to represent very favorable–and sometimes unrealistic–results by utilizing aggressive dividend or earnings assumptions. The cash value ultimately available for retirement benefits via policy loans and withdrawals will be based on the actual policy performance over time, not on the initial assumptions.

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